By Kalapashi
A post by then opposition leader Hakainde Hichilema criticising the high fuel prices and demonstrating how he, HH, would reduce the price of the precious commodity has gone viral. This followed the increase in fuel prices by ERB. Some are now saying HH lied and his political opponents are saying this is a blatant lie and a clear broken promise.
First and foremost the post in question was made in 2019. The price of oil on the international market then averaged $50 per barrel and the exchange rate averaged K13/USD. In 2021 oil on the international market has averaged $60 per barrel and the average exchange rate has been around K20/USD.
Then there is the issue of the structure or composition of the local pump price whose key elements are (i) the international price (ii) the exchange rate, (iii) the procurement costs and (iv) tax (VAT & exercise duty). From this it’s easy to see that govt has control of 3 out the 4 key factors.
Energy minister Hon Eng Peter Chibwe Kapala has announced that govt has initiated the process of restructuring the fuel procurement process to reduce costs. Once this is done it may go a long way in mitigating the price of fuel.
The coming of the New Dawn administration has seen an impressive appreciation of the Kwacha. If this appreciation continues, as expected, it will drive down the Kwacha value of the price of oil.
Depending on the general performance of the economy and possibly emergency of other sources of revenue, govt could completey remove or reduce the component of tax in the fuel price.
Also the international price of oil is subject to market movements i. e. demand and supply. So the price will go up and down as the market dictates. Should prices go down significantly, there could be motivation for ERB to reduce the local pump price. Which would be a bonus given that the international price is outside the country’s control.
So whether Bally lied about reducing the fuel price is for others to say but from the above its easy to see that Bally & Co have a lot of leverage to reduce the price of fuel going forward. And they still have 4 years 7 months on their side.