The basic fuel price (BFP) used by the government to set the cost of fuel is supposed to represent the import parity price, that is, the price at which petrol, diesel or paraffin could be imported into the Republic.
But, if you were to shop for your own petrol around the world, you could land it here significantly cheaper than the BFP. The are a number of reasons for this discrepancy.
First, the Department of Minerals and Energy assumes that we import all our fuel as refined products, and ignores any we produce ourselves. The problem with this is that there are comparatively few refineries around the world that have sufficient surplus capacity to supply all our needs. So, we nominally ”buy” from Singapore and Mediterranean refineries (half from each). But Singapore prices are typically at least $1 a barrel higher than Med prices, because much of its crude oil has to be shipped across the Indian Ocean from the Arab Gulf, whereas much of the Med production is pipelined to the refineries. And both prices are higher than the Gulf prices, but ”of course” we can’t buy from the Gulf because there is insufficient capacity for our all needs. Still, if you or I wanted a bit of cheap petrol, we could trot off to the Gulf and buy a few barrels at an average of about $2 a barrel cheaper than you could get it on board a ship in Singapore or the Med. But we always ”pay” what is known as a ”spot premium”, whereas you or I would go for a cheaper contract rate.
Then the department estimates the shipping rates using the internationally recognised Worldscale rates for medium-range vessels, which is very logical but, of course, it ships petrol from Singapore or the Med, at rates significantly higher than those for the much shorter voyage from the Gulf. That adds about another $2 a barrel. Then there is demurrage on shipping and what is known as the average freight rate ”assessment”, an allowance on the Worldscale rate to cover day-to-day changes in rates — and, just to add insult to injury, a premium over and above all of this because we are using a South African port. But, if you or I were buying regularly, we would have our own ships or a decent shipping contract, and undercut the department’s shipping rate by, perhaps, $2,50.
Basically, you could go out tomorrow and buy your petrol or diesel or paraffin and get it to a South African port at about $4,50 a barrel (at most) less than the BFP.
Why do the petrol companies bother to refine? The answer is that they pay no attention to the BFP — they buy crude direct from their own sources in the Gulf, ship it here in their own long-range tankers, refine it in their own refineries, and make just a little more than $4,50 a barrel.
Philip Lloyd is an energy researcher at the University of Cape Town