International petroleum market spot prices
The largest component of the basic fuels price is the price that one would be paying on
international markets when physically importing product to South Africa. The FOB (Free on ship’s
board) product prices from different locations in the world, based on international product
availability and product quality, are used. The petrol FOB price is calculated as 50% of the
Mediterranean spot price for Premium unleaded petrol and 50% of the Singapore spot price for
95 Octane unleaded petrol. For the FOB price of Diesel, the BFP formula use spot prices
( Distillates 50%)
Cargo Dues, Losses
calculated as 50% of the Mediterranean price for Gas oil and 50% of the Arab Gulf price for Gas
oil, plus the quoted spot price market premiums applicable.
Freight cost to bring product to South African ports
The freight component of the BFP reflects the cost of voyages from Augusta (in the
Mediterranean), Singapore and Mina-al-Ahmadi (in the Arab Gulf), in 50:50 combinations as
appropriate to the international markets used in the FOB calculations of the products concerned.
Tariffs as published by the World Scale Association for transporting refined products via mediumrange
vessels to a weighted average for South African coastal ports, plus demurrage for an
average 35 000 ton vessel for 3 days, adjusted with the Average Freight Rate Assessment
(AFRA) of the London Tanker Brokers Panel, plus a market premium for transporting fuels to
Calculated as 0.15% of the product FOB and freight costs, to cover insurance cost, as well as
other costs such as letters of credit, surveyors’ and agents’ fees, and laboratory costs.
Ocean loss allowance
In international petroleum products trading, shipping and insurance, a loss of 0.3% for products
has been accepted as a normal leakage/clingage and evaporation loss. Simply put, this means
that the “normal” loss is not insurable and has to be accepted by the buyer. The buyer therefore
has a financial loss of 0.3% of FOB, Insurance and Freight costs.
The BFP calculates Cargo Due charges in terms of the ruling National Ports Authority of South
Africa “contract” tariffs for “petroleum products”.
This element allows recovering of the costs realistically incurred in a substantial import scenario,
related to costs of the handling facilities at coastal terminals providing storage.
Stock Financing Cost
The BFP includes a charge for the financing of 25 day’s coastal stock of an importer, at an
interest rate of 2 percentage points below the ruling prime rate of the Standard Bank of South
The BFP as determined above is converted to SA cents per litre by applying the applicable SA
Rand/US Dollar exchange rate (four banks selling rates at eleven o’ clock averaged over the
pricing period before the price change), and a constant litre per gallon factor of 3.8038 for petrol.
2. Domestic Elements
To arrive at the final pump price in the different pricing zones (magisterial district zones) certain
domestic transport costs, government imposts, taxes and levies and retail and wholesale margins
needs to be added to the international price.
a. Transport costs
Keeping in mind the import principle used, this element recovers the cost of transporting
petroleum products from the nearest coastal harbour (Durban, Port Elizabeth, East
London, Mossel Bay or Cape Town) to the inland depot serving the area or zone.
Transport to the different pricing zones are determined by using the most economical
mode of transport i.e. pipelines (C zones), road (B zones) or rail (A zones). This is the
only element which values differ per pricing zone, and is the reason why the petrol price
is not the same for the whole country.
b. Delivery costs
This element compensates marketers for actual depot related costs (storage and
handling) and distribution costs from the depot to the end user at service stations. The
value is calculated on actual historical costs of the previous year, averaged over the
country and industry.
c. Wholesale (Marketing) margin
Money paid to the oil company through whose branded pump the product is sold, to
compensate for marketing activities. This margin is controlled by the government,
allowing for changes based on the oil companies’ return on their marketing assets.
The formula used to determine the wholesale margin is based on the results of a
cost/financial investigation by a chartered accountant firm into the profitability of the
wholesale marketers. The level of the margin is calculated on an industry basis and is
aimed at granting marketers a return of 15% on depreciated book values of assets, with
allowance for additional depreciation, but before tax and payment of interest.
d. Retail margin
The retail margin is fixed by DME and is determined on the basis of actual costs incurred
by the service station operator in distributing petrol. Account is taken of all proportionate
driveway related costs such as rental, interest, labour, overheads and profit. The way in
which the margin is determined creates an incentive to dealers to strive towards greater
efficiency, to beat the average and to realise a net profit proportionate to their efficiency.
e. Equalisation Fund levy
The statutory fund levy is a fixed monetary levy, and the fund is regulated by ministerial
directives issued by the Minister of Mineral and Energy Affairs in concurrence with the
Minister of Finance, as laid down by the Central Energy Fund Act, No 38 of 1977 as
amended In terms of Ministerial Directives the Fund is principally utilised to smooth out
fluctuations in the price of liquid fuels through slate payments; to afford synfuel producers
tariff protection and to finance the crude oil “premium (price differential applicable to SA
oil purchases during the late 1970’s).
f. Fuel tax
Tax levied by Government annually adjusted by the Minister of Finance effective from the
price change in April of each year, announced in the Minister of Finance in his annual
g. Customs & Excise levy
A duty collected in terms of the Customs Union agreement.
h. Road Accident Fund (RAF)
The Road Accident Fund receives a fixed value which is used to compensate third party
victims in motor accidents.
i. Slate levy
A levy paid by the motorists recovering money “owed” to the oil companies, due to the
time delay in the adjustment of the petrol pump price.