MOTORING NEWS - To educate the public about why a litre of fuel costs what it does and where the money spent is being allocated, the Automobile Association (AA) has released a breakdown of the fuel price. This breakdown gives a snapshot of how the cost of every litre of petrol at the coast is determined. The figures of the breakdown and accompanying infographic are based on 95 octane fuel at the coast.
At the beginning of April, road users across the country paid between 69 cents and 72 cents more for a litre of fuel at the pumps.
This massive increase was due to strengthening international petroleum prices and the addition of 52 cents to the fuel levies.
These levies are mainly in the form of two indirect taxes: the General Fuel Levy and the Road Accident Fund (RAF) Levy. The increase in these levies was announced by former Finance Minister Malusi Gigaba in his budget speech in February, but only came into effect at the beginning of April.
Ahead of the announcement, the AA warned that any increase above inflation will hurt the poorest people in the country most. This is because many people rely on public transport. If the price of fuel increases, the costs are recoverd by passing them on to consumers.
Another factor is that increases in fuel prices mean that goods transport across the country also becomes more expensive as operators recover the increases by passing these on to consumers.
Essentially, the AA argues, more expensive fuel means more expensive transport and goods for consumers, who also face a one percentage point increase in the Value Added Tax (VAT) rate this year.
The fuel price is comprised of four main elements:
The General Fuel Levy
The General Fuel Levy is a tax charged on every litre of petrol sold. In April 2016, the General Fuel Levy increased from R2,55 to R2,85. Last year, this levy increased by 30 cents from R2,85 to R3,15. This year it increased by 22 cents and now stands at R3,37 per litre of fuel bought. The money collected through this tax is administered by National Treasury. It is treated as a general tax and not, as many people assume, for road-related expenses.
The RAF Levy
Money collected through the RAF Levy portion of every litre of petrol sold is used to fund the Road Accident Fund, which uses the money to compensate victims of road accidents. In 2016, the RAF Levy was R1,54 (unchanged from 2015). In 2017 it rose by nine cents to R1,63. This year the RAF Levy increase was a sizeable 30 cents and now stands at R1,93 per litre bought.
Combined, the General Fuel Levy and the RAF Levy constitute a tax of R5,30 on every litre of fuel sold in the country. So, if a litre of fuel at the coast (95 octane) costs R13,89, then 38% is tax.
The Basic Fuel Price
In South Africa, the price of fuel is adjusted monthly based on a number of factors, mainly international petroleum prices, and the rand-to-US-dollar exchange rate. This includes freight and insurance costs, cargo dues, storage and financing. The Basic Fuel Price (BFP) is calculated based on costs associated with shipping petroleum products to South Africa from the Mediterranean area, Arab Gulf and Singapore. These costs include insurance, storage and wharfage (the cost to harbour facilities when off-loading petroleum products into storage). The current BFP is R5,81.
Wholesale and retail margins, distribution and transport costs
Other costs associated with the petrol price include transport costs (from the harbour), customs and excise duties, retail margins paid to fuel station owners and secondary storage costs. These costs currently total R2,78 for coastal petrol.
Inland price
Using this data, filling a 50-litre tank with 93 unleaded petrol inland will cost R711,50. This is comprised of the Fuel Levy - R3,37 x 50 litres (R168,50), RAF levy - R1,93 x 50 litres (R96,50), associated costs - R3,12 x 50 litres (R156), and the Basic Fuel Price - R5,81 x 50 litres (R290,50).
Depending on whether the BFP increases or decreases during April going into May, a calculation that still needs to be done, the price of a litre of petrol could go either way.
However, given the current increased international petroleum prices, and the volatility of the rand against the US dollar, it is likely the price of a litre of petrol will increase, in the short term at least.
The AA releases a prediction for the change in the fuel price in the middle of every month, and again at the end of the month, ahead of the official announcement by government.
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