MERA set to adjust pump fuel prices; As CAMA demands review review of many levies on fuel prices

Key economic factors, mainly due to the exchange rate of the Malawi kwacha against the United States dollar — coupled with Price Stabilization Fund balances — have affected landed costs of petroleum products that prompts Malawi Revenue Regulatory Authority (MERA) to adjust pump fuel prices from February.

A statement from MERA, which is mandated to determine prices of energy sales and services, says since the determination of the current prices in October 2021, the Malawi kwacha has slightly depreciated against the US dollar by 0.12% — from the average of K823.49/US$ to the current average of K824.38/US$.

On the other hand, the Free on Board (FOB) prices of petrol, diesel and paraffin have increased by 7.5% (petrol); 14.87% diesel and 15.99% paraffin.

MERA says the combined effect of the performance of the key determination may result in higher landed costs of petroleum products in the month of February 2022 since the landed costs of petrol, diesel and paraffin have increased by 6.04%, 13.35% and 13.91% respectively.

MERA CEO Henry Kachaje

And as of Tuesday January 25, MERA says the Price Stabilization Fund balances for petrol, diesel and paraffin averaged K0.9 billion against the recommended minimum of K5 billion.

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

“In the upcoming energy price reviews, MERA will consider the following: changes in landed costs; the Price Stabilization Fund; the need to enable importing companies to recover importation costs; and the goal of promoting consumers’ interests with respect to fuel prices and continuity of supply.”

On Monday, Consumers Association of Malawi (CAMA) issued a statement advising Clerk of Parliament to consider reviewing the many levies that are added on the fuel prices — that if removed could led the price of petrol at K950.00 per litre and diesel at K931.00 per litre.

The current prices set last October are at K1,150/ltr from K899.20, diesel at K1,120/ltr from K899.00 and paraffin at K833.20/ltr from K719.60.

CAMA contends that when fuel prices go up, there is an immediate increase on prices of most goods and services and it is therefore important to review the many levies which are hurting consumers.

Executive Secretary John Kapito argues that as international fuel prices keep on rising most of the levies have become “unsustainable and no longer serving the purpose they were created for”.

“Considering the sensitivity of fuel prices and it’s impact on the market”, CAMA is requesting and proposing the removal of the levies that includes the Road Levy.

“This levy was introduced some years back to assist in the construction and rehabilitation of our roads and at a time when systems and mechanisms were not established within relevant institutions,” says CAMA in the statement copied to MERA and the Ministry of Energy.

“This forced Government to load most taxes and levies on fuel. Now that we have a full Road Regulatory Authority — specific for road construction and rehabilitation — it is important to transfer such a tax to this appropriate authority bearing in mind that the Road Authority has just introduced the Toll Gate Tax whose purpose is similar to that of the Road Levy and it is unfair to punish Consumers with double taxation for the same type of service or product.”

The other levy targeted is for the Malawi Rural Electrification (MAREP), which CAMA observes that it has been part of the Petroleum Price Build up for a long time.

“This levy was intended to develop rural electricity connection infrastructure with hope to improve rural electricity access.

“Unfortunately, this is a tax or levy whose accountability has been subjected to corruption and there is no significant impact on access to electricity for the rural masses.

“This is also one tax or levy that is loaded on a wrong and sensitive product like fuel and we are proposing if this tax is moved to taxes under electricity distribution or generation.”

CAMA also targets the Malawi Bureau of Standards CESS, which is “another levy loaded on fuel prices and intended to provide quality assurance of our fuel”

CAMA contends that “it is common sense that the quality of Petroleum Products can only be inspected and assured before shipment and, therefore, the role of the Malawi Bureau of Standards to inspect and assure quality of fuel into the country is [redundant].

“For years Consumers have been paying a tax to an institution that contributes nothing or plays no role in fuel quality assurance. It is unfair to punish Consumers to a levy that cannot be justified. The only thing this levy does is to distort market prices.”

Thus Kapito maintains that if these levies are removed, the current prices of the petroleum products at the fuel pump will approximately be K950.00/ltr for petrol and diesel at K931.00/ltr.

Last week, MERA Chief Executive Officer, Henry Kachaje asked the Reserve Bank of Malawi (RBM) Governor to consider prioritizing forex allocation to licensed fuel importers following fuel shortages the country was facing due to reduced imports as local commercial banks have not been able establish adequate Letters of Credit for fuel imports.

Kachaje had warned that the “resultant effects of fuel shortages can lead to long lasting and detrimental to the economy”, adding that “some commercial banks are offering different denominations from the usual US dollars, albeit in small amounts, and the cross rate is resulting in high landed costs that would eventually push pump prices higher”.

Kachaje pleaded RBM that if it will prioritize the forex allocation to licensed fuel importers, it would help in “normalizing the fuel supply situation as currently, the limited fuel imports are being consumed directly, denying the sector possibility of building stocks to normalize the situation”.

Kachaje indicated the licensed importers that need RBM’s assistance to have their applications for Letters of Credits with various local commercial banks, which include National Oil Company of Malawi (NOCMA); Petroleum Importers Limited (PIL); Mount Meru Petroleum Limited and Energem Petroleum Limited.

Kachaje contended that the forex allocation for fuel imports to the above listed will go a long way in complementing NOCMA’s efforts of building fuel stocks internally as demand for volumes by the oil marketing companies from NOCMA will reduce.

The past weeks have seen the majority of fuel stations drying up and where the commodity was available accompanied long queues— as Kachaje indicated that “the limited fuel imports are being consumed directly”.

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