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Fuel fund depleted

Fuel

John Kapito

By Wisdom Mwale:

The continued depletion of reserves in the Price Stabilisation Fund (PSF) has raised concerns from consumers and economic experts who fear the situation might backfire in the long-run.

As of January 25, Malawi Energy Regulatory Authority (Mera) records showed that PSF balances for petrol, diesel and paraffin averaged K900 million against the recommended minimum amount of K5 billion.

Under automatic fuel pricing mechanism, fuel pump prices are adjusted to reflect international market price movement to allow fuel importing companies to recover importation costs on real time basis.

The pricing system is also linking pump prices to procurement costs and exchange rate movements with a plus-minus five percent of trigger band.

Already there are fears of a looming fuel price increase as figures from the energy regulator show that landed costs for petrol, diesel and paraffin have increased by 16.16 percent, 24.67 percent and 24.71 percent, respectively.

In an interview Wednesday, Mera Consumer Affairs and Public Relations Manager Fitina Khonje admitted that the fund, which was created to absorb extreme volatility in selected commodity prices, is presently depleted.

Khonje could, however, not provide actual figures of the balances in the fund but justified the depletion, saying the regulatory body has been importing commodities at higher costs but maintains pump prices.

“If you bring the commodity here at higher cost but the pump prices remain unchanged, it means the PSF has to bridge that gap. It has to take up that cost. If that happens over a long period, it means you will not have sufficient funds in the PSF”, she said.

Consumer rights body, the Consumers Association of Malawi, faults what it calls poor decision-making in the industry.

Cama Executive Director John Kapito said the future looks bleak, saying the situation can be addressed by removing some levies the commodity attracts.

“The PSF is not generating anything. Whatever was left in the fund has been wiped out. We have encountered a lot of losses. That is why, in February ,we wrote a letter to Mera and government to say if they want to maintain current prices, they need to remove the three levies; the road levy, the Marep levy and MBS levy”, he argued.

Key levies in the petroleum products price build-up include energy, road, MBS, rural electrification, storage, distribution fund, carbon tax and the price stabilisation.

Economic expert from the Malawi University of Business and Applied Sciences Betchani Tchereni echoed Kapito’s calls to have some of the levies scraped off.

Tchereni suggested that government may need to bring funds from elsewhere to stock the Price Stabilisation Fund in order to protect consumers.

Under the automatic Fuel Pricing Mechanism (APM), pump prices qualify for an adjustment when the landed costs of petroleum products move beyond the +5 percent or -5 percent trigger limit.

Meanwhile, global oil prices have continued to rise following geopolitical tensions between Russia and Ukraine.

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