Fuel prices: SA remains at mercy of global facts

No relief at present….

cl;eanerfuels1In the light of vacillating fuel price but with a strong upward trend, Robert Maake, hydrocarbon energy chief, department of energy affairs (DOE), briefed the portfolio committee on energy on fuel prices and why these were so volatile at present. There was little relief in the short or medium term, he said. The discussion was part of a generalised overview of the liquid fuels industry in South Africa.

He pointed to the fact both the Egyptian and Iraqi situations, coupled with unrest in Southern Sudan, illustrated the fact that South Africa, as a net importer of oil, was highly sensitive to such geopolitical instability. A combination of other factors also contributed to a lack of major relief on the horizon.

Fixing the price to continue

There was no escaping the fact that in a country such as South Africa, which is likely to remain as a net importer and where both the price elements and formula used to reach to adjust pricing are published, the import parity system, i.e. fixing prices based on a comparison of what it would cost to import refined fuel and land same, would continue into the foreseeable future, Maake said.

Over and under recoveries by the importers at the month’s end would therefore continue to affect the consumer coupled with the appropriate time lag to carry out monthly adjustments. There were a number of issues totally out of the importer’s control such as demurrage where loading and unloading due to weather and port inefficiencies; the rand/dollar rate and the cost of levies – a lot of countries having far less factors contributing to cost –  and a lot having unrelated cost levies, such as road accident fund contributions.

Subsidies not for us

However, the major fact affecting costs at the moment was geopolitical instability, Maake said, and the playing fields being altered completely insofar as purchases were concerned. Some countries, such as Nigeria, had tried subsidization but in that environment enormous quantities of fuel were moving across borders and smuggling was a big industry, he noted.

Maake said that in South Africa, both Singapore and Amsterdam remained major refining and wholesaling/storage zones and prices were very much correlated or bench marked to these areas and how much they were selling their refined fuel for. On illuminating paraffin there was a strong possibility that a price reduction of two rand would shortly be signed off as agreed to by the minister.

State mostly outside fuel infrastructure

When asked why the government was not buying oil for consumers from cheaper suppliers in Africa, DOE replied it did not buy foreign oil from any country for consumer use. Only the private fuel companies imported for consumer use and government bought only for strategic oil stock reserves.

He added that it was difficult to move the private companies to African crude since crude as presently purchased was geared to refining abilities, since oil differed much in its makeup and nature. Consequently, the type of crude and what zone it came from was critical since most SA refineries were geared to Arabian light crude as distinct from heavier crude from other areas.

Cushioning fund

Also asked was whether price hikes could be avoided by building up reserves when the price dropped and not passing these on to the consumer, DOE said they were rather looking at the issue of having an annual adjustment with more notice of change in order to assist business and industry generally by creating more stability and planning ability .

Also asked was why DOE “could not assist in cleaning up the LPG gas value chain with some use of a similar reserve and also doubling up on safety”, the reply was that there was a government review, including stakeholder workshops, in progress and expected outcomes were that some form of consumer assistance would result.

Sasol profits

Again, the question was asked that in the light of the fact that Sasol was using a natural resource, in this case coal, and producing profits because of lower costs, why could this additional margin of profit achieved not be used to protect the poor as a state subsidy. The reply was that Sasol’s contribution was so low in terms of market share in fuel sales that such plans as introducing any radical market changes were not either feasible nor did it make market sense.

DOE said that a much more interesting proposal would be the eventual introduction of shale gas to local market product figures, bringing up issues such as export parity pricing. But at present he said, and in the short term, the local production factor was only about 6% and therefore Sasol did not really feature in such economics.

Competition

 The principle therefore still applied, Maake said, as had been the case for many years, that if Sasol were to offer a branded pump price on a competitive basis for lower prices they would be presumably be totally stripped of their ability to supply at all in a very short time and thus would be threatened financially as a valuable contributor to exports. Such a situation was a non-starter, he said

The chair asked whether, as in Australia, more emphasis could not be given to ensuring that no collusion takes place in the industry and asked the DOE what their relationship was relationship was with the Competition Commission locally. DOE said that they were most interested in the Australian system and how they monitored import costs with a double check system to ensure no collusion. However, the lack of players in South Africa has led to the belief the collusion is not such a major issue in this country.

Parliamentarians again complained that department of energy was still failing to produce a national energy strategy to underwrite the entire industry in all its aspects. More certainty was called for, said one opposition member.

Refer previous articles in this category
http://parlyreportsa.co.za//energy/south-africa-at-energy-crossroadsdoe-speaks-out/
http://parlyreportsa.co.za//uncategorized/south-africa-to-stick-with-published-fixed-fuel-pricing/

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