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The introduction of a Bitumen Price Index (BPI)

The introduction of a Bitumen Price Index (BPI). Follow-up report. Resolution of RPF May 2001. That the proposed BPI be monitored and reported to the next RPF. What is a BPI?.

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The introduction of a Bitumen Price Index (BPI)

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  1. The introduction of a Bitumen Price Index (BPI) Follow-up report

  2. Resolution of RPF May 2001 • That the proposed BPI be monitored and reported to the next RPF

  3. What is a BPI? • a transparent and defendable mechanism of price adjustment irrespective of the agreements negotiated between particular suppliers and their customers • driven largely by global factors • does not promote price regulation • does not encourage arrangements related to market share

  4. Why a BPI? Demise of a “regulated” WLSP in August 2000 Lack of a creditable datum for adjustment of a product with a price tag linked to global dynamics of crude prices and f.e rates

  5. Advantages of a BPI • promotes just and fair practice • lends credibility to periodic price adjustments • facilitates equitable administration of state contracts

  6. Initial study • How did WLSP of bitumen vary compared to the landed cost of related hydrocarbon products • Model to simulate the WSLP movements (exc. incentives) during Jan 89 - Jan 01 • Proposed method

  7. Correlation MFO (Durban) - WLSP

  8. Effects of local inflation Introduced through factoring FPi = WSLPi-1 [f*MFOi/MFOi-1 + (1-f)*PPIi/PPIi-1)] Tracks a theoretical WLSP with monthly adjustments

  9. Comparison - Actual WLSP and factored prices

  10. WLSP and Factored prices

  11. Conclusions reached • Model simulates actual movements in WLSP very well • Introduction of local PPI improves the simulation • Suitable mechanism for introducing a BPI • In the absence of a WLSP there is evidently no other alternative • The notion that presentation of invoices of supplier as a means of substantiation of increases is probably naïve • That the proposed BPI be monitored and reported to the next RPF

  12. Monitoring process • Price movements of relevant products • PPI • Market quoted prices • Testing the model proposed

  13. Tracking price movements • Durban Bunkers Price (USD) - daily • USD - ZAR exchange rates - daily • quoted prices of various producers - date of change • Volumes declared • PPI from SSA

  14. Parameters determined • Durban bunkers prices (DBP) in ZAR • Indicator price = WLSPi-1(0.6DBPi/DBPi-1+ 0.4PPIi/PPIi-1) • Weighted market price

  15. Comparative Price Movements

  16. Price Correlation

  17. Conclusions • Historical pattern continues • Model has proved to be robust • Month-to-month “indicator price” can be published 1 month in arrears • Basis of a “recommended retail price” • Primary producers are in favour of the scheme

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