Government extends R1.50 general fuel levy reprieve, but also announces steep price increases from June 1

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The government said it would extend the R1.50 reprieve on the general fuel levy but also announced a steep price increase of up to R2.43 a litre for petrol, effective from Wednesday.

The cost of 93-grade unleaded petrol will increase by R2.43 a litre, while that for 95-grade will go up by R2.33 a litre, the department of mineral resources and energy said in a statement. 

Diesel will cost up to R1.10 per litre more from Wednesday, while the price of illuminating paraffin, which many South African households rely on as a cheaper source for cooking and lighting, will rise by R1.56 per litre. 

The energy department said the petrol price was going up because the average price of Brent crude oil had risen from $104.78 to $115 per barrel during the period under review. This was mainly due to higher demand during the summer driving season in the northern hemisphere; the European Union’s discussions on imposing sanctions on crude oil and petroleum products from Russia; and the increase of crude oil throughput by refiners to take advantage of high refining margins. 

South Africa’s fuel prices are adjusted monthly on the basis of international factors such as crude oil import and shipping costs and local factors such as duties and levies. 

On Tuesday the government softened the blow for consumers by extending the R1.50 temporary reduction in the general levy on each litre of fuel from 1 June to 6 July. Thereafter, the relief will be cut to 75c per litre from 7 July to 2 August. The temporary relief will be withdrawn from 3 August. 

The government said the withdrawal of the temporary relief which has been in place since 6 April would contribute to an increase in petrol prices of close to R4 a litre, pushing the cost to above R25.

The revenue foregone from the extension of the relief is estimated at R4.5-billion. The  relief from April to the end of May was funded through the sale of crude oil reserves held by the Strategic Fuel Fund, a subsidiary of the Central Energy Fund.

The government said the extension of the relief would have an impact on the fiscal framework, as it would not be fully funded through a sale of strategic oil stocks.

In addition, the department of mineral resources and energy will remove a demand-side management levy of 10 cents a litre which has been applied to 95-grade petrol in South Africa’s inland areas, to help reduce fuel prices “in a more sustainable manner”. 

“The levy of 10 cents per litre was introduced in the price structures of 95 ULP that were sold in the inland market during 2005. The purpose of the levy was to discourage motorists from wasting octane by using 95 ULP instead of 93 ULP in their vehicles,” the department said. 

It also proposed that the basic fuel price be decreased by three cents a litre in coming months, but did not set a commencement date.

The government said it intended to continue with consultations and proposals to remove the price cap on 93-grade petrol, a move which will partially deregulate the market and introduce more competition, hopefully lowering pump prices.

The government added that it would continue to monitor the impact of Russia’s invasion of Ukraine on the global economy and policies relating to the Covid-19 pandemic, which it said continued to have an impact on energy and food prices, resulting in supply-chain shocks. 

Anathi Madubela is an Adamela Trust business reporter at the M&G.