DURBAN - MOTORISTS will need to brace themselves for sharp fuel price increases in the coming months owing to the conflict between Russia and Ukraine, according to the Fuel Retailers Association and economists.
Reggie Sibiya, CEO of the Fuel Retailers Association, said the country should prepare for a prolonged period of expensive energy, especially in countries that are net importers like South Africa.
“The current South African estimates (for April) are showing petrol close to a R2 per litre increase and close to a R3 per litre increase on diesel, which is already a fully deregulated product and is more expensive than the regulated petrol price.” He said if there was no resolution to the conflict in Ukraine, South African motorists could even face an increase of about R5 a litre next month.
“If the ban on Russian oil imports persists, we will see intense demand for oil as European countries start to compete with other markets on alternatives to Russia.”
He said other countries, including the US and Germany, were also experiencing high fuel prices.
“In those markets, fuel taxes account for over 50% of the pump price. We are sitting around 30% (for fuel levies) depending on the price point and even with the latest relief from the 2022 Budget. Taxes, the rand dollar exchange rate and international oil price movements account for 80% of the pump price.”
Sibiya added that in other countries, governments were looking to their strategic reserves to provide temporary relief, but he said South Africa did not have enough strategic reserves.
“Consumers in net importing countries and deregulated markets are asking the government to remove taxes altogether from the pump prices. Even the relief of no fuel tax increases announced by the minister of finance is overshadowed by these rocketing global prices.”
Dr Ntokozo Nzimande, research associate at the University of KwaZuluNatal Macro-economics Unit, said: “We already face tough times in our economy with load shedding and an unemployment rate close to 35%. We can expect to see more fuel price hikes in the coming months.”
Nzimande added that the government should consider suspending fuel levies. “Government needs to fast-track the review of the fuel-pricing model. Government also needs to look at ways to ensure a stronger rand and one of those ways is to address corruption.”
Professor Bonke Dumisa, an independent economic analyst, said while the fuel price would rise, people should not panic. “People were concerned because the price of Brent crude oil jumped to close to $140 (about R2 000) a barrel and that was where the predictions of South Africa reaching R40 a litre for fuel came from. The problem stemmed from the ban by some countries on importing Russian oil. However, China has confirmed they will continue to buy oil from Russia and this saw the price of Brent Crude oil go to about $120 a barrel. I would say, yes, we can expect an increase in the petrol price in the coming month but there’s no reason to panic.”
Tax economist Professor Dilip Garach said the government needed to deregulate the country’s petrol price.
“The petrol price should be left entirely to the market so that competition can prevail.”
He added that the model that advocated the review of fuel prices on a monthly basis was not working.
“When the price of fuel rises, almost all products and services become more expensive, but when the price of fuel drops, the very same products and services don’t really become cheaper. Rather adopt a quarterly review with the smoothing out of prices by creating a Fuel Reserve Fund to mitigate monthly movements in the price of fuel,” he said.