Last week the ERB announced that it would review the current wholesale and retail fuel prices as follows: Petrol from K12.50 to K11.67, Diesel from 10.72 to K9.87, Kerosene from K6.81 to K6.50 and LSG from 13.01 to 12.16. This revision was based on the importation of petroleum feedstock and finished petroleum products.
According to the ERB, fuel prices in Zambia are largely determined by two key factors, namely: the international oil price and the exchange rate of the Kwacha against the Dollar. However, the ERB only effects a change in the price if the proposed change in the wholesale price is on average greater than the set 2.5% threshold. As CUTS we acknowledge that the two fundamentals determine the fuel price in Zambia however it is not clear how the named factors influence the proposed change.
Since the last time the ERB carried out a review of the fuel prices (March), the Kwacha has appreciated by 7% from K9.7 to K9.0 and the average cost of Murban crude oil (per barrel) has reduced from $56.63 in March to $47.86 as of 31st June based on data obtained from the ERB press statements. When calculated, a barrel of crude oil cost K549 in March and is approximately at K431 at present, this represents a 21.5% change in oil price per barrel, all other factors held constant, which exceeds the 2.5% threshold set by the ERB. The last report the ERB did in line with the bimonthly system they announced was in March, they did not carry out/publish one for May and for July.
Having looked at the wholesale price trends of fuel between January and now, we reviewed the decision of the ERB to reduce the pump price of fuel by 7% effective midnight 8th August 2017. ERB, in October last year, asserted the importance of carrying out periodic price adjustments of fuel as being essential in ensuring that consumers are paying cost reflective prices, as this in turn promotes the sustainable supply of petroleum products in the country. Minister of Energy David Mabumba, said “Fuel prices will be reviewed every 60 days and adjusted upwardly or downwards in response to the behaviour of the domestic exchange rate and international oil prices.”
Therefore, in line with paying cost reflective prices, and the 21.5% reduction in the price per barrel of Murban crude oil, CUTS would like to enquire regarding the justification to reduce petrol, diesel and kerosene by only 7.1%, 8.6% and 4.8% respectively. These reductions are good but do not seem to be true reflections of the two factors that determine the pump price of fuel according to the ERB (exchange rate and international oil prices). According to the ERB, the cost reflective measure is meant to benefit both consumers and suppliers, but from the calculations above, this does not seem to be the case, particularly for consumers.
Another concern we have with the pricing practices of the ERB is that towards the end of 2016, the Minister of Energy mentioned that fuel prices would be reviewed every 60 days and adjusted in response to the exchange rate and international oil prices. In 2017, ERB started by carrying out a review in January, and then in March, but we were not privy to the any other review up until the most recent one this month. This is concerning for as with consumers paying cost reflective tariffs, downward changes in the exchange rates and international oil prices may not be reflected in time. It is therefore important that the government through the ERB ensure that the bimonthly system of review must be cogently implemented.
For any further queries please contact Ms Chenai Mukumba, CUTS International Centre Coordinator, at 0978055293 or cm@cuts.org