Composition of fuel prices

THERE WAS a respite but it's hit again. We're talking about the wholesale price of diesel which, in May, went up by another 11.6 cents a litre. The bad news is that the pundits are predicting further increases as the year goes by. FleetWatch has, in a past issue, published the factors that go towards making up the price of petrol, diesel and illuminating paraffin. With this being a special supplement on diesel, we do so again here using information supplied by the Department of Minerals and Energy for the May adjustments. We once again urge those transporters who do not have fuel price adjustment clauses built into their contracts, to share this information with their clients so as to get the burden of price hikes evened out.

ECONOMIC FACTORS AFFECTING THE UNDER-RECOVERIES FOR THE PERIOD 26 MARCH 2001 TO 25 APRIL 2001

During the period under review, the average international prices of petrol and diesel  increased and that of illuminating paraffin decreased.

The average Rand/US Dollar exchange rate weakened when compared to the previous period.  The average Rand/US Dollar exchange rate for the period 26 March 2001 to 25 April 2001 was 8.0677 compared to 7.8383 during the previous period.

ADJUSTMENT TO THE WHOLESALE MARGIN OF THE OIL INDUSTRY

The Minister of Minerals and Energy approved an increase of 2.58 cents per litre in the wholesale margin of the oil industry and that this increase be implemented into the price structures of petrol, diesel and illuminating paraffin with effect from 2 May 2001.

PRICE ADJUSTMENT

   In terms of the agreed mechanism:

(a) Price changes are adjusted in such a manner that the over-or under-recovery during the prior month will be corrected in the following month; and

(b) The unit over-or under-recoveries are rounded up or down to the nearest full cent so that the effect of rounding contributes to the clearing of the cumulative balance of the individual products on the slate.

With effect from 3 March 1999 an additional mechanism has been approved by the Minister of Minerals and Energy, intended to assist in management of cumulative slate balances and which operates as follows:

Should the cumulative individual slate balances (positive or negative) exceed R10 million for petrols, R5 million for diesel, or R1 million for illuminating paraffin, an additional 1.0 cent per litre will be added or subtracted to the price as determined in (a) and (b) above, depending on the status of the individual slate balances.

 REPORT OF THE INDEPENDENT AUDITORS

The application of the mechanism to determine the price adjustments was checked on a test basis by Grant Thornton Kessel Feinstein and they reported that no errors were detected based on their procedures.  The annexure attached does not form part of their report.

ANNEXURE

The annexure attached contains details of the composition of product prices as well as history of the price changes.