Issued by: The Minister of Mineral and Energy Affairs
Monday 31 July 1995
THE LIQUID FUELS INDUSTRY, THE PETROL PRICE AND RELATED MATTERS
The number of matters relating to the Liquid Fuels Industry will be discussed by Cabinet on Wednesday 3 August 1995.
Since some of these issues may have an impact on the price of fuel, the Central Energy Fund has been requested to delay implementation of any price change as is usually effected on the first Wednesday of every month, until the Cabinet has met. The matters to be considered are:
The Retail Margin of Petrol Retailers
The service station industry has had no increase in its margins since September 1993. Although at that time the figures indicated that an increase of 2,4 cents per litre was justified, the industry was granted an increase of only 0,5 cents per litre.
Since then, all cost items for service stations have increased dramatically with a consequent squeeze on profit margins in this sector. Labour costs serve as an example. Arising out of recent negotiations with labour unions, a new industrial agreement came into effect last month in terms of which the minimum wage for service station forecourt attendants increased by 13%.
Unless this matter is addressed, a number of petrol retailers may be forced out of business with negative consequences for the motorist and service station employees. In addition considerations of equity oblige the state to adjust the retail margin from time to time in light of changed economic circumstances.
Cabinet will therefore be requested to grant an increase of 2,5 cents per litre. Should Cabinet agree to the increase, it will be implemented in stages so as to minimise the impact on motorists, especially the minibus-taxi industry, and where possible without increasing the petrol price.
At present the monthly price adjustment mechanism takes account only of external factors such as the international price of petrol and the rand/dollar exchange rate. As it stands the mechanism is expected to have provided for a drop in the price of petrol of one cent per litre on Wednesday 3 August 1995. Instead, it is proposed that the petrol price be maintained at its present level and the one cent in question be allocated to partially meeting the 2,5 cent per litre retail margin increase.
It is hoped that conditions prevailing at the beginning of September will be such that the remaining portion of the margin increase will be able to be similarly phased in at that time.
These arrangements will not effect diesel and illuminating paraffin prices which will be adjusted by the Central Energy Fund in the normal manner on 3 August 1995.
Delivery Costs Incurred by Oil Companies
Another matter which the Cabinet will be asked to consider is increased compensation amounting to 0,6 cents per litre for higher fuel delivery costs from the oil depots to petrol retailers. These higher costs are documented and verifiable. The compensation for these costs has also not been adjusted for two years, despite the state having an obligation based on considerations of equity to do so, and the oil companies have had to bear the increase in the meantime with a negative effect on revenue. If external factors permit, this adjustment will also be introduced in such a way as to minimise its impact on the petrol price.
Social Plan I trust that the increases which are proposed, if approved by Cabinet, will enable fuel retailers and wholesalers to consider their role in establishing a social plan for service station forecourt personnel. Unleaded Petrol
Cabinet will be asked to consider a price-and-tax plan for the introduction of unleaded petrol. The plan provides for the initial price of unleaded petrol to be 4 cents per litre cheaper than the present leaded petrol. If the plan is accepted, the lower price will be achieved by levying a lower tax on unleaded petrol so that the price differential will not involve the subsidisation of unleaded petrol by leaded petrol users.
The introduction of unleaded petrol at a marginally lower price follows the practice of other countries. In order to render the refining of unleaded petrol economically viable, it needs to capture at least 20% of petrol sales within the first year of introduction. It is estimated that the 4 cents per litre difference on the price of unleaded petrol will achieve this.
More than 90% of the current South African vehicle population can operate on unleaded petrol. 65% of the vehicles require no modification at all, 15% require minor and therefore inexpensive ignition timing adjustment, and 10% require one tank of leaded petrol for every four to five tanks of unleaded petrol used. Only 10% of vehicles will not be able to use unleaded petrol and will have to continue using leaded petrol.
An in-depth survey by the National Association of Automobile Manufacturers of South Africa found that no specific ownership group will be materially prejudiced by the introduction of unleaded petrol. Such vehicles as will still require leaded petrol are mostly of the high performance type more likely to be owned by upper and upper-middle income groups. The survey also showed that over 90% of minibus-taxis will be able to use unleaded petrol. Most minibus-taxi operators, and through them the 52% of commuters whom they transport, will therefore benefit from the introduction of the lower-priced unleaded petrol.
Unleaded petrol is not being introduced into South Africa primarily for ecological reasons although it is more environment-friendly. The main reason for its introduction is to benefit from the advantages of economies of scale and contemporary technological development, since 80% of the world's current motor vehicle technology is based on unleaded petrol.
Should Cabinet give its final approval for the proposed price-and-tax plan, it is expected that unleaded petrol will become available in South Africa by February 1996.
Catalytic Converters
The Cabinet will consider the use of catalytic converters for motor vehicles in South Africa. Preliminary investigations show that environmental considerations do not yet require the use of catalytic converters here. The proposal is that no compulsory use of catalytic converters be required upon the introduction of unleaded petrol.
A comprehensive environmental monitoring system is being established to determine pollution levels and will indicate when the use of catalytic converters may become necessary.
Government Involvement in the Liquid Fuels Industry
The Cabinet is currently considering the role which Government should play in the Liquid Fuels Industry. Further announcements in this regard will be made from time to time.
Enquiries: Hein Baak: (o) (012) 317 9000 Roland Darroll: Phone: (o) (012) 322 8695 (h) (012) 43 3394 (cellular) 082 55 27994