Home Fleetwatch 2020 Rand to be dominant in 2020 fuel pricing

Rand to be dominant in 2020 fuel pricing

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Commenting on fuel pricing for the year, the AA says it does not foresee reductions in the oil price that are sufficient to offset its expectations for Rand depreciation and cannot rule out the possibility that South African fuel prices may test their previous record highs this year.
Commenting on fuel pricing for the year, the AA says it does not foresee reductions in the oil price that are sufficient to offset its expectations for Rand depreciation and cannot rule out the possibility that South African fuel prices may test their previous record highs this year.

With the international oil market stable, Rand weakness is likely to be the dominant factor in fuel pricing for the year. This is the opinion of the Automobile Association (AA) which has released its annual fuel price outlook.

“Factors affecting the fuel price have rarely been more finely balanced than they currently are,” says the AA, noting that much of the world’s oil is produced in some of the most politically fluid territories – and South Africa’s influence on the international oil price is negligible.

“We consume under one percent of the world’s daily oil demand. Even a total boycott of petroleum fuels in South Africa would be unlikely to affect world prices, so the country has little scope for influence. However, the recent tensions between Iran and the USA rattled the markets into a price spike of several dollars a barrel, showing where the influence truly lies.”

The Association says the unpredictability of the current US administration exposed South African fuel users to collateral damage from oil price movements, as seen during the Iran affair in early-January.

Staying on the home front, the AA says the key problem remains, as for the past several years, economic policy. The Association says tax revenue undershoots, infrastructure underspend, de-industrialisation and on-going power blackouts have counteracted entreaties by President Cyril Ramaphosa for investment.

“Capital follows returns and if South Africa is – as seems likely before long – downgraded to junk status, the Rand is likely to weaken further, offsetting returns investors might make. This increases the possibility of a downward spiral in which Rand weakness accelerates while risk-averse capital investment seeks other harbours,” notes the AA

It says it doubts a downgrade can be warded off but notes that strong shifts in stance from government and clear articulation of investment-friendly policy are key to limiting the time the country spends outside the investment-grade brackets.

The AA says the combination of these factors was negative for the Rand and was likely to offset the general stability the Association expected to see in the oil price.

“Our overall view is that South Africans should expect increases in the fuel price in 2020, driven primarily by Rand weakness. We do not foresee declines in the oil price sufficient to offset our expectations for Rand depreciation and we cannot rule out the possibility that South African fuel prices may test their previous record highs this year,” the Association concludes.

New toll tariffs unfortunate
Commenting on the publishing of new toll tariffs – including those for the Gauteng Freeway Improvement Project (GFIP) or e-tolls – the AA says this is curious and unfortunate.

“Gauteng motorists were assured that the way forward for e-tolls in the province would be provided by August last year. This did not happen. Then motorists were told a decision would be communicated by the end of September. Again, this did not happen. Government’s plans to deal with e-tolls has still not been communicated, two months into the new year. Despite this, tariff increases are announced which come into effect in March,” says the AA.

Despite the Government not communicating how it plans to deal with e-tolls, tariff increases have been announced which come into effect in March. This, says the AA, is curious and unfortunate given that extensive research has highlighted the calls for a review of e-tolls with a view to scrapping them entirely and finding alternative funding mechanisms such as adding to the General Fuel Levy currently imposed on fuel.
Despite the Government not communicating how it plans to deal with e-tolls, tariff increases have been announced which come into effect in March. This, says the AA, is curious and unfortunate given that extensive research has highlighted the calls for a review of e-tolls with a view to scrapping them entirely and finding alternative funding mechanisms such as adding to the General Fuel Levy currently imposed on fuel.

The Association says these increases are being announced into the vacuum of uncertainty which surrounds the GFIP – and simply don’t make sense.

The AA says it stands by its earlier position, which was communicated to Transport Minister Fikile Mbalula in June last year, that the current e-toll system is doomed to fail. This is not the view of the AA. This is the view of those who are being asked to pay for the e-tolls system. 

Extensive research conducted among motorists indicated that people will not pay under the current conditions and that debt is not a factor in these decisions. The findings highlight explicitly that most users are not paying because of a principled position taken years ago and that no amount of cajoling or enticement will change their minds. 

“The findings are unambiguous and support calls for a review of e-tolls with a view to scrapping them entirely and finding alternative funding mechanisms such as adding to the General Fuel Levy currently imposed on fuel,” says the AA.

Another factor the AA says was not considered is the general consumer pushback against SANRAL and this system. It says SANRAL has consistently ignored the majority of consumers on this issue and is, in effect, only punishing those who are already paying by increasing the fees for them. Given the limited number of people paying, a move such as this cannot make sense from a revenue collection perspective.

The AA says announcing the increases ahead of making a public announcement on e-tolls indicates that a decision on the future of e-tolls may already have been taken, which has not been communicated to the public.

“In the end, though, any increases may be purely academic. Our research points to the vast majority of users ignoring these increases and continuing to use roads without payment anyway.”

The Association further notes that toll fees on other routes will also go up, increases it says many will not be able to afford. And, it says, just because SANRAL is able to make these increases legally, doesn’t mean it should.

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