President Thabo Mbeki said in his state of the nation address on Friday the government planned to use a new formula to calculate the fuel price, which could save “fuel users more than R1 billion a year”.

President Thabo Mbeki said in his state of the nation address on Friday that the new formula that the government planned to use to calculate the fuel price could save “fuel users more than R1 billion a year”.

reported that the change was aimed at further reducing the cost of doing business in the country. "The government has decided to replace the in bond landed cost pricing mechanism (IBLC) with the basic fuel price formula (BFP)."

Mbeki said the new formula would be phased from April.

It will represent the true cost of alternative fuel imports into South Africa and includes allowances for freight costs from refining centres to South African ports, demurrage, wharfage, storage, financing and insurance costs.

Over the five-year period from 1997 to 2002, the new formula would have resulted in fuel prices being about four to five cents per litre lower than those derived from the IBLC formula. It is expected that in future years prices derived from the new formula could also be between four and five cents per litre lower.

As the IBLC and BFP formulas use different bases for arriving at South African refinery gate prices, however, the new formula may at any given point in time be lower or higher than the IBLC would have been, depending on the timing of adjustments to the various formula components.

A narrowing of the difference between the two formulas is forecast as the surplus in international refining capacity is reduced.