The South African government is likely to mitigate the shock of record increases in oil prices in South Africa in the coming months, say economists from 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 due to the petrol price, as well as expected electricity price increases if 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’s local fuel prices rose by an average of R1.50 or 7% to exceed the R20 per liter mark. South Africa’s fuel levies account for about 30-40% of the final pump price. To cover the cost “, the government decided not to increase the fuel tax (in 2022), starting from R3.5 billion,” the group said.
The two main factors affecting the final price of fuel are the general fuel levy and the road accident fund levy – both of which 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 that there are discussions taking place on reviewing the formula for calculating fuel prices.
While the government has not indicated when the petrol price review will take place, Prime Minister Mondli Gungubele confirmed that it was still on the cards in a media briefing on Thursday (March 10).
While discussions are taking place, Eskom, the country’s most important energy supplier, is using diesel to service its gas-fired power plants, BofA said.
“Higher oil prices mean a higher cost of diesel and energy supply. With tariffs set in advance of a financial year, the additional cost of energy supply is likely to be passed on to consumers through higher tariffs.
“Either Eskom bears the higher costs or the government intervenes to provide extra support. In our opinion, extra government support to Eskom is likely to protect consumers from extra higher electricity costs and also to protect Eskom’s already weak financial position against further deterioration.
On Wednesday morning (March 9), CEO Jan Oberholzer told the media that Eskom currently uses nine million liters of diesel a day to keep its systems running.
Should the country run out of diesel reserves due to funding or the invasion of Russia and Ukraine, a worst-case scenario could introduce an additional six stages of load shedding.
The government is likely to intervene in petrol increases in South Africa and Eskom: economists
Source link The government is likely to intervene in petrol increases in South Africa and Eskom: economists