FUEL PRICING DILEMMA
It is intriguing to hear Energy Regulation Board (ERB) pronouncement that fuel prices were maintained at same level in the last four months on account of subsidising the transportation costs using the Energy Reserve Fund as indicated by the ERB Board Chairman. This is against the backdrop of government emphatically informing the nation that there will be no fuel subsidies under Mr Hakainde Hichilema’s government. Wabeja musankwa AGAIN.
It is common knowledge that we do not produce fuel locally and therefore fuel pricing anchors on two important variables being Exchange rate and Crude price.
Where is the problem?
Mr Hichilema’s government blindly stopped importing Condensate also referred to as Commingled product by converting Indeni from a quasi refinery into importing finished product. This means that we are now buying finished product at spot prices. In a layman’s language over the counter price.
Numerous studies undertaken on improving Indeni operations recommended that we need to instal a carbon hydro cracker at an estimated cost of $400 million for Indeni to start importing crude oil and processing locally to achieve price efficiency.
How was pricing stabilised previously?
Indeni imported Condensate 3/4 times a year if not twice on a cycle of between 90/180 days. Meaning we paid upfront for the product and therefore hedged against international oil price fluctuations. Hence the reason why prices were stable, aside from the argument that the previous government subsidised fuel. This was the main reason for the price stability which was achieved.
So by resorting to using the pipeline for finished product we have destroyed the refining capacity of Indeni and the price hedging mechanism which Indeni provided since we could afford then, to pay for 90/180 days supply upfront. In a nutshell a wrong policy decision was made by Mr Hichilema’s government.
Right now our fuel pricing is completely outside our control as it’s now entirely based on spot international crude price and exchange rate. We as a country are now like a human body with zero immunity with regard to the international fuel market pricing.
Secondly, the previous government had started building fuel tank farms for storage of strategic fuel reserves across the country to instal capacity of at least 6 months supply. We have not heard anything from the new dawn on where this project is and can only assume it has been abandoned.
As for ERB it a surrogate institution dictated to by the Minister of Energy and its toothless to dictate anything. There role quite frankly is just regulatory oversight and therefore they do not direct policy as they want to be perceived.
The key fundamental mistake here was the conversion of Indeni from refining to oil marketing and now we will pay a heavy a price for this GRAVE policy mistake which was made as we are now unable to hedge or mitigate against international oil price fluctuations. This is further made worse by our inability to mitigate against the continuous daily depreciation of the kwacha. Fellow citizens, embrace yourselves for an extremely difficult 2024. Forget about “Bally will fix it”! It was another LIE.
President of the Socialist Party