On May 31, the National Treasury and the Department of Mineral Resources and Energy issued a media release announcing the “extension of the temporary reduction in the general fuel levy”. This followed a March 31 media release headlined ‘Short-term relief measures to address fuel price increases’, which was covered in this column on April 22 and was about a general fuel levy ‘reduction’.

The earlier temporary ‘reduction’ was a R1.50/ℓ reduction in the general fuel levy from April 6 until May 31 to “provide limited short-term relief to households from rising fuel prices following the Russia-Ukraine conflict”.

The earlier release went on to state: “The relief is to be funded by a liquidation of a portion of the strategic crude oil reserves.” It would be interesting to know the size of the ‘portion’. In the latter release, it’s stated: “Unlike the previous announcement, this proposal is expected to have an impact on the fiscal framework, as it will not be fully funded through a sale of strategic oil stocks.” How big a portion will be sold? And just how big are South Africa’s strategic crude oil reserves?

The second question is answered in a BusinessTech article published on April 26 and headlined ‘How much oil South Africa has in its strategic supplies right now – and how it’s being used to lower petrol prices’. South Africa currently has ten-million barrels, with 8.7-million barrels accounted for an inventory, and the balance as ‘working stock’, which is defined as “the volume of crude petroleum required by the carrier, at initiating locations where the carrier owns tankage, to float tank roofs to working levels and to maintain that level and for terminal piping”.

A barrel equates to 158.987 ℓ, which means that South Africa holds 1 383 186 900 ℓ. To put this into perspective, South Africa consumes 245 000 barrels, or 38 951 815 ℓ, daily, which means that, after 41 days, the strategic crude oil reserves would be consumed. Does South Africa still hold 8.7-million barrels after the recent media release?

Back to the recent release: “Since this announcement, the continuation of the Russia-Ukraine conflict, supply chain bottlenecks and a tightening of global monetary policy have led to further unfavourable changes in the two key drivers of the regulated petrol price – the exchange rate and the global oil price. These events have led to even larger increases in fuel prices, compared with a few months ago, when the temporary fuel levy relief was introduced. The withdrawal of the temporary relief in the general fuel levy on March 31, 2022, as per the original announcement, would contribute to an increase in petrol prices of close to R4/ℓ.”

Because of the “significant monthly price increase”, the Finance Minister proposed a two-month extension of the reduction in the general fuel levy. “This will take the form of a continuation of the relief of R1.50/ℓ for the first month, from June 1 to July 6, and then a downward adjustment . . . for the second month to 75c/ℓ from July 7 to August 2. The temporary relief will be withdrawn from August 3.”

As for the revenue foregone, the initial relief amounted to R3.5-billion, with the extended relief estimated at R4.5-billion – a total of R8-billion. The question remains: How will it be funded, as “it will not be fully funded through a sale of strategic oil stocks”? It’s also stated that “this proposal is expected to have an impact on the fiscal framework”. The Medium-Term Budget Policy Statement will definitely have added significance this year, with amendment now seeming inevitable.

It remains to be seen whether “the temporary reduction in the general fuel levy will only smoothen the impact of persistently higher fuel prices on consumers and businesses, as the economy will need to adjust to this new reality”.