Drop in the price of fuel sparks renewed optimism

MBOMBELA – The significant drop in the fuel price which kicked in last Wednesday will bring a welcome relief to consumers’ pockets.

The main reason for the decrease is the continued drop in the price of crude oil which has led to a decline in the prices of petroleum products on international markets. However, the depreciation of the rand against the US dollar led to an increase in the contribution to the Basic Fuel Price (BFP) by between 17,92 cents per litre and 19,7 cents per litre. This was offset by the drop in the crude-oil price during the period under review. Furthermore, the slate levy on petrol and diesel remains unchanged at zero cents per litre, due to positive cumulative over-recovery on these products.

In Mbombela and other inland regions, the price of unleaded petrol (ULP) and lead replacement petrol (LRP) has dropped to R11,02 while 95 will now cost you R11,24. This, compared to the price in coastal regions, costs 24 cents more for 93 ULP, 41 cents more for 95 ULP and 19 cents more for 95 LRP. Diesel costs around 30 cents per litre more in inland regions, compared to coastal areas.

Lowvelder explored other reasons influencing the price of fuel.

It boils down to:

Transport costs (zone differential)

Keeping in mind the import principle used, this element covers the cost of transporting petroleum products from the nearest coastal harbour, in this case Durban, to the inland depot serving the area or zone. Transport to the various pricing zones is determined by using the most economical mode of transport, for example pipelines (C zones), road (B) or rail (A). This is the only element of which the values differ per pricing zone, and is the reason why the petrol price is not the same throughout the country.

• This not only explains the cheaper price of fuel in our coastal regions, but also why Mpumalanga residents pay even more than motorists in Gauteng. It’s basically because fuel is transported from coastal areas to Gauteng via pipeline. From there, it has to be transported to Mpumalanga with trucks, which brings about the higher cost.

Delivery costs (service differential)

This element compensates marketers for actual depot-related costs (storage and handling) and distribution costs from the depot to the end user at service stations. The value is calculated on actual historical costs of the previous year, averaged over the country and in the industry.

Wholesale (marketing) margin

Money is paid to the oil company through whose branded pump the product is sold to compensate for marketing activities. This margin is controlled by the government, allowing for changes based on the oil companies’ return on its marketing assets. The formula used to determine the wholesale margin is based on the results of a cost/financial investigation by a chartered accountant firm into the profitability of the wholesale marketers. The level of the margin is calculated on an industry basis and is aimed at granting marketers a return of 15 per cent on depreciated book values of assets, with allowance for additional depreciation, but before tax and payment of interest.

Retail margin

The retail margin is fixed and is determined on the basis of actual costs incurred by the service station operator in distributing petrol. Account is taken of all proportionate driveway-related costs such as rental, interest, labour, overheads and profit. The way in which the margin is determined creates an incentive for dealers to strive towards greater efficiency, to beat the average and to realise a net profit proportionate to their efficiency.

Equalisation fund levy

The statutory fund levy is a fixed monetary one, and the fund is regulated by ministerial directives issued by the minister of mineral and energy affairs in concurrence with the minister of finance.

This is mainly utilised to smooth out fluctuations in the price of liquid fuels through slate payments.

Fuel tax

Tax levied by government annually adjusted by the minister of finance effective from the price change in April of each year, is announced in the minister’s annual budget speech.

Customs and excise levy

This is a duty collected in terms of the Customs Union agreement.

Road Accident Fund (RAF)

The RAF receives a fixed value which is used to compensate third- party victims of motor accidents.

Slate levy

This is a levy paid by the motorists recovering money “owed” to the oil companies, due to the time delay in the adjustment of the petrol pump price.

If the rand/US dollar exchange rate behaves, motorists might see a further decrease in fuel prices. If not, here are a few petrol saving tips, courtesy of the Department of Energy:

• Close the car windows when driving (an open window creates a drag that increases fuel consumption by as much as 20 per cent)

• Use multigrade oil in your engine because it reduces drag

• Service your car regularly

• Use a logbook to record your fuel purchases and kilometres travelled to set new economic goals and to spot radical differences in the performance of your vehicle due to mechanical malfunction

• Establish lift clubs

• Switch to radial-ply tyres because they offer less rolling resistance and longer life than the cross-ply variety

• Avoid driving with underinflated tyres because a tyre pressure that is too low not only increases consumption, but also markedly reduces a tyre’s life

• Avoid stop-start driving

• Accelerate slowly

• Do not speed, the faster you drive the more petrol you use.