SAFTU demands measures to cut the price of fuel

3 October 2018

The South African Federation of Trade Unions is extremely concerned at yet another increase in the price of fuel, which will have a devastating impact on millions of South Africans who are still struggling from increases in VAT, the Fuel and Road Accident Fund levies and earlier fuel price rises. 

At midnight the cost of 93 and 95 grades of petrol will increase by 99 cents and 100 cents a litre respectively. The cost of diesel will go up even more, by R1.24 a litre, illuminating paraffin by R1.39 per litre and the maximum price of Liquified Petroleum gas by R1.79 per kilogramme.

The Automobile Association is right to warn that these increases will be “catastrophic” for road users. But it will not only be motorists who suffer. As always the immediate increase in the fuel price will soon be followed by rises in taxi and bus fares and then by the prices of all the goods that are transported to the shops by road. 

The 55% of 14 million South Africans who are already living in poverty will be joined by thousands more who will have to cut their spending.

Overall household consumption will fall. The South African Reserve Bank points out that It has already dropped by 1.3% in he second quarter of 2018 as spending on goods declined, particularly durable goods which were down 11.2%. This is cutting the overall level of spending on goods and services, which will slow down economic growth and lead to even more lost jobs.

The petrol increase is being blamed on “International factors”, mainly the rising cost of crude oil at a price set internationally - from $74.25 to $78.25 per barrel, because of the unwillingness by the Organisation of Petroleum Exporting Countries to increase their production outputs - and to the fall in value of the rand against the dollar. 

The government, which sets the price of petrol at the pump, must act immediately to repeat what it did in September and freeze the price of petrol to provide temporary relief for consumers. Yet it is refusing to do the same this month.  

The government must also abolish the fuel levy which is charged on every litre of petrol sold. It rises automatically every time the petrol price rises, yet has nothing to do with world market prices. It is really just a tax, administered by the National Treasury, which treats it as a general tax and not, as many people assume, for road-related expenses.

The Road Accident Fund levy, which is supposed to be used to compensate victims of road accidents, also increases every time petrol goes up. In July it stood at R1.93 per litre of petrol. Yet this fund has been riddled with inefficiency and corruption. Accident victims and commuters are paying for a loss of R34.7bn in 2017. In just one example it spent R500 000 per month hiring 300 chairs for their offices.

Combined, the fuel levy and the RAF levy constitute R5.30 of every litre of fuel sold in the country. Filling a 50 litre tank with 93 unleaded petrol inland costs R711.50. This is comprised of the Fuel Levy - R168.50, RAF levy – R96,50, associated costs of transporting, storing, wharfing and insurance –R156, leaving just R290.50 for the basic fuel price, which is less than half of what you pay at the pump!.

The levies should be scrapped and the lost revenue replaced by taxes on the rich, including a wealth tax and solidarity tax. Further revenue must be raised by reclaiming all the money looted from the fiscus by tax evasion, illicit capital transfers and corruption, including within SARS itself.

In the longer term the government must urgently find ways for South Africa to escape the stranglehold of the world market by producing fuel locally and selling it at the price of production rather than that dictated by the world economy.

Sasol’s plant in Secunda is by far the world’s largest producer of oil from coal and it already produces 60 million barrels of liquid fuel a year, which meets about 30% of South Africa's annual fuel needs.

Coal-to-liquid technology becomes economically viable when oil prices reach $50 a barrel. Until 2003, when oil prices averaged $25 a barrel, liquid coal was economically prohibitive, but today’s oil price of $78.25 a barrel, make it highly profitable.

So why does Sasol still sell this petrol at world-market related prices? The only explanation is that it is a privatized company, which seeks to make quick profits with no regard for the long-term interests of the economy. 

Selling fuel at today’s market price when it is well above the cost of production yields massive profits. The company’s share value has generally tracked the oil price — both have risen about 34% over the past 12 months.

As a result Sasol is even abandoning plans to expand its coal-to-oil production. Its President and CEO Stephen Cornell told Business Day: "This is our last coal-to-liquids operation for the world.” Asked why, his response was that "the basic business case is challenged, in terms of making a return on the investment”, which is business talk for not profitable enough. 

The government, by fixing fuel prices based on the world market, enables Sasol to make these massive profits. 

It is similar to the import-parity pricing policy of Accelor Mittal, another privatised company which charges South African consumers the price for locally produced steel that they would have to pay for the same steel as  if they had been imported.

The government must therefore renationalise Sasol and ArcelorMittal, increase the production of petrol from coal and sell it at a price that reflects the cost of production. In the long run this could make South Africa self-sufficient in fuel, bring down prices and earn money from exporting it to other countries.

Issued by Patrick Craven, SAFTU Acting spokesperson, 3 October 2018