A NEW BASIC PRICE FORMULA FOR SOUTH AFRICA Department of Minerals and Energy Republic of South...
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A NEW BASIC PRICE FORMULA FOR SOUTH
AFRICADepartment of Minerals and Energy
Republic of South Africa
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The “Basic Fuels Price” (BFP) will replace the “In Bond Landed Cost” (IBLC) as the basis for fuels product cost valuation in the regulated fuels pricing system, i.e. for:
- local ex refinery prices -deemed value for imports-value for slate-accounts
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IBLC Background
Originated in 1954 with the first (Mobil) refinery in Durban
Revised by NEDLAC in 1995 Based on 80% contract prices and
20% spot prices 75% Singapore and 25% Arab Gulf
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IBLC in the Petrol pricePetrol Price Gauteng February 2003
392c/litre
28
33
512
95
41912
194
Wholesale margin
Retail Margin
ServiceDifferentialZone Differential
Fuel Levy
SARS duty
Road AccidentFundSlate
Equalisation Fund
IBLC
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Shortcomings of IBLC
IBLC relies on “Posted” [term]FOB prices of overseas export refineries which are outdated and no longer reflect the realities of petroleum markets
Shifts in world markets For this and other reasons, does not
provide a realistic, market-related import parity basis required for the regulated fuels system
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Process
Several investigations done
Consultations with SAPIA & AMEF
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Underlying Principles of B F P
To represent the realistic, market-related costs of importing a substantial portion of SA’s liquid fuels requirements
From overseas refining centres capable of meeting SA’s requirements in terms of both product quality and sustained supply considerations
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Main differences – BFP vs IBLC
BFP relies on “spot” [cash] F.O.B prices quoted in Platts which tracks actual daily fuels trading prices at export refineries
BFP reflects all the other costs incurred in actual imports
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Composition of the Basic Fuel Price
Spot prices – Platts daily quotations- Petrols = 50/50 Med. & Singapore- Diesel & I P = 50/50 Med & Arab Gulf
Ocean freight, demurrage and wharfage Insurance & sundries Ocean loss Coastal storage and finance costs
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BFP / IBLC comparisons
[BFP less than IBLC, c/l - averages]
1996 to 2002Petrol [93 leaded] 4
Diesel 7
Paraffin 10
(larger in last two years)
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The BFP will lead to
Savings to motorists Lower income to the refining
industry (particularly when compared with the recent past)
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Concerns expressed
Refiners: • the long term viability of the refinery industry• new investments in the industry to meet
improved fuel specifications BEE companies: (without refining
interests) where profitability is to a large extent dependent on discounts
Synthetic fuels producers: who do not have marketing operations
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National Perspective
The BFP methodology will result in more realistic, defensible and market-related pricing of fuels, which will result in lower prices than if continuing with the outdated IBLC system
Every 1 c/litre saving in petrol and diesel equates to some R150 million per year in S A.
Implementation should be possible without compromising the viability of the local liquid fuels refining industry.
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Details at
http://www.dme.gov.za/