AS ANTICIPATED, the effects of the fall in the value of the Kwacha against major convertible currencies have started taking their toll on the local economy.
The increase in pump prices for petroleum products effected by the Energy Regulations Board (ERB) last week is just one such offshoot of the poor performance of the local currency, with far-reaching spill-effects.
Just like economic experts have indicated, the increase in the prices of petrol, diesel and other petroleum products will affect the entire economy because of this sector’s role in production and other economic activities.
The pump price for petrol was increased by seven point twenty two per cent, while that of diesel went up by eight point seventy five per cent, and nine point fifty four per cent for paraffin.
The wholesale prices for these products were adjusted by eleven point fifteen per cent with effect from midnight April 17.
According to the ERB the increment is chiefly attributable to the depreciation of the Kwacha against the United State (US) dollar and other major international currencies.
The pump prices adjustment had nothing to do with the prices on the international market as for instance, the Brent Crude oil was selling below the US$100-per-barrel margin before the Easter weekend on Thursday last week.
As for the Kwacha, in April 2013, when the last fuel prices increment was effected, it stood at K5.40 per dollar but depreciated to about K6.20, cumulatively losing almost 15 per cent of its value.
Albeit economically devastating, the increment seems to have been justifiable and inevitable given the backdrop.
It seems inevitable in the sense that Zambia imports the crude oil using the dollar and the depreciation of the Kwacha means additional costs of procuring the oil through increased cost of foreign exchange (FOREX).
If it were possible to import the oil using the Kwacha without requiring any forex, in this case the dollar, then there would be no increase in the cost of procuring this commodity.
“Pump prices are determined based on the cost of each cargo and the exchange rate of the Kwacha to the US dollar. In determining prices, the ERB uses the cost plus pricing model which operates on the principle that the final price of petroleum products should cover all costs in the supply chain,” states the ERB in its statement.
ERB’s analysis of the feedstock shipment for last month showed that if prices had not changed, a big loss would have been incurred on the shipment of the feedstock for the refinery.
To address the situation and ensure sustainability in the supply of this important commodity, the increment had to be effected.
Effectively, the uniform pump prices went up from K9.91 to K10.63 for a litre of petrol; from K9.20 to K10.01 for diesel; and from K6.83 to K7.48 for a litre of paraffin.
But what are the lessons learnt from this increment? What should be the way forward on the matter? Should we just fold our hands saying it is inevitable and there is nothing we can do about it?
I do not think so!
The increment in the prices of fuel serves, once more, as a reminder that we do not mine oil and that we procure it from faraway countries and, therefore, at a great cost, which include that of transportation.
Therefore, the current scenario provides an opportunity to revisit some programmes which have been mooted by several Government administrations, past and present.
Programmes like the use of biofuels should be seriously relooked at.
In February this year, we were told that the use of biofuels as supplementary source of fuel in Zambia would reduce the country’s dependence on imported crude oil by at least an average of 10 per cent.
Biofuels Association of Zambia (BAZ) chairperson, Thomson Sinkala told Times of Zambia that blending ration had been set between five and 10 per cent for bio fuels.
With the blending ration at five per cent for biodiesel, the country would require between 37 and 40 million litres of biodiesel per year.
For petrol with the blending ration at 10 per cent for bio ethanol the country would require between 44 and 50 million litres per year.
The Government had also worked out the pricing mechanism for biofuels using the petroleum price framework by applying zero to five per cent discounted rate to the then wholesale prices of petrol and diesel at K5.47 and K6.20 per litre respectively.
Last year the Government had said an estimated K3.5 million would be required at Indeni and another K12.3 million for the Lusaka depot to establish blending facilities this year.
As early as April 2011, the Government had announced that it was ready to start blending biofuels into national fuel mix and that it would, then, need 21 million litres of biodiesel and 18 million litres of bio ethanol per year.
The mix, which was proposed in the Six National Development Plan would not require any reconfiguration of the car engines.
We were told biofuel standards ZS E100 and ZS B100 for ethanol and diesel respectively were already available with the Zambia Bureau of Standards.
Then there is also the mooted initiative to procure either crude oil or finished products from the neighbouring Angola.
Why not, indeed, come up with an arrangement of importing the commodity on government-to-government basis with major oil producing countries, cutting out all potential middlemen?
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