Do you remember when petrol was R1.74 a litre?

I’m sure many of you read this headline and thought, there’s no way that could be true? When was that, back in the 70’s?

But it wasn’t that long ago at all. This is in fact what we were paying for a litre of the new, unleaded 95 octane petrol when it was introduced in February 1996.

In fact, if you were to go back a little further, say 20 years back, to 1992, when you were using the old 97 octane petrol for your car, you were paying the exorbitant price of R1.46 a litre.

A little further back and you’d remember how the price of fuel soared on the back of Iraq’s invasion of Kuwait in 1990, jumping up to a staggering R1.23 a litre for 97 octane petrol at the coast.

Unfortunately that’s about as far back as the Department of Energy’s available petrol pump pricing records go, but I can tell you that, without the various fuel levies etc, the basic cost of 97 octane petrol in January 1989 was a mere 39c a litre.

So what makes fuel so expensive?

Well, it could have something to do with all the added bits and pieces charged per litre of fuel you use. After all, if you simply payed the basic fuel price, you’d be paying just short of R6,99 a litre for fuel this month.

According to the South African Petroleum Industry Association (SAPIA), the basic fuel price (BFP) is determined by a formula introduced in April 2003, which looks at maintaining an import parity price structure. The BFP formula reflects the realistic cost of importing a litre of product from international refineries with products of a similar quality compared to local South African specifications on a sustainable basis. Without getting too complicated, it is the fluctuation of this formula, which is influenced by factors such as the International petroleum market spot prices,Freight cost to bring product to South African ports,Insurance costs, Ocean loss allowance,Cargo Dues,Coastal Storage and Stock Financing Cost, which ultimately determine the increase or decrease in the petrol price.

But of course, that’s not all. In order to determine the final price at the petrol pump, there are also different charges which have to be taken consideration, such as certain domestic transport costs, government imposts, taxes and levies and retail and wholesale margins needs to be added to the international price.

So what are these additional charges. SAPIA explains it like this. (Prices in brackets are the September 2012 input costs per segment, rounded up to the nearest cent)

Transport costs (27c)

Keeping in mind that the fuel price is determined on an import based model, the transport cost recovers the cost of transporting fuel from the nearest coastal harbour (Durban, Port Elizabeth, East London, Mossel Bay or Cape Town) to the inland depot serving the area or zone. Transport to the different pricing zones are determined by using the most economical mode of transport i.e. pipelines (C zones), road (B zones) or rail (A zones). This is the only element where values differ per pricing zone, and is the reason why the petrol price is not the same for the whole country.

Delivery costs (21c)

This element compensates marketers for actual depot related costs (storage and handling) and distribution costs from the depot to the end user at service stations. The value is calculated on actual historical costs of the previous year, averaged over the country and industry.

Wholesale (Marketing) margin (53c)

Money paid to the oil company through whose branded pump the product is sold, to compensate for marketing activities.

This margin is controlled by the government, allowing for changes based on the oil companies’ return on their marketing assets. The formula used to determine the wholesale margin is based on the results of a cost/financial investigation by a chartered accountant firm into the profitability of the wholesale marketers.

The level of the margin is calculated on an industry basis and is aimed at granting marketers a return of 15% on depreciated book values of assets, with allowance for additional depreciation, but before tax and payment of interest.

Retail margin (96c)

The retail margin is fixed by the Department of Energy and is determined on the basis of actual costs incurred by the service station operator in distributing petrol.

Account is taken of all proportionate driveway related costs such as rental, interest, labour, overheads and profit. The way in which the margin is determined creates an incentive to dealers to strive towards greater efficiency, to beat the average and to realise a net profit proportionate to their efficiency.

Equalisation Fund levy (0c)

The statutory fund levy is a fixed monetary levy, and the fund is regulated by ministerial directives issued by the Minister of Mineral and Energy Affairs in concurrence with the Minister of Finance, as laid down by the Central Energy Fund Act, No 38 of 1977 as amended.

In terms of Ministerial Directives the Fund is principally utilised to smooth out fluctuations in the price of liquid fuels through slate payments; to afford synfuel producers tariff protection and to finance the crude oil premium (price differential applicable to SA oil purchases during the late 1970’s).

Fuel tax (R1.98)

Tax levied by Government annually adjusted by the Minister of Finance effective from the price change in April of each year, announced in the Minister of Finance in his annual budget speech.

Customs & Excise levy (4c)

A duty collected in terms of the Customs Union agreement.

Road Accident Fund (RAF) (88c)

The Road Accident Fund receives a fixed value which is used to compensate third party victims in motor accidents.

Slate levy (0c)

A levy paid by the motorists to recover money “owed” to the oil companies, due to the time delay in the adjustment of the petrol pump price.

So next time you stop and fill up your car, remember that for every litre that you put in, you’re doing your bit to help the South African economy.

As an aside, We all know that every time the fuel price goes up, there is a knock on effect on the price of goods and services? Did you ever stop and think about how this increase in price also increases the total amount of vat recovered by Government? For example, vat on an item that costs R10 before tax, is R1.40… if that item now costs R20 before tax, you pay R2,80 vat.