Fuel prices teeter on the brink

MBONGENI MGUNI
Staff Writer | Friday June 21, 2013 00:00

 

And government's ability to shield consumers from the imminent increase will be eroded by its obligations to repay retailers an estimated P200 million for cumulative subsidy costs incurred as far back as last June.This week, BusinessWeek learnt that the fuel retail sector has generally been in a position of 'over-recovery' since April, meaning retailers have been generating profits above their government prescribed target due to steady crude oil prices.Various executives within the sector said government had been using these over-recoveries as a repayment of the subsidy costs it owed to retailers for several lean months stretching from June last year into 2013. During these months, the local retail sector experienced widening under-recoveries, which left government owing up to P200 million in subsidy payments.

'Government specifies the profit oil companies should make and since about April, the over-recovery has meant they were making more profits than stipulated,' explained one director.'All things being equal, government should actually have announced a reduction in pump prices, but the over-recovery came after a long spell of under-recoveries going back to last year. If the over-recovery continues for another four to five months, we would be square.'The director explained that theoretically, the National Petroleum Fund was supposed to have catered for the long-spell of under-recoveries.'Last April was the last time the Energy Affairs Department paid oil companies a little and it was not enough,' he said.'The fund does not have any money because of the effect of cumulative under-recovery. The department has also been trying to build the fund back up during the over-recovery, but any changes will wipe away the funds.'

These changes, warned another executive, were around the corner as the indicative South African market had already declared under-recovery of 65 cents per litre of diesel and eight for petrol.The South African Department of Energy recently said it would increase fuel prices on the first Wednesday of July, citing 'current unit under-recoveries on all the products' as well as the Rand's slide against the US Dollar.'There's under-recovery in South Africa which points to the forthcoming picture in Botswana as well,' the local executive said.'If the Pula had held its position against the US this year, we would have possibly escaped, but because it has also been going down, we are likely to see fuel price increases soon'.

Since the beginning of the year, the Pula has depreciated by more than 10 percent against the US Dollar, the price in which crude oil imports are based.Last year, the Energy Affairs Department raised fuel prices by a total of P1.50 across the board through three revisions.The Department had not responded to written enquiries at the time of going to press.