South Africa weighs fuel price cap, rationing, to cut costs

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(Bloomberg) – South Africa could introduce a petrol price cap and ration the amount of fuel sold to motorists to mitigate the impact of rising oil prices resulting from the war in Ukraine.

Adopting these measures would put South Africa on a growing list of countries trying to offset the impact of soaring oil prices. Brazil has approved a bill to reduce fuel taxes; Japan will increase gasoline subsidy caps and South Korea will extend its 20% domestic tax cuts for three months until the end of July, according to BloombergNEF.

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“We are part of the global energy supply chain and so we are affected by this international conflict,” Deputy Director General of the Department of Mineral Resources and Energy, Tseliso Maqubela, told Cape Town lawmakers on Tuesday. “Possible mitigating measures to counter the impact of rising fuel prices would be strict enforcement of speed limits, the encouragement of working from home again, limits on exported diesel quotas and even the possibility to limit the quantity of fuel per motorist.

South Africa does not produce crude and has increased its fuel imports by closing domestic refineries that will not be able to meet changing low-carbon standards. The government regulates fuel prices, which include a tax used to finance an accident victims’ compensation fund, as well as other levies that amount to about a third of what consumers pay.

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In February, the National Treasury kept all fuel taxes unchanged for the first time since 1990.

“The South African government has become addicted to the current fuel price structure because it is the third largest source of tax revenue and the easiest to collect,” Iraj Abedian, an economist and founding member of Pan-African, said over the phone. Investments from Cape Town. .

The Treasury also said on Tuesday that other interventions, including a price cap previously mentioned by the DMRE, should be considered. The government stepped in to protect motorists from a price spike in 2018. The slate levy account, which was used to mitigate the rise at the time, had a negative balance of £5.1 billion rand ($336 million) at the end of January, according to data from the Central Energy Fund.

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CEF data shows that the retail price of petrol could rise by more than R2 per liter next month and the wholesale cost of diesel by more than R3, based on the average fuel under-recovery.

This would make transport and input costs for farming more expensive, drive up food prices and contribute to consumer price inflation.

“Over the past fifteen years, the energy pricing structure has changed rapidly and the formula should have been updated regularly,” said Abedian, who was a member of the Presidential Advisory Council in the early 2000s when the National Treasury and the Department of Energy designed the current fuel formula. “What needs to be done is to get the government out of its dependency and that cannot be done immediately.”

Read: Record petrol prices set to fuel South African inflation

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