Tag Archive | fuel pricing

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.


 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

Posted in Energy, Finance, economic, Fuel,oil,renewables, LinkedIn, Public utilities, Trade & Industry, Transport0 Comments

Illegal diesel coming in from Mozambique

DOE working with customs……

Department of energy (DoE), admitted to the portfolio committee on energy that they knew of illegal diesel fuel imports emanating from Mozambique and that the department was working with customs and excise officials to track down culprits. DoE was reporting on its third and fourth quarter performance figures.

DoE confirmed that in many cases tanker transport was being used and in most instances the fuel itself was sub-standard, sometimes being a mixture of diesel and other fuels such as paraffin. Most of the fuel was being offered to farmers at cheap rates.

The subject arose when Mr L Malaudzi, acting chief operating officer, was outlining to members many of the issues involved in DoE’s programmes on governance and compliance. He explained the department’s inability to hold a planned anti-fraud workshop due to time constraints and other more pressing issues but promised that such a workshop would be conducted in the first quarter of 2013/4 and he would call stakeholders.

Focus point Mpumalanga

Questions arose from opposition members that fuel was being offered for sale in some areas of Mpumalanga from such sources. Tseliso Maqubela, deputy director general, confirmed that DoE was aware of such incidents and that the department of customs and excise had many problems with goods passing through this “porous border” nearby and that cheap and sometimes “dirty” fuels were on the list of issues.

Maqubela confirmed in his report to parliamentarians on petroleum regulations during the final quarter of 2012/3, that 92 site inspections over and above the target of 1500 sites had been completed but that no fuel sample testing was conducted due to a lack of budget for this function. This subject was to be deferred to next year, he said.

No budget to investigate

In discussing fuel specifications generally, Maqubela confirmed that DoE would “speak to industries to see if we can re-prioritise the matter”. He did not elaborate on this as to whether he was talking about capital projects or fuel mixes generally. He said, however, that on border transfers, particularly by road, had to be investigated and a budget of R50m had been requested next year from the fiscus to follow up on this. At the moment, only diesel imports were being followed up in investigations, such investigations also being limited.

On fuel pricing generally, he said that a desk top study on basic fuel pricing (BFP) was being undertaken, the stakeholder discussion portion of the study having been completed in March of this year.   BFP was a major issue nationally at the moment, he said, as were various items that went to make up its structure. He hoped that most of the issues would be resolved with stakeholders towards the end of this year.

Crude oil priorities

On existing crude oil matters, Saldanha, Milnerton and Durban were the current priority areas at the moment for infrastructure development, he said, and whereas before 28% of crude imports came from Iran, he said, “We haven forced to diversify which is exciting because it introduces the issue of African trade”.

The US is now producing considerable quantities of light crude which again has reversed trends and “there is an opportunity for Africa, particularly Angola and Nigeria, to deal with us and take up slack.”

Clean energy savings

On clean energy issues, Ompi Aphane, deputy director general, said that that so far major savings in terms of the municipal energy saving plan had been recorded with fifteen of the twenty eight participants in the DoE programme having registered savings, which Aphane said had translated into some R37m a year and 31,000MWh to the national grid.

However, he reported that the intended strategy plans for biomass, biogas and biofuels had got nowhere and DoE were looking at taking away from SANEDI the responsibility for this undertaking.

Posted in Fuel,oil,renewables, Justice, constitutional, Public utilities, Trade & Industry, Transport0 Comments

Transport fuel subsidies to business are wrong, says Parliament.

Parliamentary committee says transport fuel subsidies should go to consumers

The chairperson of the portfolio committee on transport, Ms “Nellie” Bhengu, told the department of transport (DOT) that in her view by not actually giving the consumer, or the household, any portion of state transport fuel subsidies, the  integrated public transport system (IPTS) plan as presented to Parliament, particularly on the subject of fuel pricing, “was not really speaking to the needs of the people.”

Although under considerable pressure to explain why government’s approach to the IPTS should not be driven by commuter subsidies, Mathabatha Mokonyama, deputy director general, public transport, of the department of transport (DOT), explained that this was not a practical suggestion. The reality was that DOT had to deal with operators, he said.

Mokonyama said the current system of fuel pricing was likely to stay the same in South Africa for the foreseeable future.

He told parliamentarians that South Africa system was to negotiate subsidies with transport operators in terms of the legal structure governing the country and explained that both the history of private bus operators in SA and the growth of an independent taxi industry had mitigated against a commuter subsidy system and had led to the current system, however ideal other proposals might be as far as government was concerned.

MPs argued that in countries such as the England, Canada, Germany Sweden and even Kenya, such systems existed and citizens could purchase open tickets across of whole range of forms of transport and commute therefore at lesser costs to their already strained household budgets.

All is not well in the transport system in South Africa, DDG Mokonyama admitted to the committee, “and we cannot not hide from this fact. We are dealing with up to forty years in backlog of capital items, particularly rail rolling stock”, he said.

He told parliamentarians in the portfolio committee on transport that the proposed integrated public transport networks (IPTNs) in SA, some partially implemented and some still in planning, involved the integration of local rail, bus, mini-bus, taxi and “on-demand” services, and also to which link long distance services such as air, train, coach and midi-bus taxi were tied in.

Current constraints, as were well known, included lack of pre-travel information, poor sidewalks, badly maintained directional signage, lack of vehicle destination information, lack of real-time travel information and lack of safety.

Whilst the public may appear to prefer private transport, in census results this only came about because of the lack of public systems, the public being aware of the very poor maintenance aspect to bus and coach services, insufficient rail alternatives and no provision for cycling.

97.5% of the vehicles used for transport were acquired in the ‘fifties, DDG Mokonyama said, and effective vehicle mobilisation and surbanisation of the population only occurred in high and relatively high middle-income groups. Added to which problems it was to be noted that approximately 3.1m RDP housing units had been “inappropriately” located, he said.

Poor planning at local government level had exacerbated the problem, he said, and when questioned by MP Ian Ollis (DA) which came first; building a housing area near a rail line or insisting a rail line is taken to a housing area, the answer came from DDG Mokonyama that DOT worked through the integrated planning committees, some of which worked well and others not, but nevertheless that DOT could only recommend, not give instructions. He said he understood what Ollis was saying.

DOT noted with statistics that whilst London, Jakarta and Paris handle slightly over 30 million people in a sprawling areas in total area probably equalled by Gauteng (Jhbg, Benoni, Brakpan, Sandton etc). The situation was not the same just because of geographic size.

Although apartheid and forced removals had started the decentralisation, distance problems with urban sprawl were much of the problem and the urbanisation of millions of potential commuters from rural areas to cities had completely altered the scenario and made any comparisons irrelevant.

The commuter impact, he said, of the this “sprawling” in SA was high peak rushes and a “tidal flow” demand pattern, leaving vast amounts of transport idle for three quarters of a working day, coupled in SA particularly with “patchy” weekend services which also did not happen from a comparative viewpoint in many countries. Many developing counties worked through a seven-day week.

Mokonyama said DOT had identified the short distance commuter transport bus system known as BRT (Bus Rapid Transport); high quality long distance bus services and what was referred as “rapid rail”. All three were as critical elements of the department’s IPTN but stated there were “the municipal situations that warranted an intervention.” He did not expand on this.

He confirmed earlier survey reports that South Africa “had a poor public transport system” and 31% of SA households had access to a car – the “split” for travel to work being 32% for car travel; 23% of people walked to work and 25% used a taxi. The number of persons using bus and train only amounted to 15% of the total, whilst 5% used “other means”.

Meanwhile, Mokonyama  said, whilst it might look like that in SA that operational subsidies given by the state were relatively similar to other countries, the vast difference in incomes compared with SA and overseas showed SA as having “cost of transport” as one of the major and highest items in household expenditure.

Statistics also indicated that whilst only 31% of South Africans owned a vehicle, operational subsidies allocated to rail and buses was R3.5bn and R4.3bn respectively for 2012 and 2013.  Persons earning less that R500 a month spent 35% of their income on transport; those earning between R501-R1000 spent 23% and households earning between R1, 001 – R2, 000 spent 14% of their income on transport.    On government interactions and interventions taken recently, the first approach had been the National Land Transport Act to bring about some form of regulation, infrastructure oversight and operational funding process to the situation. Following this, the main metros had been instructed to commenced integrated transport systems, which was now process of happening, he said.

DDG Mokonyama then gave a city by city report on each (IPTS), showing that Cape Town, Johannesburg and Tshwane were relatively advanced, Johannesburg’s Rea Vaya scheme from Soweto to City having come into operation in February 2011 and already had carried 1.1m passengers but labour unrest had shut down the system for two months.

The second phase of Rea Vaya to Parktown was 90% complete and the Parktown to Sandton route had been changed to incorporate Alexandra township but had not yet started.

In Cape Town, the feeder service, My Citi, was carrying 12,000 passengers per month on 42 buses, 50% being former vehicle commuters.    R1.5bn was due to be spent by June 2013 to complete Phase 2 of My Citi which was in part operation.   Phase 3 incorporated metro east operations and would be underway in the following two years.

An Example of an integrated system for the whole of Tshwane was shown, indicating a combination of buses, existing rail, Gautrain, the existing BRT corridor and new rail for places as far apart as Mamelodi, to Mabopane, Garankuwa and Rosslyn, from Centurion to Hammanskraal taking in the national rail line, all inked to the CBD and Hatfield in the centre. Such IPTNs were in place for most cities in SA, he said.

When asked if the Moloto Corridor programme was part of the integrated transport plan, DDG Mokonyama told parliamentarians that it was. “We are doing the analysis.  Rail is so much safer than bus on open roads over a long distance and this fact has given more impetus to the plan”.    He admitted that the plan had originally turned down but said this was not a wish not to proceed but that no feasibility study had been conducted.

Again ANC MPs asked why subsidies did not go to commuters but in reply, DDG Mokonyama quoted an example with Sasol and their commuters, Sasol running a bus system where they, as employers, were paying an operator a bus subsidy.

However, the union involved had demanded the sum and there were, Mokonyama said, “bad consequences for the commuter”.   The department had learnt from this, he said to parliamentarians.  “I would like to believe we can get rid of some of the unintended consequences by not dealing with matters in this way”, he added.



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South Africa to stick with published fixed fuel pricing

On briefing parliamentarians in the portfolio committee on energy on fuel pricing in South Africa and the planned “roadmap” for the future of liquid fuels being undertaken by government, Muzi Mkhize, DG of hydrocarbons in the department of energy (DOE), indicated that South Africa would continue on its current course of formula-based fixed fuel pricing for the foreseeable future.

He said this was DOE’s preferred option rather this than go for a “liberalised” system, such as is the case in Australia, where market forces operate within a structure overseen by a state consumer and competition watchdog.

The department’s director for petroleum and petroleum infrastructure policy, Jabulani Ndlovu, told parliamentarians that the import parity pricing system was being retained, with zonal pricing fixed according to magisterial districts.

A transport cost allowance built in based on least price working from pipeline to rail, then as last option, road delivery will continue.

Under questing from MPs as to whether Sasol would ever be allowed to operate independently and fix its own possibly lower prices,  he said that both Sasol and those imported crude oil and who had built refineries locally to all had to be equated in the same pricing model.

If Sasol were to follow such a course, Ndlovu said. The consequent consumer shift would be totally beyond Sasol’s capability to supply and at the same time threaten the whole of the current national refining structure, particularly where continued investment was needed by current oil companies as far as the development of cleaner fuels was concerned. He told parliamentarians that a course involving a completely free market would never be on the department’s strategic agenda.

Ndlovu explained that the basic fuel price (BFP) was based on a parallel pricing structure, or comparison made with an “importer buying the refined product from overseas seller and transporting the same to the market place in South Africa incorporating such costs as losses at sea and landing.”  It is to be assumed that he also meant to include storage costs.

However, Ndlovu said, the BFP system resulted in under and over recoveries in the light of changing crude oil prices on an agreed global market cross section and the national BFP, calculated on the first Wednesday of each month, corrected the previous month’s price differential. But then levies had to be added, he said.

This amounted to a pipeline levy run by Transnet to the interior for capital cost recovery; a levy on the quantity pumped whatever the product and a dye levy to curtail the illegal mixing of paraffin and diesel.

He then explained to parliamentarians that in addition there was a “slate” levy, a self-adjusting mechanism to finance the effect of cumulative petrol and diesel grades under recoveries realised by the petroleum industry and run by SAPIA, the petroleum association, in response to daily changes between the BFP and the petrol and diesel and price structures as announced by the state monthly as per the monthly fuel price media statements. The “slate” is cleared when reaching once exceeding R250m and re-distributed back to the industry.

On the issue of illuminating paraffin (IP) and liquified petroleum gas (LPG) the formula for each was explained, most of the problems existing, particularly in the case of IP, where products were sold on the open market and exploitation of the poor in rural areas often took place due to lack of alternative sources.

On external exported finished product, a number of neighbouring countries who bought diesel and petrol products  from SA did not necessarily have the same structure of levies, Ndlovu said, accounting for the fact that sometimes landlocked neighbours had fuel that was cheaper than in SA.

On the 20-year “roadmap” that was being planned for South Africa by DOE in an attempt to ensure that the country retained access to “reliable, affordable, clean, sufficient and sustainable sources of energy to meet the country’s demand for liquid fuels”, DOE confirmed that the department was three months behind in producing such a plan.

This Jabulani Ndlovu said, was because of the “difficulty in getting data from the oil companies” but under questioning from MPs, he admitted that there has been incompatibilities in the way questions were put to stakeholders making the answers difficult to supply due in the main to a lack of understanding on how the industry worked and separation of data facts according to the question asked.

He said DOE had leant much in the process of compiling such a “roadmap” and that it was being undertaken to encourage investment, promote diversity of supply to deal better with supply disruptions and to ensure an “integrated government response in dealing with issues on liquid fuels.”

DG Muzi Mkhize promised that the plan would be released in draft form by 30 January 2013 and the final report published by 15 February. He said he hoped DOE would be undertaking a refinery audit next year.

Neither DG Mkhize nor Jabulani Ndlovu would be drawn on the subject of “Project Mathombo”, PetronetSA’s proposed refinery for the Coega port area, nor would they be drawn on how the products would reach the market, whether by pipeline or rail.

Ndlovu said that this, they understood, was still in “feasibility study stage” with an international funder and the whole issue of any finished product emanating from the Eastern Cape had not been taken into account in the “roadmap”.

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