Fuel price increases could be imminent

MBONGENI MGUNI
Staff Writer | Thursday April 8, 2010 00:00

 

The Ministry of Minerals, Energy and Water Resources' department is scheduled to hold its monthly meeting on unit rates this week. Representatives of petroleum retailers due at the meeting will be hoping to push through the first review of fuel prices since August 1, 2009.

Petrol prices in South Africa rise today by between 48 and 49 cents a litre, pushed upwards by higher international crude prices but slightly held back by the stronger Rand against the greenback.

Yesterday, local petroleum industry insiders said a review of fuel prices was 'imminent', given the rising price of international crude and depletion of the National Petroleum Fund.

Driven by rising global economic recovery prospects, oil prices raced to an 18-month high on Monday to US$88.95 per barrel, with forecasts of even higher prices in the short to medium-term.

Simultaneously, the National Petroleum Fund from which government pays petroleum retailers the difference  between the administered and prevailing fuel prices has come under pressure from rising crude oil prices. The Fund is supported by a levy on the pump price of fuel.

'The profit margins are set by Government and if it does not adjust in line with the market, the whole industry loses out because we are selling less than the prevailing price - this is under recovery,' said a source. 'The Petroleum Fund is empty because Government has not been keeping in line with market forces since the last increase in August.'

According to the industry insiders, the pula's stronger position against the US dollar is the 'thread holding the fuel price together'. 'The price of fuel here is driven by two factors - the one being the crude oil price and the other being the rate of exchange between the pula and the US dollar, the currency in which crude oil is traded,' said another insider.

'The stronger pula against the dollar is the difference between us and South Africa. That is why we are not in as bad a situation as they are,' added the insider.

The pula has gradually gained ground against the dollar and is presently trading at approximately P6.70 from a high of nearly P7.00 late February. Overall, from October last year to now, the pula has averaged P6.73 against the dollar due to the slow pace of economic recovery in the US after the recession.

'We submit figures for what we have sold to Government on a monthly basis and they analyse the exchange rate and the crude oil prices for possible review. However, there are other costs, such as transport, that retailers have in importing this fuel to the pumps and the review of prices should take this into consideration.

'A fuel price increase is pending,' said a source, noting that South Africa's Department of Energy marginally reviews fuel prices on the first Wednesday of every month.

The Deputy Director of the Department of Energy Affairs, Kenneth Kerekang, confirmed that the monthly fuel review meeting would be held this week.

'We are expecting representatives of the petroleum retail industry at the meeting, but it will take place even if they are not there. The agenda is the same as every month - it will be a review of the unit rates,' he said.