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The cost of diesel has a considerable impact on the operational efficiency of a business. If businesses don’t take an intelligent, informed approach toward cost optimisation, they could be at risk of spinning their wheels. Knowing where to find reliable information and how pricing is determined enables them to monitor and respond swiftly to notable price changes.
The Central Energy Fund (CEF) typically announces fuel price changes the Monday before the first Wednesday of the month. Although the diesel price is deregulated at a wholesale level and at the pump, price changes still take effect on this Wednesday. The short notice between announcement and effective date leaves little time for businesses to respond efficiently. To counter this, some understanding and research during the preceding period will give a good indication of what to expect.
The price shifts are primarily due to changes in the Basic Fuel Price (BFP) monthly calculation – an exercise done by the CEF on behalf of the Department of Energy (DoE). These updated fuel prices are published as monthly press releases on the CEF’s website. The second influence to the price change is the Rand/Dollar exchange rate.
Additional information related to the fuel price calculations is also available on the websites of the South African Petroleum Industry Association (SAPIA) and the DoE.
Fuel prices explained
The composition of the fuel price comprises several domestic and international elements. The latter represents the BFP, which is based on an import parity price indicative of how much a South African importer would pay for fuel from the international market and ship it to local shores.
Local costs, taxes, duties, levies, and margins represent the domestic elements. They are added to the BFP to get to the final selling price within the country’s different transport zones or magisterial districts. The wholesale list price is often referred to as the “grid price” in these zones.
Fuel prices in coastal zones are usually lower than inland zones since they are closer to ports and have not incurred the cents per litre costs of transporting them to inland distribution centres. Such transportation takes place via a pipeline, rail, or road transport. SAPIA calculates these costs on behalf of the oil industry, subject to ministerial approval before being included in the oil company wholesale pricing structures.
Recoveries and the slate account
Although international markets and the Rand/Dollar exchange rate determine the BFP, the price charged to consumers are fixed for a month. Since the product prices on which the BFP is based and the exchange rate fluctuate daily, imbalances accumulate. I.e., if the monthly BFP is higher than the BFP on the day, an under-recovery occurs, which means end customers pay too little for the product. The inverse can be said for the opposite mechanism resulting in an over-recovery.
This cumulative under/over recovery is then multiplied by the volumes sold during that month, after which the aggregated figure is recorded on a slate account. This dynamic may result in a negative slate whereby CEF implements a slate levy to restore the balance.
Businesses keen to track the under/over-recoveries at any point in the month for an indicative view of the predicted price change can visit the CEF’s daily basic fuel price. Open the PDF document, and on the page, there will be a line entitled, “Average unit over/(under) recovery".
The closer to the first Wednesday of the new month a business accesses the webpage, the more accurate the anticipated change to the BFP.
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The calculation of the new price is done by the Central Energy Fund (CEF) on behalf of the Department of Energy (DOE).