Have your say on BFP review

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Basic Fuel Price

The public has until 31 January next year to submit their comments with regards to the review of the Basic Fuel Price (BFP) structures for petrol, diesel and illuminating paraffin.

The Department of Energy (DoE) recently published a discussion document on the review of the BFP structures.

In South Africa, while the wholesale price of petrol, diesel and illuminating paraffin (IP) are not regulated, the pump prices (retail prices) of all grades of petrol are regulated and government also sets the Single Maximum National Retail Price (SMNRP) for IP.

The regulation of the prices of petroleum products or some control of the prices is meant to protect consumers against high prices and to ensure that markets develop in an orderly manner.

The DoE said at the time that the BFP was implemented, South Africa was a net exporter of refined petroleum products.

It was first introduced in 1999 as a formula to calculate prices of petroleum products produced by the South African refining industry.

“The BPF does not take the true production and associated costs of refining locally but rather takes the view of what the alternative costs would be to import refined product into South Africa, thereby establishing a deemed import parity price. The BFP is a deemed import parity price used as a benchmark to determine domestic fuel prices,” said the department.

In 2004, a revised BFP formula was implemented to reflect a true import parity price with the inclusion of stock costs and stock financing among others.

The current composition of the BFP includes freight, insurance, cargo dues and ocean leakage, among others.

Reference markets

When coming to reference markets, although South Africa was a net exporter of fuels prior to 2006, from time to time fuels were imported to supplement local supply due to refinery shutdowns.

Reference markets are referred to as a big refining centres which have huge storage facilities to supply the world with petroleum products.

Currently, reference markets used for the BFP for petrol and illuminating paraffin is currently based on the Mediterranean area (50%) and Singapore (50%) and that of middle distillates (diesel and illuminating paraffin).

For diesel and illuminating paraffin, it is 50% from the Mediterranean area and 50% from the Arab Gulf.

“The department recommends that the reference markets be revised as follows: 70% free on board (FOB) Singapore and 30% FOB Arab Gulf for diesel and illuminating paraffin and 60% FOB Singapore and 40% FOB Mediterranean for petrol,” noted the document.

These combinations and weighting imply that the Mediterranean would no longer be a reference market for diesel, nullifying concerns relating to the absence of quotations for appropriate Sulphur grades.

FOB is the price of the petroleum products on board the vessel and ready to depart.

Freight

On freight, which comprises three elements including a 15% premium added to the Average Freight Rate Assessment (AFRA), that the premium should be removed.

It said that during investigations this premium could not be justified.

“The freight rate includes all the costs associated with transporting products from international markets to their respective destinations. The department recommends that the 15% premium should be removed from the freight rate and actual freight costs be obtained from the relevant international pricing agencies.”

The department envisages that the revised BFP formula will be implemented in 2019 following extensive consultation with stakeholders.

“The department will consolidate the comments and conduct a workshop before finalising its position on the BFP review.”

Comments on the document can be sent to Robert Maake and Mashudu Sinthumule by email at raphe.maake@energy.gov.za and mashudu.sinthumule@energy.gov.za .

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