The Reason to Celebrate Fuel Reduction
By Dr. Martin Mushumba
The country witnessed a reduction in the pump price of fuel in the latest Energy Regulations Board (ERB) price review announced on 30th May 2023. The ERB announced that the price of petrol be adjusted from K27.59 to K24.45 and that of diesel from K24.64 to K21.87.
To the many Zambians this is good news as the move shall result into among other benefits, the reduction in the costs of transport, reduced production costs, reduction in food inspired inflation, and most importantly, the reduced cost of living.
Nonetheless, the ardent critiques of the New Dawn Government have found an opportunity to mock the reduction. To them, the reduction was not meaningful because in August 2021, the price of petrol and diesel were K17.87 and K17.04, respectively. Therefore, to the critiques, it shall only make sense to celebrate when the prices got to be lower than where the New Dawn Government found them when His Excellency President Hakainde Hichilema took office.
But that is a misguided position, motivated by ignorance of the energy sector economics and a drive to undermine the achievements being scored by the New Dawn Government. Here is the reason to celebrate this reduction: Yes, the pump price was found at K17 in August, 2021. However, this was an artificial price for two years due to waived taxes at 25% customs duty, 16% VAT, and Excise Duty. In total, over 41% on fuel had been frozen to artificially make the prices look low.
In addition, during the Patriotic Front (PF) reign, the Government was directly giving Oil Marketing Companies (OMCs) about US$64 million every month in order for them to land fuel in Zambia profitably as they opted to stop imports. The combined implication was costing government treasury about US$1 billion per year. We also had an accumulated debt to OMCs of US$800m as we were unable to pay because fuel was being sold at a loss.
Consequently, people should be happy today because the price of fuel they have today is reflective of the open market, not artificially massaged. The country is in a better position today without the burden of subsidies. People have every cause to celebrate this reduction. In fact, the market is projected to even get better with time, promising a further reduction with the gains in the Kwacha currency against the dollar as well as heightened talks to end the Russia- Ukraine war.
The Author is a Public Policy Analyst