Automobile Association (AA) CEO Bobby Ramagwede says the government needs to come clean about why South Africans are facing economically ruinous fuel prices — and not use the Middle East crisis as an excuse for its own failures.
Ramagwede says: “We get the vast majority of our oil from sources not affected by the Strait of Hormuz. For that reason alone we shouldn’t have issues with supply. Our biggest challenge is that we’re unable to refine at a rate great enough to accommodate local demand. Had we had sufficient reserves and a refining programme in place, we wouldn’t find ourselves in this pickle.”
Supposedly aware of the country’s limited refining capacity, the government should have planned accordingly.
“I would expect that the government would employ the same methodology as anyone who’s managing a household. You start refining well in advance of demand peaking, knowing very well that when there are geopolitical tensions prices tend to shoot through the roof. And they remain elevated long past the point of the resolution of conflict. That’s what we’re up against.”
With no clarity from the government about the state of its oil reserves, it has to be assumed the country will be price-takers, buying semi-refined crude and trying its best to refine it locally, Ramagwede says. “Alternatively, we’re in the open market, buying diesel and petrol at ruling prices. So we’re going to see continued elevated prices.”
In this situation, the only lever for the economy at large, and not just for the consumer, is to abolish the taxes and levies that comprise half the price of every litre of fuel at the pump.
“The state collects a hang of a lot of money, but it also wastes a hang of a lot of money. So when I hear [finance minister Enoch] Godongwana complaining that he’s haemorrhaging R6bn in potential tax revenue for lowering the fuel levy, I look back at how much he’s wasted, which is orders of magnitude greater than the R6bn.
“It’s not a revenue issue we have in this country. We have an expense management issue due to corruption, poor planning and no real processes as far as procurement is concerned. If the government is buying at inflated rates, it’s no surprise it’s hanging on to fuel taxes.”
Motorists get “absolutely nothing” for those taxes, says Ramagwede. The general fuel levy, carbon tax and similar taxes all end up in the general fiscus, “and we know what happens there”.
The only levy that has some form of ring-fencing — but is not immune to manipulation and corruption — is that of the Road Accident Fund (RAF). “But given the size of the RAF levy versus the efficiency of its use, there too you have a glaring example of exactly how little you get for your taxes. The RAF collects enough money to save many lives but today it can barely keep its head above water.”
That the government has allowed its destruction speaks to the contempt with which it treats motorists being bled dry at the pumps. “But you’ve also got to look at the calibre of the agents here, from the cabinet down to delegated mandates.”
The root of the problem is not so much cadre deployment but the calibre of the cadres, Ramagwede says. “If you deployed seasoned business practitioners from the private sector, we’d be fine. But you’ve got people who don’t understand their portfolios overriding sound decisions from their deputies and chief directors while expecting great outcomes.”
The challenge for consumers is that there is no transparency regarding the taxes they pay when they fill up, Ramagwede says.
Show us how you’re going to buy the reserves, what it’s going to cost, where the money’s going to come from
“Show us what you’re doing with the general fuel levy and with the carbon tax levy. Show us exactly what it is you’re doing with the RAF kitty”— these have been his questions to the mineral & petroleum resources and finance departments on numerous occasions, he says.
When he asked the mineral & petroleum resources director-general what had happened to the 10-million barrels of fuel reserves that were sold for $29 each in 2016, he was told the government had bought them back the same year.
He does not believe that, he says. “If we had bought them back, we would have been clever enough to start refining our reserves, because they are strategic, and by the very virtue of being strategic they serve the purpose of being the emergency kitty.
“That on its own puts me in a position where I’m quite convinced that there is no ability to plan ahead. I think our biggest challenge is that we have a government that thinks in 12-month cycles and can’t think beyond five years.”
Not only does the government appear to have done nothing to cushion the country from the scenario it’s in now, he says, “I think it is the very reason we are in this scenario. It sold the crown jewels.”
The government still hasn’t come clean about this. A good starting point would be to disclose what the state of our strategic fuel reserves is, Ramagwede says.
“How many barrels do we have? We have storage [space] for 45-million barrels. The last number I’ve heard the government floating in the media is that we have 8-million barrels in reserve.”
Even this “probably very generous number” gives South Africa only about two weeks of oil reserves, well short of the 90-day global benchmark. “I think it’s a classic government number. You should probably divide it by 10 if you want a more realistic figure. I usually remove a zero from government [numbers] because they have a tendency to overstate by adding a zero.”
Ramagwede says he’d welcome a commission of inquiry into why the reserves were not rebuilt after the 2016 sell-off. “A real one, not an inquiry that results in absolutely no action. The government has not explained why it even considered selling the reserves in the first place.”
The Western Cape High Court reversed the sale in 2020 after finding it was illegal and mired in corruption, but there has been no accountability, no restoration of the reserves, and no benefits for motorists. “None,” he says. “If I were a central planner at the helm, I would have used my general fuel levy that I was collecting every day to reconstitute my reserves. That would have been a wise use of the money.”
Ramaphosa’s appointment of a ministerial task team to investigate interventions to reduce the impact of the fuel crisis on consumers inspires no confidence, he says. “When I hear the words ‘task team’ and ‘commission of inquiry,’ it translates in my mind into ‘we’re not going to do anything’.
“If the government wants to remedy the situation we’re in, it’s quite simple. Show us how you’re going to buy the reserves, what it’s going to cost, where the money’s going to come from.
“When you have the reserves, show us that you have the wherewithal to reproduce or prop up your refining capability so you don’t just sit with crude that you can’t refine and can’t use. Until I see something like that it’s really just another government talk shop.”
There’s still been no good answer to what happened to the country’s refineries, he says, and why there are just two left, one of which is closed at present.
“Instead of appointing ministerial task teams, the president should appoint a competent cabinet and minister of mineral & petroleum resources. What this country needs are people who know how to run SA Inc as a business, and not politicians who know how to collect votes. Had we had those in place, we would still have refining capacity.”
South Africa’s refining capacity has fallen 50% from 703,000 barrels a day in 2010 to 357,000 now, with the result that it imports 70% of its finished fuel products at ruinously high prices. Meanwhile, if Godongwana refuses to scrap all taxes and levies being extorted from motorists at the pump, the AA is going to “mobilise them to minimise their mileage and these taxes will move in a favourable direction”.
“I’ve highlighted to Godongwana that I can stop the revenue ‘either by having you abolish the taxes, or no fuel will be purchased, and you still won’t be collecting your R6bn’.”
