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May 08, 2023 / Saajid Ely / 0 comments
Our everyday lives depend on fuel, thus it's important to understand the various elements that affect its price. Fuel expenses in South Africa are influenced by a variety of external elements, including taxes levied by the government and the cost of refining, among others. Each week, the South African Department of Energy determines the maximum retail fuel price by taking into account several factors, including the price of crude oil around the world, the cost of refining, and taxes. The different factors that go into determining the final price at the pump are highlighted in this article, which offers a thorough understanding of how fuel prices are set in South Africa.
The Department of Energy in South Africa controls fuel prices and issues a weekly report that sets the maximum retail price for fuel. This report takes into account the global price of crude oil, the cost of refining, and taxes, among other factors. Retail fuel stations must comply with the prices specified in this report and use it as a guide for setting their prices.
The retail margin, which accounts for around 15% of the petrol price, covers the cost recoveries for service station operating expenses and a built-in return on investment for equipment and buildings. The prices for bulk fuel for businesses, on the other hand, are frequently established through agreements and negotiations with suppliers and can vary greatly.
The cost of storing and transporting fuel to service stations, along with transportation fees and taxes, these critical areas typically make up around 7% of the fuel price inland and around 3% of the fuel price at the coast, can also affect fuel prices.
The Basic Fuel Price (BFP) is the deemed cost of purchasing petrol internationally and shipping it to South Africa, and it makes up around 35% of the petrol price. The BFP changes every month based on the daily calculation of the average change in crude oil prices and the rand/dollar exchange rate.
The fuel levy, which is a government tax, and the Road Accident Fund Levy, which is an insurance for road users, make up around 40% of the petrol price. Wholesaler margins and other smaller price components account for around 3% of the fuel price.
The petrol price in South Africa is regulated and has been for several decades, with some changes made over the years. This regulation helps to ensure that all companies involved in the South African petroleum value chain operate efficiently and can achieve fair and predictable returns. It also encourages continuous investment, which promotes reliable fuel supply and supports economic stability and growth.
As fuel prices can have a significant impact on a business's bottom line, it's important to stay informed and seek ways to minimize costs. Companies can keep an eye on fuel prices, invest in fuel-saving technologies, negotiate with suppliers, and take advantage of fuel hedging to manage their fuel costs. Companies can negotiate volume discounts, contract pricing or other agreement terms to secure more favourable prices. Some suppliers may also offer value-added services, such as fuel storage or delivery, which can help to further reduce costs.
Finally, it's worth mentioning that Government's Clean Fuels Program and the Carbon Tax act can be of interest to businesses. The Clean Fuels Program promotes the increased use of cleaner fuels, such as biofuels, and the Carbon Tax is aimed at reducing carbon emissions and encouraging cleaner energy. Companies can investigate these options to reduce their fuel costs and their carbon footprint.
The regulation of fuel prices in South Africa promotes efficient operations and predictable returns for companies in the petroleum value chain. Businesses can manage their fuel expenses by staying informed about fuel prices, negotiating with suppliers, investing in fuel-saving technologies, and using fuel hedging. Additionally, the Clean Fuels Program and Carbon Tax act can help reduce fuel costs and carbon emissions. By gaining a better understanding of fuel pricing in South Africa, businesses can ensure the stability and sustainability of the South African petroleum industry and economy.