Harsh reality: We suppressed fuel prices for so long

I may not be competent to comment on today’s fuel price increase. But as someone conversant with oil price trends and dynamics, this fuel price hike was inevitable and in fact long overdue.

Let us not put into oblivion that the country last revised fuel price eight months ago and in particular, on 8 March, 2021.

Then, petrol has increased from K834.60 to K899.20 representing 7.74 percent diesel from K826.40 to K898.00 representing 8.66 percent while Paraffin increased from K613.20 to K719.60 representing 17.5 percent. As a motorist, this was a bitter pill to swallow.

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However, following today’s pump price review, petrol price has gone up by an average of 28 percent from K899.20 to K1,150; diesel price has shot up from K898 to K1,120, thus representing 25 percent jump while paraffin has seen its price increasing by 15 percent to K833.20 from K719.60.

Covidi-19 has been a better devil, when it comes to fuel prices, and let us all accept this harsh reality.

Oil prices dropped at the start of the Covid-19 pandemic, and in April last year prices fell below zero for the first time in history as lockdown wiped out demand while producers continued to pump crude from their wells.

However, it should be highlighted in recent months, aggregate demand for fuel as economies around the world have started to reopen, pushing world oil prices upwards in the process.

Let us also remind each that pump price adjustments continue to be based on the Automatic Price Mechanism (APM) which was re-adopted in May 2012.

And as we speak, the Malawi Kwacha has depreciated by 4.52 percent from an average exchange rate of K787.85/USD in March 2021 to the current average exchange rate of K823.49/USD. Do not underestimate this magnitude of Kwacha fall. It has serious economic ramifications, not only on fuel pricing.

As such, fuel prices continue to reflect changes in the value of In Bond Landed Cost (IBLC) of petroleum products and movements of the Kwacha against the United States Dollar.

The fuel pricing regime operates within a specified threshold of5 percent. This means that any change in IBLC of more than 5 percent threshold triggers a price adjustment in the local pump price.

And today’s fuel price hike is not in vacuum. The Malawi Energy Regulatory Authority (MERA), a corporate body established under the Energy Regulatory Act No.20 of 2004 to regulate the energy sector in Malawi in a fair, transparent and efficient manner, has critically considered recent trends in the world petroleum products prices and changes in other macroeconomic fundamentals in the local market and their impact on energy prices.

This authority has evaluated the combined effect of the movement of the FOB prices, the exchange rate of the Malawi Kwacha against the United States Dollar, and changes in local factors that determine the maximum pump prices on the landed cost of petroleum products.

All these factors have necessitated the increase in fuel price hike. No matter how long it may take but a bubble has to burst. This decision, I have a strong conviction that, is apolitical.

The continued suppression of the fuel prices was a burden on the suppliers as they were buying the commodity at a higher price on the international market.

Fellow Malawians, it is better to have fuel at a little bit higher price than having a situation where the suppliers get disoriented and reduce the quantities. Imagine queues that were seen recently after a day or two of less supply due to truck drivers’ strike.

As a motorist and a law abiding citizen, I welcome this fuel price increase as it is a painful reality and necessary.

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