The Department of Mineral and Petroleum Resources has launched a comprehensive review of South Africa’s fuel pricing mechanism, with the process expected to conclude in March next year.
The review will focus on how industry margins are calculated, including wholesale margins, retail margins, secondary storage and secondary distribution costs, according to Robert Maake, the department’s Director of Fuel Pricing Mechanism.
“That process has started. We have already signed a service level agreement with a service provider and we expect that work to be concluded by March 2027,” Maake told SAnews in Pretoria on Tuesday.
The current fuel pricing formula comprises two components: the import part, which accounts for all costs associated with importing petroleum products into South Africa, and the local factor. While international factors such as Brent Crude Oil prices, demurrage rates and freight costs are set globally, local factors are now under review.
Maake explained that monthly fuel price fluctuations are driven mainly by the oil price and the Rand/Dollar exchange rate. Current high prices are attributed to the war in the Middle East and a weaker Rand.
In the short term, government has implemented a temporary R3 reduction of the general fuel levy to cushion consumers.
“In the short term it means that consumers are actually paying R3 less for petrol and diesel at the service stations which is useful for households and motorists. It is difficult at the moment to say how government will intervene [in the long term] and what the next step will be,” Maake said.
Paraffin price surge
Paraffin prices increased by R11,67 for wholesale and R15,60 for the Single Maximum National Retail Price for Illuminating Paraffin. The significant spike resulted from a global jet fuel shortage when European refineries closed during the severe winter season, coinciding with increased demand for air travel.
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Paraffin and jet fuel are produced as dual purpose kerosene at refineries, meaning both prices increased simultaneously.
Because paraffin is already zero-rated for tax purposes, the R3 fuel levy reduction cannot be applied to provide relief. The department is exploring alternative mechanisms, including an indigent framework where paraffin users could register for direct government support.
However, Maake noted that much paraffin is mixed with diesel by some businesspeople, making it important that any government support is properly targeted to beneficiaries.
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Supply remains stable
Despite reports of fuel shortages at some service stations ahead of last week’s price increase, the department has confirmed that supply remains stable.
Maake attributed the temporary shortages to commercial customers placing additional bulk orders in anticipation of higher prices, while some service stations allegedly hoarded fuel until the new price took effect.
The department holds daily meetings with oil companies to monitor supply, while Director-General Jacob Mbele meets weekly with oil company chief executives. Oil companies have confirmed vessel deliveries secured through the end of May.
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