In the analysis below Sean Tembo uses the price of CRUDE oil as the basis for his calculations.
But cars, equipment, etc DO NOT run on crude oil but FINISHED or REFINED products. In short his calculation leaves out the COST of REFINING and therefore cannot be correct.
Here is what he wrote:
1. The current average price of crude oil on the world market is approximately $105 per barrel.
2. There are approximately 159 liters of fuel that comes out of one barrel of oil.
3. The unit cost of fuel at source per liter is therefore approximately $105/159 = $0.66
4. The current average exchange rate between the Kwacha and US Dollar is approximately K18/$.
5. That gives us an average price at source per liter of fuel of $0.66 x K18 = K11.88 which we can just round off to K12.00.
6. If we are sourcing this fuel from the Middle East, the average cost of insurance and freight would be 20 to 30 percent of the value of the product. For our current purposes, let us just put it at 30%.
7. The approximate landed cost of fuel in Zambia, before taxes is therefore K12 x 1.3 = K15.60
8. Oil marketing companies generally put an average mark up of 4 to 6 percent, and filling station dealerships generally have a mark up of 3 to 5 percent. So let us say their combined mark up is 10 percent.
9. The pump price of fuel would be K15.60 x 1.1 = K17.16 inclusive of the mark ups for OMCs and filling station dealerships, but before taxes.
10. The current pump price for petrol is K26.50. This means that approximately(K26.50 – K17.16) K9.34 is under the control of Government in terms of taxes, levies etcetera.
11. Therefore, Government can reduce the pump price of petrol from the current K26.50 per liter to as low as K17.16 per liter, merely by reducing or completely scrapping all taxes and levies on fuel.
12. South Africa yesterday reduced the pump price of their fuel by 6%, because their Government decided to reduce the tax amount collected on fuel sales.
13. The question is; why can’t our Government do the same?
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SET 01.04.2022