Basic Fuel Price (BFP): Department briefing, with Minister

Meeting report

The Chairperson welcomed everyone to the meeting. The Committee had received a referral through the ATC (Announcements, Tablings and Committee Reports), of a draft Private Member’s Bill from Ms N Mazzone (DA), the Independent Electricity Management Operators Bill. The Committee had to invite Ms Mazzone as soon as possible, depending on her availability, to present on the proposed Bill. From there, the Committee will decide on the way forward. The invitation would need to go out by the following week. This will fall on the legislative framework and it becomes additional work for the Committee.

The Chairperson said the Department had been invited to present on the Basic Fuel Price (BFP) and to assist the Committee as it starts to interact with some of the serious issues.

The Committee Secretary reported apologies from Mr D Mthenjane (EFF) and Mr M Wolmarans (ANC).

Mr Gwede Mantashe, Minister of Mineral Resources and Energy, indicated that he is still a student in the Department. This is a very complex subject because the price of fuel is a moving target. It is influenced by a number of factors, one factor being the international crude oil price. Other factors include international refining margins, the Rand/US Dollar exchange rate, and geo-politics. The biggest negative factor on South Africa’s fuel price is that 80% of South Africa’s crude oil is imported. At this point, the Department hopes that discoveries of oil and gas can be made. Total has made a discovery and the hope is that it will be substantial. Efforts to discover oil on the KwaZulu Natal coast have been resisted [by environmental groups]. The effort to strengthen CEF SOC Ltd (the CEF Group of Companies) and its subsidiaries speaks to this matter because a well-coordinated CEF is a reliable agent. The Department is prioritising the appointment of boards and Chief Executive Officers (CEOs) in a space where the lack thereof has created instability. The work that has been done is with a view to stabilise the CEF. There are various components to the fuel price, among others, coastal storage, stock financing costs etc. The end-consumer, at the end of the day, has to pay. What is it that should be done differently?

Mr Tseliso Maqubela, Deputy Director General (DDG): Petroleum and Petroleum Products Regulation, DMRE, said that the Department would attempt to unpack BFP slowly for the Committee for explanatory purposes. The reason why there is a BFP in South Africa is that the Department would like to sustain a competitive refining sector. Without a BFP, there would not be a competitive refining sector. Without a refining sector in South Africa, everything would need to be imported, including petrol, diesel and all the other by-products of the refining of crude oil. The method of calculating the fuel price sustains industrialization in the country, without which it is doubtful that South Africa would have refining capacity. Internationally, the BFP pricing methodology is well respected. It is quoted in many studies that have been done on benchmarks on how to price petroleum products in a regulated market. South Africa received a number of delegates from other countries to take them through the BFP process. A number of countries experience shortages precisely because they do not have a predictable pricing framework. The Minister has challenged the Department to look for ways to revise the existing formula. That work has started. Stakeholders have been engaged. Once that work has been completed, the necessary announcements will be made by the Minister. The only sustainable way of ensuring that energy prices are manageable is to balance what is imported with what is being produced locally. Therefore, all the exploration work that is taking place on our shores is encouraging.

Mr Robert Maake, Senior Manager: Department of Mineral Resources and Energy, DMRE, outlined three basic forms of fuel pricing globally, the policy framework in South Africa, and the regulatory mandate of the Department.

The Basic Fuel Price (BFP) is based on the import parity pricing principle i.e. what it would cost a South African importer of petrol to buy the petrol from an international refinery, transport the product from that refinery, insure the product against losses at sea and land the product on South African shores.
In more detail, the elements of the BFP include, Free-on-Board (FOB)-value, Freight and Average Freight Rate Assessments, Insurance, Ocean loss, Demurrage, Cargo Dues, Coastal Storage and Stock Financing costs.

International factors and other factors that influence the BFP include: International crude oil prices, International product supply/demand balances, Product inventory levels, Geo-politics, Rand/US Dollar exchange rate, International refining margins, and Weather patterns in the Northern Hemisphere.

South Africa has different fuel levies, inter alia, Petroleum products levy, the Illuminating Paraffin (IP) Tracer dye levy, the Slate levy, Fuel levy, Custom and Exercise levy, Road Accident Fund (RAF) levy, and Demand Side Management levy (DSML)

Mr Maake spoke to a tabulated breakdown of the Fuel Price Structure and Illuminating Paraffin figures. He explained the IP Pie Diagram, the Maximum Retail Price of Liquid Petroleum (LP) Gas, and the LPGas Pie Diagram. He explained how the Regulatory Accounting System (RAS) methodology determines margins and other key components such as Return on Assets (ROA)

In conclusion, Mr Maake outlined some commonly asked questions. For example, why is SASOL not selling petrol at lower prices because they produce it from coal and they are placed in Gauteng? Why is the government not deregulating fuel prices? Why is Unleaded Petrol (ULP) 95 [octane] more expensive than ULP93 in Gauteng, but the cost the same price in coastal areas? Why is the government not buying oil from African countries at lower prices?

Discussion

The Chairperson welcomed the presentation.

Mr K Mileham (DA) asked whether, in terms of the Fuel Price Structure, the Department can clarify the difference between the subtotal and the contribution to the Basic Fuel Price? How is the Contribution to the Basic Fuel Price calculated? Furthermore, there is a discrepancy between the Illuminating Paraffin numbers in the Fuel Price Structure on slide 19 and the Illuminating Paraffin table on slide 20. Can this be clarified? Moreover, while the comment that the fuel price in South Africa is to a large degree determined by the international oil price is acceptable, if one tracks the oil price in South Africa cents by factoring in the exchange rate at the time over the last ten years, the tracking of oil prices in South African rand and cents to the petrol price does not correlate well particularly when there are decreases in the oil price. When there are increases, it goes up. When there are decreases, it does not come down to the same extent. Why is it the case? Additionally, South Africa purchases a fair chunk of its oil from the Middle East and from African countries. However, there are other suppliers of oil the South Africa does not purchase from. Why is this the case? The biggest oil producer of oil is the United States.

The US is the fourth biggest exporter in the world. Saudi Arabia is the biggest exporter while Russia is the second biggest exporter of oil. Yet, South Africa does not import any oil from Russia, Canada, or Iraq. Why is it the case? Furthermore, in terms of the Fuel Price Structure, the single biggest contributor to cost is the fuel levy. What is killing the consumer is the government. What is the discussion that the DMRE is having with Treasury regarding the taxes that are imposed on the consumer with regards to the fuel? It is much cheaper to buy fuel in Botswana because they do not have these taxes even though they have the same fuels from the same refineries. Why is Botswana able to do this and South Africa is not? This also applies to the Road Accident Fund Levy that is included in the fuel price which is also a huge contributor. Regarding the comment that deregulation would result in higher prices, Mr Mileham said that this constituted fear mongering. This is a discussion that needs to be had between civil society, the government and the fuel industry in South Africa as to whether or not South Africa can move to a deregulated environment. The bold statement that deregulating will result in higher prices is simply fear mongering of the worst kind and has no factual basis. In non-oil producing countries that are deregulated, their prices are quite reasonable. Oil companies cannot price themselves out of the market.

Ms C Philips (DA) inquired why the Department wants to discourage the use of 95 Octane? In terms of preventable costs, the most expensive mode of transport is trucks. If South Africa manages to improve Transnet, which is a government function, it could then use more rail. If South Africa’s harbours worked more efficiently and were unloading at the correct rate, the penalties resulting from the delays in the ships’ unloading would not arise. If there were better policies that were confidence friendly, the Rand-Dollar exchange would not be as volatile as what it is. Regarding the tax that is being paid [on fuel], is it ring-fenced or does it just go into the pot and disappear into corruption etc.? A tremendous amount of tax is being paid yet South Africans are not being given the option of a good reliable safe public transport system. A tax is being imposed without any kind of alternative. So many South Africans are dependent on transport because they live far from where they work. A huge percentage of what they earn is used up in transport. It is not a simple as just taxing petrol. The Department needs to speak to the Minister of Finance. Many of these costs are preventable. Something needs to be done to prevent them. Citizens need to be told what the South African government is doing to being the costs down.

Mr S Kula (ANC) queried whether, with regards to the Fuel Price Structure, it would be correct to assume that if it were not for all the fuel levies the fuel price would be quite low? What is the purpose of having all these levies and are they still relevant today? In so far as the need for South Africa to balance what it imports with what it produces on the ground, what are some of the Department’s plans to ensure that South Africa improves this regime? In the Department’s view, what would be the correct balance? On factors that are not covered under the BFP working groups on the remuneration of petrol attendants, what is its impact on the basic fuel price? Concerning South Africa’s status as a price-taker, which is not feasible going forward, what are some of the Department’s plans to mitigate this particular factor? In relation to the sale of paraffin not at the regulated price, what are the policy responses and consequences for this?

Mr M Mahlaule (ANC), in the context of this complex discussion, stressed that it would have been preferred for the Department to have invited the Committee to the Africa Oil Summit so that the Committee members become students as well. Furthermore, there have been repeated points of diesel not being regulated. Can the Department provide clarity as to why deregulation is not being pursued [for petrol]? Prices are announced every first Wednesday of the month. Petrol retail prices are announced, but retail prices for diesel are not announced. Is it a coincidence that diesel is not regulated but the Department does have a pricing formula for it? What causes this coincidence? In terms of the forecourt attendants wage adjustments which contributes to fuel prices increasing, it sounds very strange that a business is opened where petrol is being sold and those prices are relied on to pay workers. Does this make sense? Moreover, it was announced that there would be a task team constituted by the Department and Treasury to review the basic fuel prices. Can the Committee receive a progress report on this process? It was meant to mitigate fuel hikes.

Mr Mahlaule said it was very important that the Committee is taken through the degree of progress and the work of the task team up until today. Additionally, in the Annual Report of 2018/19, the point was made that significant amounts of crude oil (51%) came from African countries, including Nigeria, Angola, Ghana, and Togo. Given that African countries have demonstrated that they can produce and provide South African with 51%, why is South African not expanding its reliance on the African continent? A key reason why petrol prices go up is because of friction between China and USA. South African has been managing its tensions with other African countries for a long time. Lastly, why is Sasol not selling petrol at lower prices because they produce it from coal inland? In terms of the partnership of Sasol with the South African and Mozambican governments, Sasol owns 50% and South Africa owns 25% of the pipeline. >From Durban to Johannesburg, some of the costs that create higher prices include the pipeline fees. South Africa has iGas and its pipeline. In that partnership, could South Africa not have a relaxation of those prices in relation to the pipeline?

Minister Mantashe started by answering the political questions. In terms of why South Africa does not import oil from USA and Russia or from other African countries, it is because oil producers are in a cartel. It will not be advantageous to import from either Russia or USA. It is, therefore, more logical to increase South Africa’s intra-Africa trade. It is an issue that is being discussed with other African countries. In the Africa Oil Conference, a number of African opportunities were discussed, including Equatorial Guinea, which produces a sizeable amount of gas and oil exported to the East. Equatorial Guinea was saying that they do not have a customer in the continent. It is an anomaly as to why they do not have a customer in the continent. As long as South Africa does not take the conscious decision to improve its intra-African trade, Africa will always be a junior partner in a context where it actually has the capacity to be a senior partner. It was the view of the Minister that South Africa should improve its intra-Africa trade in this regard. Furthermore, in relation to whether the fuel price should include all these levies, persons on the street that cannot insure themselves depend heavily on the Road Accident Fund for compensation. While the Road Accident Fund can be discontinued, it would a be decision that would disadvantage the poor who cannot afford to insure themselves. This is why the Road Accident Fund has a programme of going to various areas to explain access to the Road Accident Fund.

Concerning why South Africa is a price-taker, Minister Mantashe said that since South Africa does not produce, it is a price-taker. If it was producing, it would be a price-setter. South Africa depends on the importation of crude oil. Additionally, regarding the African Oil Conference, it is sad that these conferences are not run by South Africa or other African countries. For example, the African Mining Indaba is run by the British and the African Oil Conference is run by the Americans. South Africa was an invitee to this conference. South Africa has, however, begun to raise the point that there should be South African entities that are part of organising those conferences. South Africa should talk to the organisers to see how it can be part of these conferences. It was only recently that the Minister has attended the Wind Indaba since its inception five years ago. It is important that attention is paid to these opportunities. Regarding the pipeline, it is a Sasol-constructed pipeline. That contract will end at some point. The Minister will visit Mozambique. One of the things that should be normalised is the relationship between the South African government and the Mozambican government so that when there is a discussion on the contract of the pipeline, South Africa should be aligned with the Mozambican government.

Mr Maqubela, on the issue of the drop in crude oil price versus the propane fuel price, explained there is not a one-to-one relationship in the drop of the crude oil price and the price of a petroleum product. When the price of crude oil drops, the owners of refineries that are used as benchmarks see that as a benefit for them. It is their time to make up for the losses that they have made when the crude oil price was up. The Department’s benchmarks are refining centres in Italy, Singapore and the Arab Gulf. They do not all drop the product prices at the same percentage. Furthermore, what occurred in the year in question is that there was a significant increase in the fuel levy in the subsequent year. That had an impact on what became the price in the end. Regarding the issue of deregulation, the Department is in the process of looking at a managed way of mimicking the market as much as possible. As to why the price is changed every month instead of every quarter, the purchases of crude oil and petroleum products are paid for either within days or months. The aim is for the regulatory environment to mimic what happens in the market. The increase in prices is due to infrastructure. In order to move towards a less regulated or deregulated market, the issue of infrastructure has to be attended to. Recently, with the merchant owners of infrastructure terminals coming in, a stranglehold is beginning to be broken and an environment where competition can thrive is being created. In this context, decision-makers can be called upon to loosen the regulatory environment. South Africa is moving towards that perhaps at a rapid pace. South Africa is not there yet because some of the infrastructure, for example the pipeline, is still shared. In order to do this South Africa also requires a Competition Commission that can respond whenever there are anti-competitive tendencies from some of the major oil companies. For example, if an oil import terminal is constructed in Cape Town by an independent party.

The storage, Mr Maqubela said, is basically bought by the oil makers and it is not used fully by the oil makers. They buy it to ensure that the competition cannot then make use of it. There is always a need for coordination between the Department and the Competition Commission and well as the National Energy Regulator South Africa (NERSA) to ensure that whatever infrastructure has been constructed, those who contract for the use of it actually do need it and are not using storage as an anti-competitive measure. It is true that a study on the impact of deregulation needs to be conducted. However, given the current conditions, it is unlikely that the benefits will be huge for the consumer. In relation to imports from other African countries, the oil makers own the blocks. For example, in Angola, Total owns the blocks. When they have to import, they do so out of the block that they own in Angola. Shell, also, imports out of a block that they own in Nigeria. It is still Shell’s block so they basically retrieve the oil and bring it into the country. Concerning the strengthening of the Central Energy Fund, this strengthening is critical because with a strong CEF and its subsidiaries government is able to use that vehicle to ensure that either South Africa gets blocks in those countries, from which South Africa can get its own crude oil to sell in the market, or else CEF has a balance sheet strong enough to be able to intervene in the market. On what is the best balance in light of the 80% to 20% ratio, the best practice is to ideally have a 55% to 45% ratio. That is the recommendation even from the International Energy Agency. South Africa is not there yet. With the discoveries that are being made in the country and other plans in relation to interacting with counterparts in the continent, South Africa can reach that stage. [Mr Maqubela is, additionally, a non-executive director of CEF SOC Ltd – this is referred to in the discussion sometimes as the “Central Energy Fund” and sometimes as “CEF”.]

In terms of paraffin regulation and consequence management for people who do not sell at the correct price, Mr Maqubela stressed, it is an issue of capacity. At the retail level, there are more than 33 000 outlets selling paraffin in the country. Most of them are not licensed. To manage or police that would be a mammoth task. One of the ways one needs to think about how best to deal with that is to have a partnership with the local authorities to be able to assist with the monitoring of prices. Even with local authorities, there are other competing priorities. They would not be able to go to each and every spaza shop to look at the price. With the increase in the number of retail outlets, one would be chasing a moving target. Concerning the issue of Sasol, when a market is regulated, the whole market needs to be regulated. What has to be taken into account is that Sasol imports crude oil at market prices, whereas other companies import crude oil from their own blocks. If a company, e.g. BP, has a block in Saudi Arabia, they can produce oil at less than $20 a barrel. However, their competitor in South Africa has to buy that crude oil at market price. Whatever Sasol make from the coal to liquid process, they lose in the crude oil imports. Unlike all the other makers in the country, they don’t have blocks in other countries other than the gas that they have in Mozambique. In so far as the Task Team with Treasury is concerned, the Task Team is a work in progress. It was decided, given the many competing priorities within National Treasury, to run the BFP review as a Department in consultation with Treasury. The initial assessment of the BFP review has just been finished and an interim report has been submitted.

The interim report, Mr Maqubela continued, shows that there are elements that can change. However, whatever change comes will be a once-off change. If the 15% insurance for bringing products to South Africa no longer applies, the following month, South Africa will be back to the other impacts of the global environment rand-dollar as well as crude oil prices. Any benefit will be once-off and, in the following months, the ups and downs of the market will apply once again. It is work that is close to completion. It is proposed that a parallel process is run. For a few months, prices will be run based both on the existing formula and on the one that will replace it to see what the benefits are. If there are no benefits, it will probably be recommended that the existing formula is retained. If there are benefits, however, the recommendations will be made accordingly. Furthermore, while the price of bread is not regulated, the different retailers charge different prices. However, with the petrol price there is one price. As part of the build-up to the formula, the Department had to make space in the regulatory mechanism for forecourt attendants’ wage adjustments to be paid. The benefit of that is to ensure that all forecourt attendants wage adjustments benefit from the price that is prescribed. If that is not done, it is outside the legal prescripts. Effectively, the wages of all forecourt attendants in the country are the same. Nobody should be paying below that. All consumers are paying for that in the fuel price. The disadvantages of a deregulated market is that a number of retail owners will cut back on the number of employees and also begin to pay people less than what they deserve to be paid. There was an intentional provision to say that in the pricing framework there should be provision for forecourt attendants’ wage adjustments and that there is an improvement on the wages that all retail workers get.

Mr Maake stressed that the reality of the matter is that for South Africa to compete equally, the playing field must be levelled. Deregulation will take South Africa out of the market. He apologised if the message brought across a strong anti-regulation sentiment. Concerning the South African situation versus the Botswana situation in relation to levies, the economy of Botswana and needs of the country are not the same as South Africa’s economy and its needs. South Africa has more taxes because its needs are more. South Africa has free tertiary education and social grants. This is a decision that government must take. Regarding the issue of the pipeline, it is important to separate the Sasol pipeline from the Transnet pipeline because the former is specific from Mozambique to Secunda and it has a different tariff that is not regulated by NERSA. That is where South Africa has a stake of 25%. In terms of the Transnet network of pipelines from Durban, the invoice comes to the Department. It is only for petrol because it is regulated. Concerning the BFP subtotal, BFP consists of all the international elements that were highlighted. All the other elements are local elements. The contribution of the BFP is international even though the actual calculation is not shown.

In terms of the slide that speaks to illuminating Paraffin, Mr Maake indicated that the figures are not all updated. Regarding the discouraging of motorists from using 95 octane, all the refineries in South Africa are compatible and comfortably produce 93. To get to 95, other chemicals have to be added which mean additional costs. It costs more to produce 95 octane than 93. Some manufacturers now actually force one to use 95 octane. Some countries use 91 octane. In relation to why the retail price of diesel is not being regulated, there are historic reasons. When the price regulation started, it was mainly petrol that was being used by consumers in the retail space. Diesel was mainly used in the commercial space, used in farming, agriculture etc. As a result, it was not regulated so that in that commercial space there could be rebates, discounts etc. on the wholesale price because it was beneficial to the economy. Diesel motor vehicles have actually increased at the retail level and some have argued that the diesel retail price should be regulated. The Department will be guided by the house in this regard. On the amount of the diesel price, when prices are announced it is made very clear that the retail price for petrol is being changed, as it is the regulated price. In terms of the diesel and IP, reference prices are provided.

The Chairperson highlighted, with concern, that what the Department has with regards to regulations is mainly tax-based. The main concern is that National Treasury (NT) expects the Department to stick to what Treasury has control over. That becomes a technical matter. It is not helpful because the Committee does not know what the distance is between the Department and NT in moving. It may discover that NT is still folding its arms sitting where they were before. When the Department is far ahead, NT may stop the process because it may have to make a final determination. Furthermore, it may be necessary for the Department to expand beyond what it is ordinarily responsibility for, namely, the entire chain at the level of the import of the product, which is crude oil. It is understood that there are limitations. What are the timelines when the Department deals with the review? In terms of the issue of intra-Africa trade, what should be the other areas of trade, especially for this Department? Africa is well-endowed in terms of mineral resources. Fundamentally, Africa has so many abundant resources which are controlled by external stakeholders that invest here. Yet, Africa has so many of its own resources it can invest in. While South Africa looks at Nigeria, Angola and many others when it comes to crude oils, it also needs to look at what it has so that intra-Africa trade is not only narrowed down to item-based trade.

Trade should, the Chairperson emphasised, be based on the wealth that Africa possesses. Lastly, in the consolidation and strengthening of the Central Energy Fund and the way forward, to what extent can it contribute to the revenue? There has to be a turnaround strategy. To what extent with the turnaround strategy look at the central role that CEF and its entities will play in the entire scheme of things? A key limitation at this stage, however, is that when there is engagement only to find out that the discussions with Treasury reach an impasse because NT is far behind or there may be uncertainty in relation to the timelines of the review process underway. What are the aspects of that review? Is it only a review on accessing crude oil or is it an overarching review based on the general wealth of the African continent? In terms of the discussion on deregulation and regulation, these discussions may not necessarily assist now if the process of review has not been completed. Some of the issues may not necessarily fall within the Department’s ambit but may require the scheduled lawmakers to decide what has to be done in terms of the law.

Mr Mahlaule confirmed, on the regulation of diesel, that the matter is historic. This is why it was left unregulated because it was understood that diesel users were in the commercial space, e.g. farmers. It is important to stress the historic nature. Historically in South Africa certain things were done to favour others. Black people were not in that space. For the Department to leave it unregulated because it is historic, however, does not make sense. What are the benefits and limitations of changing this situation? Farming has undergone a number of changes. Furthermore, in relation to the task team and its work, the Department has recommended that the 15% premium should be removed from the freight rate and the actual freight cost be obtained from the relevant international price agencies. While there may be some benefits to this once-off exercise, will there not be a price shock in the next month?

Mr Mileham referred to the lack of a one-to-one relationship between the crude oil and the fuel price. Every time there has been a significant decrease in the oil price, there has not been a correlating decrease in the fuel price. When there has been an increase in oil price, there has been a correlating increase in the fuel price. It is almost as if there is profit-taking in the regulation of the price. It has not been quite as dramatic in the last three to four years. Before that, it was very significant. In relation to the need for the Road Accident Fund, the Road Accident Fund is essentially bankrupt. It has liabilities of R600 billion that it cannot fund. This levy is not making enough of an impact to address the challenges, which arise primarily from corruption and litigation. There is a solution, which is to do away with the Road Accident Fund completely and make third-party insurance on all motor vehicles compulsory. As soon as this is done, the onus is on the owner of the vehicle to have insurance to pay for any accident that they are involved in, whether that is with an individual pedestrian or another motorist. The notion that there needs to be a Road Accident Fund to compensate people is a fallacious idea and it has become like a welfare system. South Africa does not need a Road Accident Fund or a government administered system to compensate people that are in accidents. That should be the responsibility of the vehicle owner and driver.

The Chairperson, on the petrol price vis-à-vis the crude oil price, indicated that there used to be a very strong debate that the taxi industry increases taxi fares [when the fuel price increases]. However, when the fuel price goes down they never reduce the fares. When it is up, you cannot bring it down because there are other cost materials that are considered. However, when it increases it is only on the basis of the increasing fuel price.

Minister Mantashe emphasised there would be chaos if every Department had the right to collect money. Corruption would also be rife. Treasury is the only Department that collects money. Finances are the direct responsibility of Treasury. Treasury should stick to what it controls to avoid further chaos. Furthermore, inter-Africa trade is quite important for South Africa and not just in crude oil and minerals. Africa must go beyond the pit-to-port kind of economy where it drills, extracts and exports. African countries should process minerals within the continent and trade among themselves. That would be a better Africa. Whether it is minerals or oil, there must be value addition within the continent. Africa can invest in itself. However, it is not an island. Africa will have to appreciate that it is part of the global village and must trade with others as well. At times, there is a feeling that Africa must be itself. There is no success story that is based on that theory. Africa must trade with itself and with others. In terms of the central role played by CEF and its subsidiaries, once CEF is stabilised, the Department will be able to control quite a number of areas. The Department is hard at work with this. It has sorted out the governance component and is in the process of filling the positions of CEOs [in the subsidiaries of the CEF Group of Companies]. This must be done before the end of the year. The reason for this is that once governance and administration are addressed, there is more control in militating against both financial and operational risk. Until that stage is reached, there will be challenges. Concerning the use of the term ‘historic’, one mistake that is often committed is to look at everything that is ‘historic’ as bad. Some of the things need to be extrapolated to facilitate the current processes. If rules on diesel etc. are tightened to the disadvantage of emerging farmers, while it may be argued that the historic benefit to others may be corrected, it may in essence be depriving the emerging farmers of benefits from the system. Apartheid irrigation schemes that work should be extended to the emerging farmers in the former Bantustans. Concerning the relationship between the oil and fuel prices, the presentation outlined various factors that impact on the price of fuel. The price of crude oil is one factor. For example the volatility of the exchange rate can also play a role on the movement of the petrol price. In relation to the Road Accident Fund, the key situation in question is when someone who gets involved in an accident discovers at that point that one’s next person, passengers etc., does not have insurance. The only worry is that of being allergic to welfare. One cannot be allergic to welfare. It becomes an ideological issue that welfare is of necessity bad. People that have access to relative wealth can afford to be allergic to welfare. People that are poor cannot afford to be allergic to welfare. We should disabuse ourselves of being allergic to welfare for the poor.

Mr Maqubela, on the issue of the task team, explained that when the task team was set up with National Treasury, taxes were deliberately excluded. The mandate for determining fuel levies and other levies is that of National Treasury and Cabinet with the approval of Parliament. That was the decision upfront because this space was not directly energy-related. The plea is that the rate of the increases must not create challenges for the Department. In relation to the consultation on the review of the BFP, which the task team was focussing on, it was agreed that the draft document should be published for comment. It was published, and the comment period has come and gone. There have been recommendations made by the various stakeholders. In that regard, the Department is now at a stage where it will report back to the Minister on the work that has been done. The Minister will make a decision on the way forward. What has been recommended is that a parallel monitoring period be facilitated where the Department would see what the impact of the new formula would be, versus keeping the existing formula. That is the request that has been made to the Minister. That is where the process is currently. It is not possible to give a definite timeline as to when that work will be concluded. The Department is working closely with Treasury, except that the taxes are not part of the Department’s terms of reference. The Department has observed that the fuel levy is one of the most efficient ways of revenue collection because six or seven players are collecting billions of Rands instead of having different points of collection. Going forward, it is important to consider the sustainability of the fuel levy given that there will be electric cars in the future. Concerning the pit-to-port issue, Angola, Nigeria and Ghana produce a lot of crude oil but they import more than 80% of their refined fuel. That is the current reality in Sub-Saharan Africa. Even though countries are well-endowed, they export the crude oil and import the finished product. This is something that needs to change in the continent. Regarding the issue of the price going up and oil majors benefitting, when the crude oil prices go up the local refineries actually make huge losses, because they have to import a dollar-denominated crude oil and sell the product in Rands. They benefit mainly when the crude oil price goes down.

The Chairperson concluded by saying that he is sceptical of entering certain discussions, given the review. It is important to look at the comprehensive strategy of trade which is not only based on buying oil etc. There are many areas that can be identified as developmental zones in different parts of the continent. With what we have, how best to consolidate? A key concern is that zonal trade is outside the African continent. These need to be consolidated as a trade strategy within the African continent. Hopefully, the reviewed strategy will look, from the Department’s point of view, at a strategic approach on intra-Africa trade in the area of the Department without going into other areas. Value-addition is part and parcel of this. While South Africa may be producing one thing while others something else, there is an identified place of processing. The trade at a global level must also be informed by what Africa is doing. It would be preferred for the review to go beyond reviewing the price but on commodity trade within Africa. Three Departments have an interest in the RAF. It cannot be reduced to two Departments, namely, DMRE and Treasury—the Department of Transport is also concerned. Lastly, this is work in progress. It is important to have a robust discussion to look into the issues that the Committee members have raised and the extended benefits and consequences. Part of the issue is the impact of fuel prices in terms of growing the economy. The review should assist the Committee to understand the basic areas, implications and carry overs. The value chain has to be factored in. It is important to go beyond the face value and address the concerns that have been raised.

The Committee minutes of the meetings of 16 and 23 October 2019 and 5 November 2019 were considered and, after a few minor corrections, were adopted.

The meeting was adjourned.