A NEW BASIC PRICE FORMULA FOR SOUTH AFRICA

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A NEW BASIC PRICE FORMULA FOR SOUTH AFRICA

• Department of Minerals and Energy
• Republic of South Africa

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The Basic Fuels Price (BFP) will replace the
In Bond Landed Cost (IBLC) as the basis for
fuels product cost valuation in the regulated
fuels pricing system, i.e. for - local ex
refinery prices -deemed value for
imports -value for slate-accounts
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IBLC Background

• Originated in 1954 with the first (Mobil)
  refinery in Durban
• Revised by NEDLAC in 1995
• Based on 80 contract prices and 20 spot prices
• 75 Singapore and 25 Arab Gulf

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IBLC in the Petrol price
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Shortcomings of IBLC

• IBLC relies on Posted term
• FOB prices of overseas export refineries which
  are outdated and no longer reflect the realities
  of petroleum markets
• Shifts in world markets
• For this and other reasons, does not provide a
  realistic, market-related import parity basis
  required for the regulated fuels system

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Process

• Several investigations done
• Consultations with SAPIA AMEF

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Underlying Principles of B F P

• To represent the realistic, market-related costs
  of importing a substantial portion of SAs liquid
  fuels requirements
• From overseas refining centres capable of meeting
  SAs requirements in terms of both product
  quality and sustained supply considerations

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Main differences BFP vs IBLC

• BFP relies on spot cash F.O.B prices quoted
  in Platts which tracks actual daily fuels trading
  prices at export refineries
• BFP reflects all the other costs incurred in
  actual imports

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Composition of the Basic Fuel Price

• Spot prices Platts daily quotations
• - Petrols 50/50 Med. Singapore
• - Diesel I P 50/50 Med Arab Gulf
• Ocean freight, demurrage and wharfage
• Insurance sundries
• Ocean loss
• Coastal storage and finance costs

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BFP / IBLC comparisons

• BFP less than IBLC, c/l - averages 1996
  to 2002 Petrol 93 leaded 4 Diesel
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  Paraffin 10(larger in last two
  years)

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The BFP will lead to

• Savings to motorists
• Lower income to the refining industry
  (particularly when compared with the recent past)

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Concerns expressed

• Refiners
• the long term viability of the refinery industry
• new investments in the industry to meet improved
  fuel specifications
• BEE companies (without refining interests) where
  profitability is to a large extent dependent on
  discounts
• Synthetic fuels producers who do not have
  marketing operations

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National Perspective

• The BFP methodology will result in more
  realistic, defensible and market-related
  pricing of fuels, which will result in lower
  prices than if continuing with the outdated IBLC
  system
• Every 1 c/litre saving in petrol and diesel
  equates to some R150 million per year in S A.
• Implementation should be possible without
  compromising the viability of the local liquid
  fuels refining industry.

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Details at

• http//www.dme.gov.za/