US embassy cable - 05PRETORIA1574

UNCLAS PRETORIA 001574 
 
SIPDIS 
 
STATE PLEASE PASS USGS 
USDOC FOR 4510/ITA/MAC/AME/OA/DIEMOND 
 
E.O. 12958:  N/A 
TAGS: EPET, ENRG, ECON, EIND, SF 
SUBJECT:  SOUTH AFRICAN FUEL PRICES REACH ALL-TIME HIGHS 
 
REF:  PRETORIA 2998 
 
Summary 
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1.  On April 6, 2005, the Department of Minerals and Energy 
implemented across-the-board increases for gasoline, diesel, and 
kerosene fuels.  For the first time, the South Africa gasoline 
price breached the R5 per liter barrier ($3.14 per gallon).  This 
follows the substantial increases (8-12%) imposed in March.   The 
main cause for the April increase was the surge in the 
international price of crude and higher taxes.  Despite the 
record price, government has no plans to tap into its Fuel 
Equalization Fund to smooth retail gasoline price increases as it 
did last June.  Economists still believe that fuel price 
increases will not materially impact the South African economy in 
the short term, unless the rand weakens substantially against the 
dollar or there is a dramatic spike in the price of crude oil. 
End Summary. 
 
Government Announces Fuel Price Increases 
----------------------------------------- 
2.  On April 6, the Department of Minerals and Energy (DME) 
hiked the retail price for gasoline by 8.7% and wholesale prices 
for diesel and kerosene by 13.5% and 15.7%, respectively.  The 
table below shows the increase in the average price of fuel in 
Johannesburg. 
 
             Johannesburg Prices U.S. Dollars/gallon 
 
                                   March     April     %Change 
Gasoline - (retail)                2.89      3.14      8.7 
Diesel - 0.3% Sulfur (wholesale)   2.61      2.97      13.5 
Diesel - 0.05% Sulfur (wholesale)  2.68      3.09      15.3 
Kerosene  (wholesale)              1.97      2.28      15.7 
 
3.  During the period of assessment, from February 28 to March 
31, the rand/dollar exchange rate remained relatively unchanged 
at about R6.04, and therefore contributed negligibly to price 
increases.  On April 6, the Fuel Levy and the Road Accident Fund 
Levy were each increased by 0.85 U.S. cents per liter on gasoline 
and diesel.  With the exception of kerosene, across-the-board 
increases in these taxes and the rise in crude oil prices 
accounted for essentially all of the increase.  Tax now accounts 
for 33.6% of the final price of fuel, less than half that of the 
U.K. and France, but nearly twice that of the United States. 
Factors for the increases are broken out in the table below. 
 
              Price Increases (U.S. cents/gallon) 
 
                                   Crude     Taxes     Total 
Gasoline                           18.8      6.3       25.1 
Diesel - 0.3% Sulfur               28.8      6.5       35.3 
Diesel - 0.05% Sulfur              34.5      6.5       41.0 
Kerosene                           30.7      0.3       31.0 
 
4.  The cost breakdown of the new gasoline price is: 
 
  -- basic fuel price 49.0% 
  -- taxes and levies 33.6% 
  -- operating margin 17.4% 
 
No Cushion for Rising Fuel Prices 
--------------------------------- 
5.  Since January 2004, the price of fuel has increased about 
25%, considerably more than the 3-4% current inflation rate. 
Despite this substantial increase in fuel prices, there has been 
no talk of deploying the government's Fuel Equalization Fund to 
cushion prices, as was done in June 2004. 
 
Comment 
------- 
6.  Most South African economists continue to believe that 
fuel price increases will not materially impact the South African 
economy in the short term -- unless the rand weakens 
substantially against the dollar or there is dramatic spike in 
the price of crude oil.  While many economists believe that 
inflation may have bottomed at the current 3%, most do not 
believe that higher fuel prices will cause the economy to breach 
the Reserve Bank's upper inflation target of 6%, or cause a 
significant rise in food prices.  The international price of 
maize, which is the staple for the majority of South Africans, is 
at a seasonal low. 
 
FRAZER