Pressure mounts on fuel price

MBONGENI MGUNI
Staff Writer | Monday January 17, 2011 00:00

 

Government last increased fuel prices in May, before marginally decreasing them in August as the Fund's position improved.  The Fund is a statutory instrument created to act as a buffer for consumers by levying the pump price of fuel and - through reimbursements to retailers - subsidising the commodity's price.

However, crude oil prices have risen from US$80.25 per barrel when government decreased fuel prices, to the last Friday's US$90.31.  In addition, the Organisation of Petroleum Exporting Countries (OPEC) has hinted at even higher prices recently saying, 'the world can live with oil at US$100 per barrel.'

Last week, petroleum sector players said pressure was mounting towards a revision in the wake of growing under-recovery.  Under-recovery is described as a situation where the prevailing fuel prices are higher than administered prices, forcing government to repay the difference through the Petroleum Fund.

'At the moment, the whole industry is under-recovering because the price of crude has been rising since government adjusted prices in August. 'Both the Pula and the Rand have been very stable against the US which has protected consumers from increases, but the price of crude has risen by a higher margin,' an industry insider said.

The Pula appreciated by 3.6 percent against the US Dollar in 2010, gaining close to five percent in December alone. Other players argued that a fuel increase was still a long way off as the under-recovery in the industry had only started recently.

'The under-recovery only started about three months ago; although it's there on a monthly basis, the impact has not translated to a stage where we can start complaining,' said Shell Oil Botswana Managing Director, Boitumelo Sekwababe. 'Previously, it was in over-recovery and the under-recovery only started recently. Government calculates the under-recovery and when it becomes unsustainable, it will refund the difference.'

Analysts generally do not expect government to accede to a fuel price increase in the short term as it often raises fuel prices as a last resort, as seen by the nine-month lag between the two previous increases in August 2009 and May 2010.  In addition, by August, the Energy Affairs Department said the May increase had cut the amount of refunds owing to oil companies from P100 million to P14 million, indicating the Petroleum Fund's stronger position.

Consumers in the region have not been as fortunate however, with South African motorists receiving double digit increases early in January and Zimbabweans receiving double increases in December and last week.