Tag Archive | Project Mathombo

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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