US embassy cable - 05PRETORIA992

UNCLAS PRETORIA 000992 
 
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 RAISES FUEL PRICES 
 
REF: PRETORIA 2998 
 
Summary 
------- 
 
1.   (U) On March 2, 2005, the Department of Minerals and Energy 
implemented an across-the-board increase for gasoline and diesel 
fuel.  This came after three successive price decreases in 
December, January, and February.  Government attributes the price 
hike to a lower average value of the rand against the dollar and 
the higher crude oil price that prevailed over the assessment 
period, i.e., January 26 to February 26.  The government has no 
plans to tap into its Fuel Equalization Fund to smooth retail 
gasoline price increases as it did last June.  In his budget 
speech on February 23, Minister of Finance Trevor Manual 
announced an increase in the tax on gasoline and diesel beginning 
in April.  End Summary. 
 
Government Announces a Fuel Price Increase 
------------------------------------------ 
 
2.   (U) On March 2, the Department of Minerals and Energy (DME) 
hiked the retail price for gasoline by 10% and wholesale prices 
for diesel and kerosene by 8.6% and 12.5%, respectively.  This 
equated to a 7 U.S. cent per liter (26.5 U.S. cents per gallon) 
increase in the price of gasoline, and a nearly 6 U.S. cent per 
liter increase for both diesel and kerosene (or almost 22 U.S. 
cents per gallon).  These increases have raised the average 
retail price per liter of gasoline in Johannesburg to 77 U.S. 
cents ($2.91 per gallon) and the wholesale price of diesel and 
kerosene to 71 and 52 U.S. cents per liter ($2.69 and $1.98 per 
gallon), respectively. 
 
3. (U) The DME attributed the increases to the slightly weaker 
rand vis-a-vis the dollar and higher crude prices during its 
January 26 to February 26 assessment period.  The rand averaged 
6.04 to the dollar versus 5.92 during the previous period. 
Nevertheless, the increase came as a shock to consumers who 
expected closer to a U.S. 7 cent per gallon rather than a U.S. 7 
cent per liter increase. 
 
4. (U) Despite the large rise in retail prices, there has been no 
talk of deploying the government's Fuel Equalization Fund to 
moderate prices, as was the case in June 2004 when prices also 
rose by 22 U.S. cents per gallon.  Using a rand/dollar exchange 
rate of 6.00, the current price of gasoline per gallon (US$2.92) 
is about 15 U.S. cents less than November's all time high of 
$3.07 per gallon.  Diesel and kerosene are 23 and 26 U.S. cents 
below the respective record highs of November's $2.84 and $2.23 
per gallon. 
 
Increased Fuel Taxes Coming in April 
------------------------------------- 
 
5. (U) It does not appear that the price hike will impact the 
government's intention to raise taxes on fuel.  In his budget 
presentation to Parliament on February 23, Minister of Finance 
Trevor Manuel announced increases in the General Fuel Levy (GFL) 
and Road Accident Fund Levy (RAFL) of S.A. 5 cents per liter 
(less than U.S. 1 cent per liter, or U.S. 3 cents per gallon). 
These tax increases are to take effect on April 6, bringing the 
total tax on gasoline and diesel to 36.1% and 35.3% of the pump 
price, respectively. 
 
6.   (U) Comment:  Analysts remain confident that South African 
economic growth should not be seriously hurt in the short term by 
these increases.  The continued strength of the rand against the 
dollar has protected South African consumers from the full impact 
of rising world crude oil prices.  However, if U.S. interest 
rates continue their ascent, thus strengthening the dollar, South 
African consumers could another big price increase at the pump in 
the future.  This could fuel inflation concerns and have negative 
implications for a hoped for cut in domestic interest rates, a 
topic of considerable interest within the South African business 
community since December 2004.  End comment. 
FRAZER