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All the taxes you and your fuel pay for

03.03.2014

Fuel seems to be everyone’s go-to hate subject. Sure, we have e-tolls, but that is only in Gauteng. Fuel prices are a global problem and when brought up in conversation, just about everyone has an opinion, even if they don’t own a car, as the price of fuel also directly affects the prices of transport, goods as well as services.

But what actually goes into determining our fuel price? I decided to gain some insight from Brent Oil and Sapia, two authorities in the local petroleum industry. Below follows the cost calculation for standard 95 octane unleaded petrol based on the inland pricing structure to reveal where our money goes every time we pull up and fill up.

The basic fuel price (BFP) represents the cost of importing large amounts of fuel to South Africa. Our fuel price is directly linked to the petrol price quoted in US Dollars at petroleum refining centres around the globe. The BFP for both petrol and diesel is based on 50% of the price quoted in the Mediterranean area. The remainders are 50% of the price quoted in Singapore for petrol and 50% of prices in the Arabian Gulf for diesel.

This means that the domestic prices of fuel are influenced firstly by international crude-oil prices, secondly by international supply and demand balances for petroleum products and finally the Rand/US Dollar exchange rate.

The international influence on local fuel pricing includes free-on-board (FOB) values that are determined by the aforementioned refining centres. Freight also plays a part and has to do with the cost to transport refined petrol from export refining centres to South African ports.

There is also demurrage charges, which involve the time that tankers take to load petroleum products onto ships at any given port around the world. The domestic factors that affect our fuel price are perhaps the most important, as our government imposes these duties. Let’s have a look at these parts of our fuel price. 

The incremental inland transport recovery cost levy is the cost of moving fuel from the coast to the inland areas. The fuel must be transported by road or rail as the pipeline from Durban to Johannesburg is fully utilised by Transnet. There is IP-tracer dye injected into diesel which illuminates any illegal paraffin added to the fuel. This obviously costs money, which is added to our fuel bill.

A pipeline levy, known as the petroleum products levy is charged for those using pipelines to distribute fuel. The minister of finance also imposes fuel tax, the SA customs union collects customs and excise levy and the Road Accident Fund collects its share.

Here in Gauteng, we have what is called the demand side management levy, which pushes the price of 95 octane fuel up to discourage the use of higher-octane petrol in high-altitude conditions where it is not necessary in most vehicles. This prevents what is known as ‘octane waste’, leaving more high-octane fuel for vehicles operating at sea level.

After the government charges, there are still things like the wholesale margin, which is paid to oil companies to compensate for their marketing activities. Then we also have to factor in the service differential levy - or delivery cost - which includes operating costs and road delivery expenses.

The slate levy provides oil companies with funds in the periods between fuel price increases, where it pays more for the fuel and the consumer still pays the same amount until the price is adjusted, usually in the first week of the following month. We must consider inland transport costs, which include fuel being transported by rail, road or even by a pipeline.

Have you ever wondered how the owners of fuel stations make money when their products are all the same price? There is a retail profit margin included in the price of our fuel that takes into account the cost incurred by the service station owner, which includes their compensation, labour costs, rent and overhead costs.

The price of fuel is calculated on a daily basis as it is ever-changing. Should we be paying consistently more than we should day-to-day the price will decrease, or as we have seen recently, vice versa. At the time of writing, petrol was expected to go up by around 32 cents per litre with an increase of 26 cents a litre for diesel effective from 5 March. On top of that, finance minister PravinGordhanannounced that the fuel levy is set to increase by a total of 20 cents per litre from 2 April.

As you can see, our fuel price is made up of so many levies and taxes and is determined by so many external factors that it becomes rather difficult to keep up. There are so many fingers in the fuel pie that everyone except for us - the public - are cashing in on the fossil fuel money train.

Article written by Sean Nurse
03.03.2014
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