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?• 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
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
Advantages of a BPI
• promotes just and fair practice• lends credibility to periodic price
adjustments• facilitates equitable administration of
state contracts
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
Correlation MFO (Durban) - WLSP
y = 0.8954x + 357.45R2 = 0.9612
600
800
1000
1200
1400
1600
1800
200 400 600 800 1 000 1 200 1 400 1 600
MFO R/ton
Bitu
men
WLS
P R
/ton
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
Comparison - Actual WLSP and factored prices
Factored Correlation MFO - BitumenJan 98 Base
600
700
800
900
1000
1100
1200
1300
1400
1500
1600
Pric
e R/
ton
Bitumen WLSP
Factor 0.6
WLSP and Factored prices
y = 0.8423x + 119.86R2 = 0.9641
500.00
1000.00
1500.00
500.00 1000.00 1500.00
Bitumen WLSP R/ton
Fact
ored
Pric
e R
/ton
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
Monitoring process
• Price movements of relevant products• PPI• Market quoted prices• Testing the model proposed
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
Parameters determined
• Durban bunkers prices (DBP) in ZAR
• Indicator price = WLSPi-1(0.6DBPi/DBPi-1+ 0.4PPIi/PPIi-1)
• Weighted market price
Comparative Price Movements
900
1 100
1 300
1 500
Jan Feb Mar Apr May Jun Jul Aug Sep
Month 2001
HFO
(ZA
R/to
n)
1 300
1 400
1 500
1 600
1 700
1 800
Bitu
men
(ZA
R/to
n)
DBP
Ind Price
Market
Price Correlation
y = 0.2409x + 1032R2 = 0.7458
1350
1370
1390
1410
1430
1450
1350 1450 1550 1650
Indicator Price (R/ton)
Wei
ghte
d M
arke
t Pri
ce
(R/to
n)
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
