Fundamentals triggering fuel hike
Published On December 22, 2021 » 1603 Views» By Times Reporter » Business, Columns
 0 stars
Register to vote!

By Kennedy Mupeseni –

SINCE the inevitable has happened, players in the economy should devise measures to cope with the recent charges in the price of petroleum products.
Last week, the Energy Regulation Board (ERB) announced fuel price adjustments, in this case, wholesale and pump prices for petroleum products being revised upwards with the pump price of one litre of Petrol moved by K3.54 and now pegged at K21.16 from K17.62 respectively.
Pump price of one litre of diesel has been increased by K4.56 to K20.15 from K15.5 while that of Low Sulphur Gasoil (LSG) has been increased from K17.82 to K22.29 which gives an absolute variance of K4.47.
Kerosene prices have remained unchanged.
The increment followed the Government’s earlier announcement that fuel subsidies will be removed so as to migrate to cost reflective pricing as a measure to return the nation on a path to debt sustainability.
From experts’ perspective, this adjustment is part of the economic reforms being implemented by the United Party for National Development (UPND) administration as part of its staff-level agreement with the
International Monetary Fund (IMF).
Since coming in power more than 100 days ago, the new administration has been working on measures to find a solution to the staggering external debt.
The country reportedly owes international lenders in excess of $14 billion.
According to the Jesuit Centre for Theological Reflection (JCTR) fuel pricing in Zambia is determined by two key fundamentals, namely: international fuel prices and exchange rates. JCTR has observed that pump prices have been kept artificially constant since December 26, 2019, despite movements in the key fundamentals.
Since the December 2019 fuel price adjustment, Government policy of reviewing fuel prices every 60 days was not adhered to, due to the subsidies and tax incentives which were introduced by the Patriotic Front (PF) administration.
It has been observed that until December 16, this year, the Government spent over US67 million per month or US$800 million per annum on fuel subsidies
Hence, JCTR says the ERB’s proposal to start reviewing fuel prices every 30 days instead of every 60 days is a welcome position.
“The review of fuel prices every 30 days and the pricing trigger band of 2.5 per cent change in wholesale prices should be strictly adhered to, to allow for price stability when new fuel prices are introduced,”
the centre says.
This will provide for smooth and gradual fuel price adjustments.
Without the current tax relief on petroleum products such as zero rated Value Added Tax ( VAT ) as opposed to it being at 16 per cent and Excise Duty being reduced from K2.07/litre to K0.64/litre on petrol while diesel and LSG, moved from K0.66/litre to K0.00/litre, JCTR says fuel prices would have been higher.
In this vein, the JCTR wants tax incentives in the energy sector to be maintained as a mitigation measure to high cost of petroleum products.
The centre also expects the Government to use proceeds from subsidies’ removal for social economic mitigating measures.
Commenting on the recent hike in pump price fuel ,JCTR says the review of fuel prices every 30 days by the ERB and the pricing trigger band of 2.5 per cent change in wholesale prices should be strictly adhered to, as doing so will allow for price stability when new fuel prices are introduced thereby providing
for smooth and gradual fuel price adjustments “The tax incentives recommended by the ERB should be maintained as a mitigation measure which will lead to fuel prices gradually migrating to cost reflectivity without the requirement of ,” JCTR executive director Alex Muyebe says .
Father Muyebe says the Government should also ensure that TAZAMA Pipelines becomes operational to reduce the cost of transporting fuel in Zambia and the tear of roads. There is need to ensure that the money being spent on subsidies is well spent on social welfare programmes that benefit the poor and vulnerable in society.
“The Zambian people are closely watching to ensure that the resources realized from removal of subsidies are really going to be utilized to cushion the poor and vulnerable, “he says.
For the JCTR, it is a social justice imperative that the Government takes deliberate measures to improve the living standards and conditions of the poor and vulnerable people in society.
Father Muyebe notes that the pronouncement in December 2019 regarding increment of fuel pump price saw the cost of living as measured by JCTR’s (B rise from K6,600 in December 2019 to K7,410 in January 2020 .
He fears that the recent hike will also result in the increase of the cost living for many households.
Major businesses have different reactions to the fuel hike.
The Association of Mine Suppliers and Contractors (AMSC) says it expects 2022 to be one of the most turbulent years due a projected mixture of business hurdles such as fuel hike and looming electricity upward adjustments.
AMSC general secretary George Jere says the adjustment of fuel pump prices was ill-timed.
“The fuel hike has complicated matters, because we are still contending with the effects of COVID-19 on business, most enterprises that deal with the mines are near collapse and here comes fuel increment which will push the cost of doing business very high,” Mr Jere says.
He says since fuel subsidies are tax attached, the increment should have been done at the start of the year.
Mr Jere says fuel pump prices have been adjusted upwards almost two weeks before year-end.
He says going forward; the Government should be consulting widely before coming up with any policy shift.
Mr Jere is concerned that the move will see lower copper production as the main cause of the high cost production in the mining sector was energy inputs.
However, Ndola District Chamber of Commerce and Industry (NDCCI) think otherwise.
The chamber observes that the removal of fuel subsidies will act as a catapult to re-modernising the local energy sector.
NDCCI president Paul Chisunka says the energy sector is the main driver in economic and social development of the country.
“We are anxious about the release of the Zesco cost of study. This will work as a catapult to re-organising, liberalising and re-modernising the local energy sector,” he says
Mr Chisunka says the chamber wants an organised and modern energy sector to enhance investment in renewable energy in the country.
He adds that stable, affordable electricity and energy were important as they constituted a large proportion of supply in expenses.
Mr Chisunka urges the Government to be strategic in counter balancing market disruptions that might result from the impending removal of electricity, fuel and agricultural subsidies.
He says going into the New Year, the Government should resolve the outstanding commercial disputes and standoffs in the energy sector The current situation we are in requires that energy consumers device
mechanism to survive the harsh economic environment.

Share this post
Tags

About The Author