A NEW BASIC PRICE FORMULA
FOR SOUTH AFRICA
Department of Minerals and Energy
Republic of South Africa
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
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
IBLC in the Petrol price
Petrol Price Gauteng February 2003
Wholesale margin
392c/litre
Retail Margin
28
33
5
12
Service
Differential
Zone Differential
Fuel Levy
194
SARS duty
95
2
1
19 4
Road Accident
Fund
Slate
Equalisation Fund
IBLC
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which are outdated and no longer reflect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
Process

Several investigations done

Consultations with SAPIA & AMEF
Underlying Principles of B F P


To represent the realistic, marketrelated costs of importing a substantial
portion of SA’s liquid fuels requirements
From overseas refining centres capable
of meeting SA’s requirements in terms
of both product quality and sustained
supply considerations
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
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
BFP / IBLC comparisons
[BFP less than IBLC, c/l - averages]
Petrol [93 leaded]
1996 to 2002
4
Diesel
7
Paraffin
10
(larger in last two years)
The BFP will lead to


Savings to motorists
Lower income to the refining
industry
(particularly when compared with the
recent past)
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
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.
Details at
http://www.dme.gov.za/