Identifier
Created
Classification
Origin
05PRETORIA1574
2005-04-20 13:47:00
UNCLASSIFIED
Embassy Pretoria
Cable title:  

SOUTH AFRICAN FUEL PRICES REACH ALL-TIME HIGHS

Tags:  EPET ENRG ECON EIND SF 
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UNCLAS PRETORIA 001574 

SIPDIS

STATE PLEASE PASS USGS
USDOC FOR 4510/ITA/MAC/AME/OA/DIEMOND

E.O. 12958: N/A
TAGS: EPET ENRG ECON EIND SF
SUBJECT: SOUTH AFRICAN FUEL PRICES REACH ALL-TIME HIGHS

REF: PRETORIA 2998

Summary
-------
UNCLAS PRETORIA 001574

SIPDIS

STATE PLEASE PASS USGS
USDOC FOR 4510/ITA/MAC/AME/OA/DIEMOND

E.O. 12958: N/A
TAGS: EPET ENRG ECON EIND SF
SUBJECT: SOUTH AFRICAN FUEL PRICES REACH ALL-TIME HIGHS

REF: PRETORIA 2998

Summary
--------------

1. On April 6, 2005, the Department of Minerals and Energy
implemented across-the-board increases for gasoline, diesel, and
kerosene fuels. For the first time, the South Africa gasoline
price breached the R5 per liter barrier ($3.14 per gallon). This
follows the substantial increases (8-12%) imposed in March. The
main cause for the April increase was the surge in the
international price of crude and higher taxes. Despite the
record price, government has no plans to tap into its Fuel
Equalization Fund to smooth retail gasoline price increases as it
did last June. Economists still believe that fuel price
increases will not materially impact the South African economy in
the short term, unless the rand weakens substantially against the
dollar or there is a dramatic spike in the price of crude oil.
End Summary.

Government Announces Fuel Price Increases
--------------

2. On April 6, the Department of Minerals and Energy (DME)
hiked the retail price for gasoline by 8.7% and wholesale prices
for diesel and kerosene by 13.5% and 15.7%, respectively. The
table below shows the increase in the average price of fuel in
Johannesburg.

Johannesburg Prices U.S. Dollars/gallon

March April %Change
Gasoline - (retail) 2.89 3.14 8.7
Diesel - 0.3% Sulfur (wholesale) 2.61 2.97 13.5
Diesel - 0.05% Sulfur (wholesale) 2.68 3.09 15.3
Kerosene (wholesale) 1.97 2.28 15.7


3. During the period of assessment, from February 28 to March
31, the rand/dollar exchange rate remained relatively unchanged
at about R6.04, and therefore contributed negligibly to price
increases. On April 6, the Fuel Levy and the Road Accident Fund
Levy were each increased by 0.85 U.S. cents per liter on gasoline
and diesel. With the exception of kerosene, across-the-board
increases in these taxes and the rise in crude oil prices
accounted for essentially all of the increase. Tax now accounts
for 33.6% of the final price of fuel, less than half that of the
U.K. and France, but nearly twice that of the United States.
Factors for the increases are broken out in the table below.

Price Increases (U.S. cents/gallon)

Crude Taxes Total
Gasoline 18.8 6.3 25.1
Diesel - 0.3% Sulfur 28.8 6.5 35.3
Diesel - 0.05% Sulfur 34.5 6.5 41.0
Kerosene 30.7 0.3 31.0


4. The cost breakdown of the new gasoline price is:

-- basic fuel price 49.0%
-- taxes and levies 33.6%
-- operating margin 17.4%

No Cushion for Rising Fuel Prices
--------------

5. Since January 2004, the price of fuel has increased about
25%, considerably more than the 3-4% current inflation rate.
Despite this substantial increase in fuel prices, there has been
no talk of deploying the government's Fuel Equalization Fund to
cushion prices, as was done in June 2004.

Comment
--------------

6. Most South African economists continue to believe that
fuel price increases will not materially impact the South African
economy in the short term -- unless the rand weakens
substantially against the dollar or there is dramatic spike in
the price of crude oil. While many economists believe that
inflation may have bottomed at the current 3%, most do not
believe that higher fuel prices will cause the economy to breach
the Reserve Bank's upper inflation target of 6%, or cause a
significant rise in food prices. The international price of
maize, which is the staple for the majority of South Africans, is
at a seasonal low.

FRAZER