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The underlying principles for the basis of determination of
the Basic Fuels Price (BFP) are to represent
the realistic, market-related costs of importing a substantial
portion of South Africa's liquid fuels requirements, and it
is therefore deemed that such supplies are sourced from overseas
refining centres capable of meeting South Africa's requirements
in terms of both product quality and sustained supply considerations.
The petrol price in South Africa is therefore directly linked
to the price of petrol quoted in US dollars at refined petroleum
export orientated refining centres in the Mediterranean area,
the Arab Gulf and Singapore.
This means that the domestic prices of fuels are influenced
by (a) international crude oil prices, (b) international supply
and demand balances for petroleum products and (c) the Rand/US
Dollar exchange rate. The import parity (BFP) principle is an
elegant, arms-length method of basic fuels price determination
to ensure that local refineries compete with their international
counterparts.
This promotes cost efficiency and astute crude acquisition strategies
to ensure survival in a volatile and competitive international
environment, thus eliminating domestic inflationary pressures.
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Free-on
Board (FOB) Values |
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These
are petroleum product prices quoted on a daily basis by
export orientated refining centres situated in the Mediterranean
area, the Arab Gulf and Singapore. |
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Freight |
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This
is the cost to transport refined petroleum products from
these export refining centres to South African ports.
The freight rates used in the BFP calculation are based
on freight rates published by London Tanker Brokers Panel
on 1 January each year. These freight rates are adjusted
on a monthly basis in line with the so-called Average
Freight Rate Assessment (AFRA) which is a function of
risks and supply and demand of ships transporting refined
petroleum products internationally. |
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Demurrage |
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Petroleum
products are loaded into ships at ports in the Mediterranean
area, Arab Gulf and Singapore and these products are discharged
at South African ports. Demurrage rates are published
by the World Scale Association Limited. In calculating
the demurrage cost, the total demurrage time is limited
to 3 days. |
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Insurance |
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An
element of 0.15 percent of the FOB-value and freight to
cover insurance as well as other costs such as letters
of credit, surveyors' and agents' fees and laboratory
costs. |
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Ocean
Loss |
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A
loss allowance factor of 0.3 percent to be calculated
on the sum of the FOB, Freight and Insurance values for
products is applicable to provide for typical uninsurable
losses during transportation of fuels. |
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Cargo
Dues (Wharfage) |
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The
South African harbour facilities are utilised to off-load
petroleum products from ships into on-shore storage facilities.
The cost to utilise these harbour facilities is based
on the tariff set by the National
Ports Authority of South Africa. |
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Coastal
Storage |
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This
is to recover the cost of providing storage and handling
facilities at coastal terminals. In 2002, the typical
international storage rate was assessed as USD 3 per ton
or 2.5 SA cents per litre per month. The BFP only makes
provision for 25 days and the initial value when BFP was
implemented amounted to 2.083 c/l. This element is adjusted
on an annual basis by the increase in the Producer Price
Index (PPI). |
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Stock
Financing |
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Stock
financing cost is based on (i) the landed cost values
of refined petroleum products, (ii) 25 days of stockholding
and (iii) the ruling prime interest rate less 2 percent.
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The BFP, quoted in USD/barrel or USD/ton is converted to US
cents/litre by applying the international conversion rates (for
example, barrels to tons, tons to gallons and gallons to litres)
and is then converted to South African cents/litre by applying
the applicable Rand/US Dollar exchange rate.
To arrive at the final petrol pump price in the different fuel
pricing zones (magisterial district zones), domestic costs,
imposts, levies and margins are added to the Basic Fuel Price
(BFP).
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Inland
Transport Costs |
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Refined
petroleum products are transported by road, rail, pipeline
and by a combination thereof from coastal refineries to
inland depots. |
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Wholesale
Margin |
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The
margin is a fixed maximum monetary margin. The formula
used to determine the wholesale margin is based on a set
of Guidelines, namely the Marketing-of-Petroleum- Activities
Return. The level of the margin is calculated on an industry
average basis and is aimed at granting these marketers
a benchmark return of 15 percent on depreciated book values
of assets, with allowance for additional depreciation,
but before tax and payment of interest. Should the industry
aggregated margin be between 10 and 20 percent, no adjustment
is made to the margin, if it is below 10 percent or above
20 percent, the margin is adjusted to a level of 15 percent.
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Retail
Profit-margin |
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The
retail profit margin is fixed by the DoE and is determined
on the basis of the actual costs incurred by the service
station operator in selling petrol. In this cost structure,
account is taken of all proportionate driveway related
costs such as rental, interest, labour, overheads and
entrepreneurial compensation. |
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Equalisation
Fund |
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The
Equalisation fund levy is normally a fixed monetary levy,
determined by the Minister of Energy in concurrence
with the Minister of Finance. The levy income is mainly
utilised to equalise fuel prices. The levy is currently
zero. |
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Fuel
Tax |
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A
fuel tax levied on petrol and diesel. The magnitude of
this levy is determined by the Minister
of Finance. |
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Customs
and Excise |
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A
levy collected in terms of an agreement by the Southern
African Customs Union. |
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Road
Accidents Fund |
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A
Road Accidents Fund levy is applicable on petrol and diesel.
The magnitude of this levy is determined by the Minister
of Finance. The income generated from this levy is utilised
to compensate third party victims of motor vehicle accidents. |
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Slate |
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The
Basic Fuels Price (BFP) of petrol, diesel and illuminating
paraffin is calculated on a daily basis. This daily calculated
BFP is either higher or lower than the BFP reflected in
the fuel price structures at that time. If the daily BFP
is higher than the BFP in the fuel prices, a unit under
recovery is realised on that day. When the BFP is lower
than the BFP in the price structures, an over recovery
is realised on that day. An under recovery means that
fuel consumers are paying too little for product on that
day, whilst in an over recovery situation, consumer are
paying too much for product on that day. These calculations
are done for each day in the fuel price review period
and an average for the fuel price review period is calculated.
This monthly unit over/under recovery is multiplied by
the volumes sold locally in that month and the cumulative
over/under recovery is recorded on a Cumulative over/under
recovery account (referred to as the "Slate Account").
A Slate levy is applicable on fuels to finance the balance
in the Slate account when the Slate is in a negative balance.
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Demand
Side Management on 95 Unleaded
Petrol |
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A
DMSL is applicable on 95 unleaded petrol consumed in the
inland area. This levy was implemented into the price
structure of 95 unleaded petrol in January 2006 when 95
unleaded petrol was introduced into the inland market
for the first time. Most vehicles in the inland market
do not require to run on 95 unleaded petrol and the unnecessary
use thereof in the inland area would result in "octane
waste" with negative economic consequences. A DSML
was introduced to curtail the demand thereof in the inland
area. |
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IP
tracer dye levy |
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To
curtail the unlawful mixing of diesel and illuminating
paraffin, an illuminating paraffin tracer dye is injected
into illuminating paraffin. An illuminating paraffin tracer
dye levy was introduced into the price structures of diesel
to finance expenses related thereto. |
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Petroleum
pipelines levy |
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The
annual budget of the Petroleum Pipelines Regulator is
approved by the Ministers of Energy and of Finance.
In terms of the Petroleum Pipelines Levies Act, 2004 (Act
No 28 of 2004), a levy of 0.19 c/l was implemented into
the price structures of petrol and diesel on 7 March 2007.
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