Economic growth needs stable, affordable fuel

THE viability of businesses in a country is dependent on how well the energy sector is co-ordinated by Government and industry players.
Fuel is not only vital in the development of human and industries, but is a catalyst and life blood of any given economy.

Thus, any changes in the price or policy of the commodity has a direct effect on an individual, a company and a nation’s revenue base.

Last year in August, Zambia witnessed a fluctuation in fuel prices with Energy Regulation Board (ERB) announcing a reduction in pump prices with petrol selling at K11.67, representing a 6.64 percent reduction from K12.50 per litre while that of diesel was lowered to K9.87 per litre, reflecting a 7.93 percent reduction.
The price of kerosene also dropped to K6.50 per litre from K6.81 while low sulphur gas (LSG) was at K12.16 per litre from K13.01.
ERB attributed the price reduction to excess supply, high oil inventories and the appreciation of the Kwacha that was trading below K9 against the United States dollar, then.
However, barely after two months, ERB increased the retail price in petroleum products slightly exceeding the earlier pump prices with petrol costing K12.97 per litre and diesel at K11.09. For kerosene and LSG, the prices were at K7.82 and K13.38, respectively.
This time around, ERB vice-chairperson Ng’ande Mwanajiti explained that the upsurge was necessitated by the depreciation of the Kwacha and the increase in international oil prices, which are mainly determinants.
In October, under the year in review, the Kwacha broke the K9.70 mark to trade at K9.73 and K9.78 range while the price of oil on the global market was selling at US$49.11 per barrel.
Last week, the local unit closed in the range of K10.07 and K10.12 on the bid and offer, respectively.
The energy regulator, assured the nation of continued monitoring of developments in the exchange rates and international oil prices, saying it will only be adjusting fuel prices every 60 days, if changes in wholesale prices increase or reduce by about 2.5 percent.
However, there is need by Government to review some taxes on fuel, if the commodity is to be affordable for most citizens.
The Zambia Institute for Policy Analysis (ZIPAR) senior research fellow Ceaser Cheelo thinks addressing the procurement process by Government at Indeni Refinery is the starting point for the country to enjoy cheap fuel.
“Zambian consumers will continue to suffer from high fuel costs despite the global oil price declining and the big culprit in this story is Indeni Refinery. Therefore, part of the solution will be to seriously reform Indeni,” Mr Cheelo notes.
He says plans by Government to seek for an equity partner for Indeni Petroleum Refinery is the most important litmus test, to date, of the company’s commercial viability.
“Going forward, one can only hope that Government will keep improving its transparency and accountability record that it will move away from taking “hidden” and seemingly irrational decisions. Zambians are currently starved of credible public information on the full commercial or economic justification of the decisions of the Cabinet in recent times.
“Policy-makers have fallen into the habit of explaining their decisions only after things start to fall apart or when the decisions are exposed by an accidental leak. This should not be as it erodes the credibility of the state. I hope Government is truly learning and improving its character. Its past behaviour in public information sharing has been disappointing,” Mr Cheelo lamented.
Over 50 percent of Zambia-bound fuel comes as crude oil from the Middle East and first goes to India for “cracking” then recombined for easier transportation. The co-mingled stock is then shipped to Tanzania and piped to Indeni in Ndola.
The Middle East-to-India-to-Indeni arrangement is inefficient, unreliable and very expensive.
Therefore, the “Indeni way” thus explains, to a large extent, the costly fuel at the pump price in Zambia.
However, for the citizens to benefit from economies of scale, there is need to address the disparities on the inefficiencies inherent in the Indeni way of buying fuel and production process, which imposes underlying cost.
To ensure Zambians access affordable fuel, Government has started looking for an equity partner for Indeni Petroleum Refinery.
To this effect, Government needs about US$1 billion to recapitalise Indeni Petroleum Refinery and Tazama Pipeline Limited to enable them to operate at full capacity.
Minister of Energy David Mabumba explained that Indeni and Tazama are currently operating at about 650,000 metric tonnes against the design capacity of 1.1 million metric tonnes.
Mr Mabumba explained that Zambia’s petroleum market is valued at 1.5 million tonnes annually, which is above Indeni’s current capacity.
“Over the years, infrastructure at both Indeni Petroleum Refinery and Tazama Pipeline Limited has become old, resulting in their capacity reducing by 50 percent, which means that at 1.1 million tonnes, Indeni is able to only refine 650,000 tonnes.
“The money needed to revamp Indeni is projected at about US$800 million, but remember that Indeni and Tazama are interlinked in their operations. Therefore, you cannot work on one and leave the other. Hence, the money needed for the two institutions is about US$1 billion,” Mr Mabumba said.
He observed that Government does not have sufficient funds to pump in Indeni, therefore, it is currently, looking for a strategic partner to improve productivity at the firm.
Mr Mabumba stated that this year, Government will ensure that it formulates reforms in the petroleum and electricity sectors to improve efficiency.
Therefore, it is hoped that this year, the movement in the price of fuel will take the descending routine, if it is to positively impact on consumers due to its multiple effects on other sectors like transport and manufacturing that in turn puts more burdens on the public.
The decrease in fuel price will also entail that vehicles’ operating costs will reduce and ultimately, the end user benefitting.


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