"The latest findings on the impending fuel crisis in the fuel industry in South Africa were long awaited. The oil companies have for many years not invested their own capital to upgrade their outdated refineries and they are expecting it from the government to make the fuel consumer responsible for the costs of the upgrading," says Fanie Brink, an independent agricultural economist.
He responded to the report of a study which was released in Sandton today on the impact of the petroleum industry on the country's economy, commissioned by the South African Petroleum Industry Association (Sapia) and undertaken by KPMG.
South Africa has over the years fell behind the internationally accepted standards for the quality of fuel and according to the report it will cost about R53bn to upgrade all the local refineries to meet the cleaner fuel standards. The last technical adaptation for the mandatory phasing out and reduction of the lead and sulphur content in fuels cost the consumer billions of rand.
According to the KPMG report the upgrading of the country's refineries to produce cleaner fuels was drag out for a long time because it is too expensive and because there is an oversupply of refining capacity worldwide.
Brink says the consumer pays for virtually all the costs of the oil industry for the importing and refining of crude oil, while the industry's profit margins are guaranteed by the government's fixed formula. These costs include, in addition to the free-on-board prices in the exporting ports, also transport costs, insurance, physical losses, offload and storage costs in the local ports, as well as financing costs of inventories.
The regulated margins paid by motorists to oil companies to distribute fuel from the refineries to the filling stations also increased faster than the inflation rate over the past 16 years.
The country imports already as much as 25% of its gasoline and diesel requirements despite generous regulations that are specifically designed to ensure investment in oil refineries. The oil industry has in fact reached an impasse with the government on the investments needed to produce cleaner fuels. The industry don’t want to invest capital themselves and expects the government to compel motorists to provide the capital by way of an increase of the taxation on fuel, but worst of all, the oil companies, as in the past, again wants the return on this capital.
"The question that must sooner or later be asked is who actually owns the refineries after all.”
The phasing out of the local refining capacity that can’t meet the standards and an increase in imported fuels won’t cost the consumer much more money. The prices that the local oil companies receive for their refined petroleum products is in any case based on the prices for the same products manufactured by some of the major international refineries on the coast of the Mediterranean Sea, Singapore and the Arab gulf.
The report makes the conclusion that it will financially make more sense to import petrol and diesel “which should generally be welcomed and supported because it should not be allowed that the capital and costs for the upgrading of the refineries must come from the consumer."
"The country also doesn’t want a second Petro SA and the illegal speculation with the country’s oil reserves by the Central Energy Fund can also come to an end," said Brink.
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