Eskom Fiasco Could Lead To March Fuel Increase

Eskom's latest bout of load-shedding has thrown a metaphorical broomstick through the bicycle spokes, sending the South African economy reeling. Coupled with unrest, uncertainty and under-recovery, and we may be looking at consecutive fuel hikes over March and April.
Jason Snyman
2019-02-17

Eskom’s load-shedding dealt a massive blow to the fickle rand this week, intensified by a stronger US dollar and a number of other unpleasant international conditions working against our favour. 

According to energy analyst, Chris Yelland, Stage 2 load-shedding could cost a productive SA economy around R2 billion a day. Coupled with massive unrest and striking due to the trimming of the public sector workforce, and the prospects of a poor economic performance this year, we’ve seen investors make a beeline for the nearest exit. 

With the Eskom fiasco putting a gigantic dent in the local currency, South African motorists could very well be in for a sizeable petrol price increase this March. 

With the rand being sent over the edge of a waterfall in a barrel this week, we’ve seen it fluctuate between R14 – R14.30 to the US dollar. The weaker the rand is, the more expensive it becomes for the country to purchase international petroleum products. 

Let’s take a look at what the expected increases will be.

Fuel Price Hike Predicted For March

While our neighbour, Zimbabwe, was dealt a catastrophic blow a few weeks ago – with the local fuel becoming the most expensive in the world at R46.31 / litre – South Africa has enjoyed a brief run of consecutive price drops since December.

According to the latest data published by the Central Energy Fund on 14 February, however, the current fluctuations in fuel prices indicate an under-recovery of around 43 cents per litre of petrol and around 60 cents per litre of diesel. 

Under-recovery, (for those who enjoy learning something from traumatic experiences) is a term used to denote any national losses that oil companies may incur due to differences between the subsidized price at which the products (such as diesel or petroleum gas) are sold and the price they should have received in order to meet the cost of production. 

So, basically, the oil companies were selling something for way less than it cost to make, and then only realised this afterwards and got all hysterical about it.  

Adding to that, the price of global crude oil has climbed to around $64 a barrel, up from $60 a barrel last month. Therefore, we can expect to see the following price increases this March:

• Petrol – 43 cents per litre increase

• Diesel – 62 cents per litre increase

• Illuminating paraffin – 47 cents per litre increase

According to the AA, however, commenting on the unaudited fuel price data from the Central Energy Fund, if the trend lines for the rand and oil don’t level out, there could be much worse to come before month end. 

The Budget Speech Is Coming

Finance Minister, Tito Mboweni, will be delivering the budget speech on 20 February, with the market expecting clarity on the current state of South Africa’s finances, and answers to how the government is planning on balancing the (rather discouraging) state budget. 

We’re in for quite a show. 

Furthermore, analysts expect little to be mentioned of taxes (considering that elections are around the corner), but it is understood that fuel taxes will still feature too heavily for comfort. 

Tax experts have noted that the general fuel levy has been increased significantly in each of the last four budgets, undoubtedly as a means of raising additional tax revenues without many people noticing.

Since the 1% increase in VAT last year, however, more people have begun to pay attention to what we’re paying for and why, and drastic hikes in the fuel levy may prove to be an unviable option for the government this time around. 

We may still see a fuel levy increase in line with inflation, though, at around 15c to 20c per litre, and we’re more than likely to suffer an increase in the Road Accident Fund levy of around 30c per litre.

Of course, any of these increases will only impact the price of fuel come April. 

Yay. 

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