The introduction of a Bitumen Price Index BPI

1
The introduction of a Bitumen Price Index (BPI)

• Follow-up report

2
Resolution of RPF May 2001

• That the proposed BPI be monitored and reported
  to the next RPF

3
What is a BPI?

• a transparent and defendable mechanism
  of price adjustment irrespective of the
  agreements negotiated between particular
  suppliers and their customers
• driven largely by global factors
• does not promote price regulation
• does not encourage arrangements related to market
  share

4
Why a BPI?

• Demise of a regulated WLSP in August 2000
• Lack of a creditable datum for adjustment of a
  product with a price tag linked to global
  dynamics of crude prices and f.e rates

5
Advantages of a BPI

• promotes just and fair practice
• lends credibility to periodic price adjustments
• facilitates equitable administration of state
  contracts

6
Initial study

• How did WLSP of bitumen vary compared to the
  landed cost of related hydrocarbon products
• Model to simulate the WSLP movements (exc.
  incentives) during Jan 89 - Jan 01
• Proposed method

7
Correlation MFO (Durban) - WLSP
8
Effects of local inflation

• Introduced through factoring
• FPi WSLPi-1 fMFOi/MFOi-1
• (1-f)PPIi/PPIi-1)
• Tracks a theoretical WLSP with monthly adjustments

9
Comparison - Actual WLSP and factored prices
10
WLSP and Factored prices
11
Conclusions reached

• Model simulates actual movements in WLSP very
  well
• Introduction of local PPI improves the simulation
• Suitable mechanism for introducing a BPI
• In the absence of a WLSP there is evidently no
  other alternative
• The notion that presentation of invoices of
  supplier as a means of substantiation of
  increases is probably naïve
• That the proposed BPI be monitored and reported
  to the next RPF

12
Monitoring process

• Price movements of relevant products
• PPI
• Market quoted prices
• Testing the model proposed

13
Tracking price movements

• Durban Bunkers Price (USD) - daily
• USD - ZAR exchange rates - daily
• quoted prices of various producers - date of
  change
• Volumes declared
• PPI from SSA

14
Parameters determined

• Durban bunkers prices (DBP) in ZAR
• Indicator price
• WLSPi-1(0.6?DBPi/DBPi-1 0.4?PPIi/PPIi-1)
• Weighted market price

15
Comparative Price Movements
16
Price Correlation
17
Conclusions

• Historical pattern continues
• Model has proved to be robust
• Month-to-month indicator price can be published
  1 month in arrears
• Basis of a recommended retail price
• Primary producers are in favour of the scheme