Effects of government’s petrol price intervention

Government’s petrol price intervention

Government’s petrol price intervention could mean even higher prices in October and beyond: Dawie Roodt

Government’s ‘artificial’ support for the fuel price, to counter the 23-25 cents a litre increase that had been expected, will come back to haunt consumers in months to come, says economist Dawie Roodt.

The department of energy announced on Monday (3 September) that a once-off intervention by the government would see no fuel price increase in September – except for a 5 cents per litre hike to cover salary increases.

According to the minister of energy, Jeff Radebe, the step was taken because South Africans have seen sustained increases for the past five months.

However, Roodt said that there is a set formula that the energy department and economists use to calculate the fuel price on a monthly basis, taking into account the ruling international price of crude oil and the value of the rand currency against the dollar.

“By circumventing this methodology and limiting the price increase to 4.9 cents a litre and keeping the diesel price unchanged, there is the very real risk that the increases for months to come will be higher than would otherwise have been the case,” he said.

He added that it was ‘interesting’ that the energy department had not disclosed how it managed to keep the price so far below what it should have been had the usual methodology been used.

“I can only assume that they had drawn on crude oil reserves that had been hidden somewhere or that they had a spare pot of cash somewhere in the ministry,” he said.

Not a gift

Neil Roets, CEO of Debt Rescue, said that while the temporary reprieve was welcome, it would be unrealistic to look at this as a ‘gift from government’.

“The harsh reality is that the South African economy is at one of its weakest points for a long time, pressured by a weakening currency, growing unemployment and now even the distinct possibility of going into a technical recession,” he said.

He added that it was clear that the government was ‘running scared’ and that this was an effort to placate the increasingly vocal masses who were burning tyres and shutting down whole townships to protest against growing poverty and unemployment.

“Depending on how the currency performs over the next few months and given that there is strong pressure by oil-producing countries for a hike in the price of crude, we could be looking at double-digit increases again in October and November,” Roets said.

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