US embassy cable - 04PRETORIA4565

UNCLAS PRETORIA 004565 
 
SIPDIS 
 
STATE PLEASE PASS USGS 
USDOC FOR 4510/ITA/MAC/AME/OA/DIEMOND 
 
E.O. 12958: N/A 
TAGS: EPET, ENRG, EINV, EIND, SF 
SUBJECT: South Africa: Fuel Price Increases 
 
REF: PRETORIA 2998 
 
Summary 
------- 
 
1.   (U) On October 5, the Department of Minerals and Energy 
announced a 2.64% increase in the price of gasoline at retail 
outlets, accompanied by larger wholesale increases for diesel 
(5.9%) and kerosene (8.5%).  This comes after two successive 
price decreases in July and August.  The current price of 
gasoline is only a half a U.S. cent less than June's all time 
high (reftel).  Diesel and kerosene are at record highs.  The 
government has no plans to tap into its Fuel Equalization Fund to 
smooth retail gasoline price increases as it did in June. 
Analysts generally agree that South African economic growth will 
not be seriously hurt as long as fuel price increases subside 
during the next six to twelve months and there is no major 
weakening of the rand.  On October 6, Reserve Bank Governor Tito 
Mboweni flatly stated that surging oil prices were an 
inflationary risk and reduced the likelihood of another interest 
rate cut when the Monetary Policy Committee meets on October 13 
and 14.  So far, the continuing strength of the rand has 
protected South African consumers from the full impact of rising 
world crude oil prices.  End Summary. 
 
 
 
Government Announces a Fuel Price Increase 
------------------------------------------ 
2.   (U) On October 5, the Department of Minerals and Energy 
announced a 2 U.S. cents per liter (7.6 U.S. cents per gallon) 
increase in the price of gasoline, and approximately 4 U.S. cents 
per liter each for diesel and kerosene (approximately 15 U.S. 
cents per gallon each).  These increases raised the average 
retail price per liter of gasoline in Johannesburg to 73 U.S. 
cents ($2.76 per gallon) and the wholesale price of diesel and 
kerosene to 68 and 53 U.S. cents per liter ($2.58 and $2.00 per 
gallon), respectively.  Diesel prices in South Africa normally 
rise between October and March because winter demand for heating 
oil in the northern hemisphere drives up international prices. 
This routinely poses a problem for South African farmers, who use 
diesel to plough in the southern hemisphere's spring and summer. 
This year, however, the increases may lead to slightly higher 
food prices than otherwise would be the case. 
 
The Fuel Equalization Fund 
-------------------------- 
 
3.   (U) The Fuel Equalization Fund was established in the 1970's 
to subsidize SASOL's synthetic fuel production when SASOL was 
still a government corporation.  The government imposed a 1.2 
U.S. cents per liter levy on fuel sales to support the fund.  The 
levy was discontinued when the crude price went above $16/bbl, 
and reintroduced on a sporadic basis when crude prices were 
especially high.  This happened twice during the Gulf war in 2002 
and in June of 2004 when the government withdrew $20-25 million 
to take the edge off a big price increase.  Currently, the fund 
has a reserve of $70-80 million, enough to subsidize fuel prices 
for about four months at 2 U.S. cents per liter. 
The Central Energy Fund manages the fund, but Treasury and the 
Department of Minerals and Energy jointly control it. 
 
4.   (U) The South African Petroleum Industry Association, whose 
membership includes refinerers and retailers, predicts another 
round of fuel price increases in November.  If this happens, 
South African gasoline prices would reach another all-time high. 
Another factor that will determine prices is the strength of the 
rand.  Since June, the South African rand has weakened against 
the dollar some 5%; it is currently trading at around R6.5 to the 
dollar. 
 
MILOVANOVIC