Mera jittery on toxic fuel deals
The Malawi Energy Regulatory Authority (Mera) on Saturday failed to give National Oil Company of Malawi (Nocma) an outright green light to proceed with fuel importation deals which, it argues, are costly by about $50 million [about K45 billion] and could negatively impact local fuel prices, thereby hurting the consumer.
Mera Board Chairperson Leonnard Chikadya told a meeting between Mera and Nocma—that was sanctioned by the Natural Resources Committee of Parliament (NRCP) in Mangochi District— that they could not give a nod to such a costly decision alone, saying they needed to seek the views of other stakeholders in the Fuel Pricing Committee.
The committee had sanctioned the meeting to find a solution to a long standing rift between Nocma and industry regulator Mera on how to proceed with fuel importation deals.
According to the committee, there was an urgent need for Mera to give Nocma the go-ahead to offer the fuel importation contracts as one way of averting a fuel crisis after June this year, when the current fuel contracts would end.
According to figures given out during the meeting, Nocma had opted to give a fuel importation contract to Lake Oil for the Northern Corridor under the Delivered Duty Unpaid (DDU) system and IPG on the Beira Route, despite the two quoting higher premiums.
In the fuel importation business, premiums are the mark-ups that suppliers put above the ruling international fuel price. That is to say, with the international oil price being dictated by the international market, suppliers compete on premiums or mark-up.
The figures show that, on the Dar es Salam route on DDU, Lake Oil ranks number 14 in as far as the importation of petrol is concerned with a premium of $323.99 per tonne to supply the commodity into Malawi’s capital, Lilongwe.
On the other hand, the same Lake Oil is ranked the 11th expensive bidder in the supply of diesel on the Dar Es Salam route as it quoted a premium of $289.59 per tonne.
The figures also show that Nocma has opted for IPG on DDU on the Beira Route despite not being the lowest bidder.
In addition, the figures also revealed that Nocma has opted for IPG to supply fuel on the ex-tank system through the Northern Corridor, despite the firm not bidding on the route.
According to Chikadya, it is the wish of Mera to ensure that fuel landed on the market at a cheaper price which would translate to low pump prices.
“Our biggest concern, as a regulator, is that we would like to offer a low price for the commodity so that Malawians are not hurt at the pump,” Chikadya said.
Nocma acting Chief Executive Officer Helen Buluma told the meeting that, as things stand, Malawi stands on fragile ground as far as the supply of fuel is concerned, saying Malawi risks plunging into a fuel crisis after June this year when the current fuel contracts expire.
According to Buluma, the fuel suppliers require about four months to start supplying the commodity after getting the contract.
“Since we have not yet issued the contracts at the moment, it would mean that we are likely going to have a gap in the supply chain. All this is coming because of the delays in getting a go-ahead from Mera,” Buluma said.
NRCP Chairperson Werani Chilenga said it was the wish of the committee to see a continued supply of fuel into the country.
Chilenga pleaded with Mera to give an unconditional nod to Nocma to proceed to offer the contracts to the preferred bidders just to avert a fuel crisis in the coming months.
“We don’t want to go back to a situation we had around 2012, when we had money but we did not have fuel,” Chilenga said.
But Chikadya said Mera could only give a nod to Nocma under the current circumstances if Nocma assures that they would not come back to Mera to claim fuel importation losses.
According to Chikadya, currently, Mera owes Nocma over K20 billion because it gave a nod to fuel importation deals that did not make economic sense.
But Chilenga asked Chikadya to drop the condition given to Nocma, saying that any future importation losses would be addressed by the Price Stabilisation Fund.
But Chikadya, who was accompanied by three Mera directors and management members, said they could not commit to that decision and asked that they be given time to consult, saying the board works through its pricing committee which comprises other government ministries, including the Ministry of Finance, the Ministry of Energy, the Ministry of Economic and Planning and the Reserve Bank of Malawi (RBM).
The committee has since given Mera up to this Friday to consult stakeholders and give directions on the matter.
