Sunday, August 14, 2022

Mantashe, Godongwana in talks over changes to fuel price make-up

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Mineral Resources and Energy Minister Gwede Mantashe.

Picture: Felix Dlangamandla/Netwerk24

  • The conflict between Russia and Ukraine is driving up crude oil prices and fuel prices, says Energy Minister Gwede Mantashe.
  • Mantashe’s department is in talks with the finance minister about whether to rework the petrol pricing methodology.
  • On Tuesday morning, the price of crude hit $100 per barrel, Reuters reported.

Mineral Resources and Energy Minister Gwede Mantashe says discussions are under way with Finance Minister Enoch Godongwana to review the pricing methodology for petrol.

The minister made the remarks on the sidelines of the Africa Energy Indaba conference, taking place at the Cape Town International Convention Centre on Tuesday.

During his earlier address to the conference, he remarked that the conflict between Russia and Ukraine is driving up crude oil prices, translating into “severely high fuel prices” for individual countries.

The price of Brent crude touched $100 per barrel on Tuesday morning, Reuters reported. Last week it traded at a seven-year high of $105.79, Reuters reported.

This does not bode well for domestic petrol prices. The petrol price will increase by R1.46 on Wednesday – pushing it beyond R21 per litre inland.

Mantashe said that the fuel tax relief announced in last week’s budget is effectively “corroded” by the petrol costs. No hikes to the fuel levy and the Road Accident Fund levy were introduced for this year.

“We are having a discussion with the minister of finance,” Mantashe said when asked about whether the Department of Mineral Resources and Energy [DMRE] will intervene in the rising petrol costs.

“We are not responsible for the price. We are responsible for formulas. We are discussing with the minister of finance whether or not we should review how we calculate [the formula],” he said.

Last week, Godongwana made an off-the-cuff remark in his budget speech that he was consulting with Mantashe. 

“The intention is review the structure of the petrol price going forward – to be competitive in this economy,” Godongwana said.

In the 2022 Budget Review, National Treasury highlighted that administered price inflation – mainly from electricity and fuel prices – increased at an annual average of 8.2% between 2011 and 2021.

“Research on fuel price regulation has found that a combination of regulatory amendments can reduce the petrol price by 103.82 cents/litre, increasing GDP by 0.67 percentage points, by 2028,” the review read. Treasury indicated that such amendments include those to the international component of the basic fuel price – proposed by the DMRE in 2018, but which have not yet been implemented – and changes to the methodology.

Treasury is considering reviewing the Road Accident Fund Levy.

Asked about whether developing oil resources domestically could shield the country form the impact of higher oil prices resulting from conflicts as seen with Russia and Ukraine, Mantashe said that low electricity prices are observed in oil-producing countries like Nigeria and Angola.

“All the countries leading with low price of energy are oil-producing countries. If we can produce our own, we have an outside chance to reduce the price of electricity,” he said.

Recent court judgments have barred exploration efforts.

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