Strategic Fuel Fund to sell R6 billion worth of oil reserves to fund fuel levy ‘holiday’

National Treasury, in partnership with the Department of Mineral Resources and Energy (DMRE), released a statement on March 31 explaining their attempts to combat fuel-price increases.

The government entities have been in discussions to formulate ideas that would complement their decision announced in the 2022 budget to make no changes to the general fuel levy and Road Accident Fund levy.

“A two-phase approach was agreed, consisting of an immediate intervention for the next two months, and a package of measures to reduce prices when the temporary measures end after two months,” the statement read.

Phase one, the immediate interventions, would be the levy reductions and the selling off of a large quantity of the country’s strategic oil reserves.

“The Minister of Finance proposes that the general fuel levy is temporarily reduced by R1,50 per litre from Wednesday April 6, 2022 to Tuesday May 31, 2022. This will reduce the general fuel levy for petrol from R3,85 per litre to R2,35 per litre, and reduce the general fuel levy for diesel from R3,70 per litre to R2,20 per litre for two months,” the statement continued.

It is then admitted that said reduction in the levies would cost R6 billion in waived tax revenue for those two months alone. “The Minister of Mineral Resources and Energy proposes that the revenue foregone be recouped through a sale of strategic crude oil reserves held by the Strategic Fuel Fund. The combined effect of the two proposals will not have an impact on the fiscal framework adopted by Parliament following the 2022 Budget,” it elaborated.

Phase Two, which will come into effect from June 1, is broken into five parts, namely:

– A reduction in the Basic Fuel Price of 3c/l, in line with the recommendations of the review done by the DMRE
– The termination of the Demand Side Management Levy (DSML) of 10c/l on 95 unleaded petrol sold inland
– The introduction of a price cap on 93 octane petrol, following from the previous DMRE proposal and consultation. This will allow retailers to sell at a price below the regulated price
– The termination of the practice to publish guidance by the DMRE on diesel prices to promote greater competition
– The Regulatory Accounting System (including the retail margin, wholesale margin and secondary storage and distribution margins) will be reviewed to assess whether adjustments can be made to lower the margins over the medium term

The Minister of Finance has tabled the temporary reduction in the general fuel levy in the National Assembly, March 31. The proposal will be included in the 2022 Rates and Monetary Amount and Amendment of Revenue Laws Bill for consideration in parliament. Since the proposal will not have an impact on the fiscal framework, an adjustment to the annual national budget is not necessary.

The sale of strategic crude oil reserves will be authorised by the Minister of Mineral Resources and Energy, with the concurrence of the Minister of Finance, in terms of the Central Energy Fund Act 38 of 1977. Funds from the sale must be deposited into the Equalisation Fund at the Central Energy Fund. The Ministers of Finance, Mineral Resources and Energy have the authority to approve the release of funds from the Equalisation Fund into the National Revenue Fund in terms of the Act.