Increases in the domestic price of fuel are big news in South Africa, with the price of petrol, diesel and paraffin reaching new highs. The underlying reason for the price increases is movements in the international price of crude oil. The acceleration in the international price of crude oil is linked to the Russian war in Ukraine.
The expectation is that the crude oil price will remain at an elevated level for the duration of the war.
Once the domestic base price for fuel is determined, a variety of levies, taxes and margins are added to calculate the pump price that the consumer pays. In an attempt to alleviate the impact of the increase in fuel prices, the government has waived some portion of the fuel levy as a temporary relief measure.
Another important levy is the gross margin allowed for filling station operators. This levy amounts to some 10% of the retail price of petrol, while it is determined through retail price setting per filling station in the case of diesel sales. Filling station operators determine their gross margin on their diesel sales, as only the wholesale price is regulated.
If the petrol price is deregulated and the margin for the remuneration of these staff members is removed, South Africa might lose as many as 80,000 job opportunities. Given South Africa’s official unemployment rate of 34.5% – this increase in unemployment can’t be afforded. In addition, the cancellation of this wage levy on petrol will reduce the price by only about 3.6%.
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