SA to hike fuel prices, again

Economists last week said the cost of petrol and diesel in South Africa could go up by about 34 cents a litre this week, due to the effects of high oil prices on the weak rand.

They said the fall of the rand against major currencies had possibly been the major reason behind the fuel price hike, as the currency could not keep up with persistently high oil prices.

Buoyed by the gold price’s 25-year high surge in April, the rand strengthened to about R5.99 to the dollar but fell back to about R6.59 against the greenback in May.

“The major problem has been that the international oil prices have remained high, at about US71 cents a barrel, for the entire month of May while unfortunately the rand has fallen during that time,” Absa Bank economist Ridle Markus said.

“The major driver remains the dollar price of brent crude oil. For May, it was exacerbated by the rand weakening. Motorists could be paying an additional 34 cents per litre for fuel,” economist Tony Twine added.

He said the rise in oil prices is understood to have been triggered by Iran’s unresolved nuclear programme, which has seen several oil producing nations releasing less oil into the market.

The result has been a crippling effect on non-oil producing nations that have had to suffer the huge cost of importing fuel and the resultant high cost of commodities that the fuel increases have inspired.

The economists said the increase in fuel costs in South Africa could result in increased costs of commodities in other countries across the entire Southern Africa Development Community (SADC), which is largely dependent on South Africa for goods imports.

“It is quite a simple matter really, once fuel prices go up here the costs of, say transporting goods to another country in the region, will also increase and that means whoever is importing those goods may have to charge a higher cost as well,” Markus said.

The South African government hiked fuel prices by 39c a litre at the beginning of May, bringing the average cost of a litre of petrol to R6 in the central Gauteng province that is the country’s economic hub.

In April, economists had predicted that the price could rise by up to 55c a litre in May and June if the surge in the price of crude oil continued.

The department of minerals and energy was expected to make a statement on the anticipated price hikes on Friday.

The analysts said they expected the price increases to have massively adverse effects on South Africa ‘s economic performance, saying the increase would “account for millions of dollars throughout the country’s economy”.

Last year, the whole SADC region experienced a wave of price increases that were then the highest ever, with most countries in the region hiking fuel charge on the back of a surge in international oil prices.

At the time economic analysts also said the region would likely experience a boom in commodity and transportation costs, with retailers and transport operators pushing the rising charges of fuel onto their customers.

The result, they said, could be a hike in the cost of living in SADC and a widespread slow-down in cross border trade levels and general consumer purchasing patterns over the next few months.

While the fears over the current SA price hike have not reached such alarming levels, there are indications that fuel price increases could also soon follow in other parts of the region.

In another report, the Mozambican Ministry of Energy last week announced substantial increases in the price of all liquid fuels, taking effect immediately.

The largest increase is for fuel oil, which rises in price by a massive 54,9 percent, from 10 177,4 to 15 764,7 meticais a litre (at current exchange rates there are about 25 200 meticais to the US dollar).

Motorists are faced with a 10,9 percent rise for petrol which now costs 27 730 rather than 25 000 meticais per litre.

For diesel-powered vehicles, the rise is steeper, at 16,2 percent.

A litre of diesel now costs 26 220 up from 22 560 meticais.

Jet fuel is up by 8 percent, from 19 016,9 to 20 544,2 meticais a litre, while paraffin goes up from 14 250 to 15 680 meticais a litre, a rise of 10 percent.

For LPG cooking gas, the increase is 11,9 percent, rising from 23 000 to 25 732.2 meticais per kilogramme.

Earlier this year there was a fall in fuel prices, but those gains for consumers have been wiped out, and the cost of diesel is now at an all-time high. Petrol is still cheaper than it was in late 2005, when the price was 29 350 meticais a litre.

The government reviews fuel prices every month and increases (or lowers) them whenever the import price, calculated in meticais, moves in either direction by more than 3 percent, or when there is an alteration in fuel tax.

This time, the Energy Ministry justifies the increase by pointing to rises in the import prices of all petroleum products, and a depreciation of the metical against the US dollar of 9,63 percent since the last price rise (on May 4).

The new prices are valid for Maputo, Matola, Beira and Nacala, the port cities where the fuel is unloaded. Elsewhere in the country fuel distributors are allowed to add their transport costs when calculating the final price. ‘ Aim.

June 2006
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