Fuel price hike raises questions

Post was last updated: November 11, 2019

Questions are raging over Malawi Energy Regulatory Authority (Mera)’s decision to hike fuel price on Saturday at a time fuel prices on the international market are easing.

Mera on Saturday announced a fuel price upward adjustment which saw the price of a litre of petrol moving from K868 to K930 representing 7.14 percent, while that of diesel went up from K874 to K924, representing 5.72 while the price of paraffin was maintained at K710.50.

Mera Board Chairperson Bishop Joseph Bvumbe attributed the hike to recent trends in the world petroleum products prices and changes in other macroeconomic fundamentals in the local market and their impact on energy prices.

Ironically, the hike in fuel prices in Malawi came two days after South Africa had just cut its fuel prices, citing falling international oil prices.

South Africa Mineral Resources and Energy Minister Gwede Mantashe said in a statement on Tuesday that all grades of petrol would drop by 13 cents a litre.

“The main reason for the fuel price decreases is the lower oil prices during the period under review when compared to the previous one,” Mantashe said.

But Mera Chief Executive Officer, Collins Magalasi, Sunday defended his organisation’s move to hike fuel prices at a time global oil prices are weakening, saying, the difference comes from the period being compared.

“If you look at September 2019 – October 2019 period, FOB prices have indeed gone down by 3.6 percent on petrol, 2.5 percent diesel and 4.2 percent on paraffin. So if we had adjusted prices last month, we too would have reduced prices.

“However, you will recall that Malawi’s fuel prices were last adjusted December 2018; thanks to the Price Stabilisation Fund that we were using to cover the ‘losses.’ So, for us in Malawi, we used the difference between December 2018 and October 2019 prices to determine the November 2019 prices. This is where you see that prices have gone up by 16.12 percent, 11.55 percent and 6.05 percent on petrol, diesel and paraffin respectively. Unfortunately, the Price Stabilisation Fund is getting depleted, hence the need to increase prices to reflect the present cost,” Magalasi said.

He said, the development further means from next month, Mera, too, will be looking at the price differential from November 2019 to December 2019.

Economics Association of Malawi (Ecama) president, Chiku Kalilombe, Sunday said the fuel price hike could trigger high inflation as fuel prices affect prices of food stuff.

“Most likely it might impact on inflation. Once fuel goes up, there is a ripple effect on the economy; let us see what impact it will have,” he said.

Chancellor College based economist, Ben Kalua, said while Mera may not be at fault for the hike, the hike may impact the economy negatively but not for long.

“The hike is not something huge. It is a marginal one. You cannot fault Mera for this,” he said.

The average Brent Crude oil price decreased from $62.96 per barrel to $59.73 per barrel in October. The oil prices edged lower as concerns about slower global economic growth overshadowed signs of a softening in the trade war between the United States of America and China.

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