Breaking down the high price of fuel in SA

Petrol users across SA are paying about R5 a litre more for fuel in May 2021, compared to May 2020. These increases come off the back of significant fuel price increases throughout the first few months of the year, which saw record prices in April.

Though fuel prices dipped a little in May, they remain high, affecting all sectors of the economy. Filling a 50-litre tank with petrol in SA costs just more than R250 more in May 2021 than it did in May 2020.

In May 2020, a litre of 93 Octane Petrol inland cost R12.22, while a litre of 95 Octane Petrol at coastal prices cost R11.52. These same fuels in May 2021 cost R17.01 a litre and R16.51 a litre respectively. This represents a 39% increase in 93 Octane inland from 2020 prices, and a 43% increase for 95 Octane at the coast.

SA's fuel price is comprised of many different elements, some of which make fuel in the country more expensive than in neighbouring countries to which South Africa exports. To understand the different elements which comprise a litre of petrol locally, the Automobile Association (AA) publishes an annual fuel price breakdown to give consumers a snapshot of the composition of a litre of petrol inland and at the coast.

The figures are based on 93 Octane fuel (inland) and 95 Octane (coastal).

The costs are calculated using May fuel price data, which incorporates the annual increases to the two main taxes paid on every litre of fuel, namely the General Fuel Levy (GFL) and Road Accident Fund (RAF) levy.

Increases to these taxes are announced by the finance minister in his annual Budget speech in February and come into effect in April. The AA has always raised concerns that increases hurt the country’s poorest citizens, particularly as many of these citizens rely on public transport; an increase to the levies inevitably results in an increase to public transport rates.

Increases to fuel prices also mean an increase in the cost of goods which are transported across the country, as operators recover higher input costs through increases which are passed on to consumers.

In addition to publishing the 2021 fuel price breakdown, the AA emphasises key points it made to the parliamentary portfolio committee on mineral resources and energy in mid-April. The association was asked to make representations to the committee on how to mitigate rising fuel costs in SA.

Among the key recommendations made by the AA are:

1. An investigation to be conducted on the current pricing model for all fuel
2. A recalculation and audit of existing elements within the pricing model
3. A reduction of the cost of the Road Accident Fund (RAF) to motorists through:
   1. Better management and governance of the RAF
   2. Improved road safety to reduce demand on the RAF
   3. Better traffic policing
   4. Safer roads/Safer drivers/Safer cars/Better post-crash intervention
   5. Better pedestrian safety education
   6. Privatisation of the RAF, or at minimum, semi-privatisation of claims management
4. Better allocation and use of funds from the General Fuel Levy (GFL)
   1. Looking at issues of good governance which impact on the economy and the rand/US dollar exchange rate
5. Investment in alternatives to the country’s current reliance on fuel
   1. Improvement of Transnet to alleviate reliance on road freight
   2. Provision of safe, reliable, sustainable, affordable public transport
   3. Provision of safe roads for non-motorised transport

Fuel Price Breakdown May 2021

The fuel price in SA is comprised of four main elements:

1. The GFL
2. RAF levy
3. Basic fuel price (freight and insurance costs, cargo dues, storage and financing)
4. Wholesale and retail margins, and distribution and transport costs

As of April 2021, the GFL is R3.93 which represents about 23% of every litre of petrol sold in SA. Similarly, at its current pricing of R2.18 a litre, the RAF Levy represents about 13% of every litre of fuel sold.

Combined, the GFL and RAF levies total R6.11 (for both inland and coastal prices), a 27 cents a litre – or 4.64% – increase from 2020. Last year, when fuel prices experienced record decreases, the combined levies comprised much less of a percentage of the total fuel price.

The total levies combined in 2021 are expected to deliver about R126bn to government, with about R83bn coming from the GFL (which goes directly to Treasury and which can be used for any purpose the government determines), and R43bn coming from the RAF Levy.

In SA the fuel price is adjusted on the first Wednesday of every month and is determined by two main factors: The rand/US dollar exchange rate (how fuel is purchased), and international petroleum prices (how much the fuel costs to purchase).

The Basic Fuel Price (BFP) is calculated based on costs associated with shipping petroleum products to SA from the Mediterranean area, Arab Gulf, and Singapore. These costs include insurance, storage, and wharfage (the cost to harbour facilities when offloading petroleum products into storage). The current BFP is R7.15, significantly higher than in 2020. 

Other expenses include transport costs (from the harbour to inland areas, which accounts for the difference in price between coastal and inland prices), custom and excise duties, retail margins paid to fuel station owners (currently R2.22 on every litre sold), and secondary storage costs. These costs currently total R3.75 for inland petrol and R3.23 for coastal petrol.

Using the current data, filling a 50-litre tank of fuel inland (93 Octane) will cost R850.50 and R825.50 at the coast (95 Octane) – R249.50 more now than a year ago.

Last year the AA forecast that as economic activity throughout the world picks up after Covid-19 shutdowns in many countries, the price of fuel would also increase. This has happened, with South Africans now paying significantly higher prices at the pumps than they did last year.