Government likely to intervene on South Africa’s petrol hikes and Eskom: economists

The South African government will likely soften the blow of record oil price increases in South Africa in the coming months, say economists at Bank of America Securities.

In a research note this week, the group said that the high oil price will have a direct impact on consumers through the petrol price, as well as expected electricity price increases as Eskom pays more for diesel.

Fuel prices are adjusted monthly by the Department of Energy and Mineral Resources taking into account changes in international prices and exchange rate movements.

“In March, South Africa local fuel prices increased by an average of R1.50 or 7% to pass the R20 per litre mark. South Africa fuel levies constitute about 30-40% of the final pump price. To mitigate the cost, the government decided not to increase the fuel levy (in 2022), foregoing R3.5 billion,” the group said.

The two main items that affect the final price of fuel are the general fuel levy and the road accident fund levy – both contribute about a third (34%).

“Fuel levies added about R90 billion, or 1.5% of 2021 GDP, to fiscal revenues. The ministers of Energy and Finance have publicly stated discussions are taking place on reviewing the fuel price calculation formula.”

While the government has not indicated when the petrol price review will take place, minister in the presidency Mondli Gungubele confirmed it was still on the cards in a media briefing on Thursday (10 March).

Eskom

While discussions are taking place, Eskom, the country’s main energy supplier, uses diesel to power its gas-fired energy plants, BofA said.

“Higher oil prices imply a higher cost of diesel and power provision. With tariffs determined ahead of a financial year, the additional cost of energy provision is unlikely to be passed on to the consumer using higher tariffs.

“Either Eskom carries the higher cost or the government steps in to provide additional support. In our view, government additional support to Eskom is likely to protect consumers from additional higher electricity costs as well as protect Eskom’s already weak financial position from further deterioration.”

Addressing media on Wednesday morning (9 March), chief operating officer Jan Oberholzer said that Eskom was currently using nine million litres of diesel a day to keep its systems running.

Should the country run out of diesel reserves due to funding or the Russia and Ukraine invasion, then a worst-case scenario could see an additional six stages of load shedding introduced.

Read: Eskom gives load shedding update ahead of the weekend – here is the new schedule