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‘ERB ensures cost-reflective prices’

THE Energy Regulation Board (ERB) says every consignment of petroleum and refined products is assessed to allow consumers to pay cost-reflective prices and ensure sustained provision of fuel in the country.

This is in response to calls by Consumer Unity and Trust Society (CUTS) International on ERB to review fuel prices every 60 days to allow consumers to pay cost-reflective prices.

But ERB senior manager for consumer and public affairs Fred Hang’andu said on average, a consignment of refined petroleum products and feedstock arrives every two months.
Mr Hang’andu said ERB uses the cost-plus mechanism, which in essence provides for cost recovery to determine the prices of refined petroleum products.
Cost-plus mechanism is a cost-based method for setting the prices of goods and services.
Under this approach, there is an addition of the direct material cost, direct labour cost, and overhead costs for a product, and add to it a mark-up percentage to derive the price of the product.
“ERB would like to reassure the public and all stakeholders that every petroleum feedstock cargo and refined products consignment received is assessed.
“This is done in order that each consignment is priced accordingly to ensure sustainable provision of fuel to the nation now and in future,” he said.
He said the price determination mechanism also promotes price stabilisation.
Mr Hang’andu also said since January the board has assessed four consignments and priced them accordingly despite not witnessing any fuel price variation in the first eight months of the year because two shipments in between were below the trigger and for price adjustment, which is 2.5 percent.
Of the four consignments assessed, only those for January and August 2017 necessitated price variation as the differences in prices were above the 2.5 percent threshold.
Mr Hang’andu, however, said stakeholder attention is mostly drawn when there is an upward or downward change.
“In that regard, the 2.5 percent trigger band is intended to guard against frequent price changes which may make business planning difficult,” he said.