South Africa will extend a fuel subsidy by two months to help cushion consumers and businesses against the impact of rising crude prices stemming from Russia’s war with Ukraine.
A levy on fuel will be reduced by 1.50 rand ($0.10) from June 1 to July 6, a concession that has been in place since April 6, while a 75-cents-per-litre cut will be instituted from July 7 to Aug. 2, the National Treasury and Department of Mineral Resources & Energy said in a statement.
Fuel has an almost 5% weighting in South Africa’s inflation basket, meaning the scrapping of the intervention would have placed upward pressure on prices. Even so, the retail price of 95-octane gasoline in the central Gauteng province will rise by 2.33 rand a litre to a record 24.17 rand per litre from Wednesday, and the price of 93-octane by 2.43 rand.
Had the full levy been reinstated, it would have contributed to a 4 rand-per-litre increase in the price of gasoline, the Treasury and the department said.
South Africa’s Foregone Revenue
The additional relief will cost the state 4.5 billion rands in foregone revenue. While the initial concession was funded by selling part of South Africa’s strategic fuel stocks, the extension will have an impact on the national budget.
“The proposed temporary reduction in the fuel levy will be accommodated in the current fiscal framework in a manner that is consistent with the fiscal strategy outlined in the budget and any required changes will be announced together with the 2022 medium-term budget policy statement,” the Treasury and the department
They further warned that the economy will need to adjust to the new reality of higher prices and the temporary levy reduction will only smooth out the impact.
The government said it will also take further measures to help reduce fuel prices in a more sustainable manner, including removing a demand-side management levy of 10 cents a litre imposed on 95-octane gasoline in inland areas. It’s also considering reducing the basic fuel price by 3 cents a litre in the coming months and removing the price cap on 93-ctane unleaded gasoline, which will partially deregulate the market and introduce more competition to lower pump prices.