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Petrol Price Q&A
31/03/2008 08:48 - (SA)
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| Avhapfani Tshifularo has been working on petroleum products pricing and taxation matters for more than 10 years. He has worked for the Department of Minerals and Energy (DME) and the South African Revenue Service (SARS). He has qualifications in Energy Policy and Management, Trading and Operations within the International Oil Markets and a Masters Degree in Future Studies.
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Cape Town - The petrol price keeps going up and up, and South Africans are starting to feel the pinch! The latest petrol price adjustment announced on Friday, March 28, will see petrol go up by another 66c a litre on Wednesday.
We asked Avhapfani Tshifularo, Controlled Products Pricing and Fuels Taxation Advisor at the South African Petroleum Industry Association (SAPIA) to explain some petrol price basics to us.
News24: What factors affect the price of petrol in SA?
Avhapfani Tshifularo: The petrol price in the international markets; demand and supply. If there are more buyers than sellers, demand is greater than supply and petrol price will tend to rise. If the opposite is true, petrol price will fall. The rand dollar exchange rate affects the price of petrol as well. The weakening of the rand against the dollar increased petrol price in SA and vice versa.
N24: How is the petrol price calculated? Can you explain the formula to us?
AT: It is calculated by the government by using a Basic Fuel Price (BFP) formula. BFP is an import parity pricing formula and it is intended to establish a realistic estimate of what it would cost to import substantial volumes of refined fuel. BFP is based on the spot prices quoted daily in international markets. The BFP of petrol is based on 50 percent of the price quoted in the Mediterranean area and 50 percent of the price in Singapore.
N24: Can you break down the petrol price for us? How much is tax? How much is for the product?
AT: At 27 March 2008, the break down of 95 unleaded petrol in Gauteng is:
N24: Why is the petrol price regulated in SA?
AT: Pursuant to the Petroleum Product Act, 1977 (Act 120 of 1977), the government fixes the petrol price by zones to recognise the differences in costs associated with the transportation of petrol between various geographic areas, the country is divided into 50-plus pricing zones.
N24: Why are the arguments for and against the deregulation of the petrol price? Which side do you agree with?
AT: SAPIA supports a liberalised market, reached by an orderly, fair and inclusive process, an economic climate that fosters competitive efficiency and continuation of world-class standards in our petroleum industry. Deregulation of the petrol price would not decrease petrol price but will encourage competition in the market.
N24: With the unpredictable price of oil, is there any way of knowing how high the petrol price can get?
AT: No, I suppose futurists attempt petrol price forecast but forecasts can be outdated very quickly. Politics, environmental, alternative energy, weather, etc are fundamentals that could easily swing petrol price forecast.
N24: What are petrol prices like in other parts of the world? Do we in SA really have it that badly?
AT: The South African petrol price is less than what you will normal pay in the European countries, India, Brazil, Mozambique, China and Zambia. The difference is mainly due to taxation and otherwise the base price is the same everywhere else in the other parts of the world.
N24: What can South Africans do to bring their petrol costs down?
AT: Use the right grade of petrol. Use lift club/public transport; ride the bus, take a train, ride a bicycle or walk instead of driving alone. Take advantage of telecommuting/telecommunications technology. Don't drive aggressively/drive at the speed limit. Reduce air conditioner use/close windows. Eliminate extra wind resistance and weight.
Maintain vehicle efficiency: regular maintenance as prescribed by the vehicle owner's manual will help your vehicle achieve its best fuel economy. Minimise vehicle idling. Avoid driving with underinflated tyres because tyre pressure that is too low not only increases consumption, but also remarkably reduces tyre life. Drive or purchase a fuel-efficient vehicle.
N24: Why does Sasol's locally produced petrol trade at the same price as imported petrol? Surely it should be cheaper?
AT: The petrol price is fixed by the government using BFP formula which is an import parity pricing formula that permits oil companies to sell petrol locally at the price that consumers would pay if they were to import the same products from another country. Basically petroleum is an international product hence the price for crude oil from African countries, e.g. Algeria, Angola, Libya, Nigeria, etc is determined by demand and supply in the international petroleum markets.
N24: Recent news reports say international oil demand will peak in 2012. What does this mean both for SA and the global economy?
AT: If indeed the international oil demand does peak in 2012, we will all have to adjust our standard of living quickly. Currently prices are high even though many futurists are pointing to a peak only in 2012. If the forecast is to be believed we should seriously start using petroleum products efficiently now! We should learn from the current electricity emergency because if we are short of petroleum life will be tougher than under current electricity emergency.
Thanks Avhapfani!
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