Why do we pay R 20 for petrol worth R 10?

The last few months have seen a dramatic increase in the price of petrol. The latest was a 3.99% increase from last month. This is merely the latest increase that has seen fuel prices rise by over 40% since December 2020. This has hit the pockets of consumers and placed upward pressure on consumer inflation. You may be wondering, precisely how is the fuel price calculated?

The Department of Mineral Resources and Energy (DMRE) determines the cost of fuel in South Africa using a set formula. The formula considers several factors some of which are outside the control of South Africa and the government. This includes the cost of oil, freight, demurrage and coastal storage. One major factor that has significantly influenced the price of petrol is that the price of brent crude oil has increased significantly over the past year. Since the price of fuel is largely purchased from international markets the weak Rand/Dollar exchange rate aggravates an already bleak situation.

The second group of components that determine the cost of fuel is domestic and something that South Africans potentially have a bit more control over. This includes the petroleum pipeline levy, wholesale and retail margin. Other major domestic components contributing towards the price of fuel are taxes and levies. According to Statistics South Africa, 33% of the price of fuel comes from taxes and levies. The two biggest are the Road Accident Fund and the general fuel levy. These are announced by the minister of finance and has seen a substantial increase in recent years. Since January 2008 the general fuel levy has increased by a whopping 225%. However, the Road Accident Fund levy overshadowed even the general fuel levy and increased by 425% since January 2008.

The table below uses information from the Department of Mineral Resources and Energy to give a breakdown of the cost of petrol at the pump.

Yes, you read the table correctly. The actual price of petrol is under R 10.

Allah knows best