Home News Commuters, motorists face ‘knockout blow’

Commuters, motorists face ‘knockout blow’

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Diesel users will be hit hardest, with a possible price hike of R1.38 per litre, pushing diesel to within a whisker of R16 per litre

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CITY commuters have been warned to brace themselves for an increase in taxi fares as residents face one of the biggest fuel hikes in South Africa’s history next month, when the cost of petrol is expected to jump to almost R17 a litre.

The Automobile Association (AA) said yesterday that the mid-month unaudited data from the Central Energy Fund (CEF) was predicting the “biggest fuel price hike in South Africa’s history by some margin”.

“A spike in international oil prices and a huge swing in the rand/US dollar exchange rate have combined to predict a knockout blow at the pumps at the end of September,” the AA said in the statement issued yesterday.

“Based on the current data, petrol users will be paying R1.12 more per litre, with illuminating paraffin costing R1.17 more,” the Association warned.

Diesel users will be hit hardest, with a possible price hike of R1.38 per litre, pushing diesel to within a whisker of R16 per litre.

“To put this in perspective, should this increase materialise, it will push the price of 93 unleaded octane fuel inland close to R17 a litre, off a January price of R14.20 – a total increase of around 20 percent, year-to-date,” the Association stated.

It pointed out further that a massive hike in the diesel price would be especially catastrophic for the agricultural sector, which is already reeling from the prolonged drought.

“Extreme fuel price hikes could push marginal businesses, including farms, to financial breaking point, and have a massive negative impact of consumer pricing,” the AA stated.

“While we earnestly hope the picture improves before month end, we once again call on the government to urgently address the policy and structural issues which have put fuel users in the front line of the rand’s weakness.”

Earlier this month, the Energy Department made a decision to keep fuel prices unchanged for September, except for 4.9 cents a litre on petrol to cover a previously agreed pay rise for forecourt workers.

At the time, economist Dawie Roodt warned that this would come back to haunt motorists over the next few months.

“There’s a set formula,” he explained, “that the energy department and economists use to calculate the fuel price on a monthly basis, taking into account the ruling international price of crude oil and the value of the rand against the dollar.”

The Central Energy Fund had at the time predicted a price rise of 28 cents a litre for petrol and 31 cents a litre for diesel.

Roodt said it was “interesting” that the Energy Department hadn’t explained how it managed to keep the prices so far below what they should have been, had the conventional calculations been used.

“I can only assume they drew on crude oil reserves that had been hidden somewhere or that they had a spare pot of cash somewhere in the ministry,” he said.

Neil Roets, head of one of the largest debt counselling companies in South Africa, said that while the temporary reprieve was welcome, it would be unrealistic to look at this as a “gift from the government”.

“The harsh reality is that the South African economy is at one of its weakest points for a long time,” he said. “We are under pressure from a weakening currency, growing unemployment and now even the possibility of going into a recession.

“Depending on how the rand performs over the next few months – and given that there is strong pressure by oil producing countries for a rise in the price of crude – we could be looking at double digit increases again in October and November,” Roets said.

Energy Minister Jeff Radebe, meanwhile, yesterday called for all impediments to shale gas exploration to be removed as part of the government’s response to the record high in the fuel price.

Radebe told a debate in the National Assembly on the fuel price that the main driving factor was the current policies of the Organisation of Petroleum Exporting Countries (OPEC) and that there was little hope that the price of crude oil would drop.

“The price of crude oil will remain at current levels,” Radebe said, adding that this posed a particular predicament for South Africa with its lack of reserves and reliance on imported crude for 80 percent of its fuel needs.

South Africa, therefore, needs a multi-pronged approach to shield the economy from the impact of price hikes.

“The reality which we must internalise is that South Africa has no crude oil reserves and, as a result, we are heavily dependent on fuel imports for 80 percent of our country’s fuel demands … Resolving this challenge is not a quick fix and it requires a multi-dimensional policy approach.”

Radebe said South Africa would be less vulnerable to price hikes if the country were able to produce its own oil and gas.

Therefore it was imperative to “remove any regulatory impediments to exploration and linked to this is the need to unlock the potential for shale gas in our country”.