By MAIMBOLWA MULIKELELA
FUEL is one of the major significant factors required to support the production processes in industries.
The commodity is widely used in various sectors of the economy such as agriculture, mining and manufacturing.
This means that the availability of fuel at affordable prices could go a long way in supporting growth in industries.
However, some quarters of the business community are of the view that the cost of fuel in Zambia is high when compared to what obtains in neighbouring countries.
Some experts have argued that the Import Parity Pricing (IPP) system that the Energy Regulations Board (ERB) introduced to determine the cost of fuel is to some extent contributing to the escalating fuel prices in Zambia.
According to some economic consultants, the existing system of crude oil, the IPP has contributed to the high fuel prices in Zambia.
It is argued that the petroleum sector in Zambia is characterised by volatile fuel prices, irregular supplies of petrol, diesel and kerosene and increasing uncertainty with regard to the operational efficiency of INDENI Oil Refinery.
Of course, fuel trends on the international market have an impact to determine the direction of the fuel prices locally.
Fuel pricing is also exacerbated byfluctuations in the world market value of foreign exchange, particularly the United States dollar and the current fluctuations of the Kwacha.
Andrew Kashita, an engineer and former minister, said the present pricing mechanism of fuel was destabilising the fuel costs in Zambia.
Mr Kashita said the current ERB pricing system was to some extent contributing to the persistent upward adjustments in fuel prices, a situation he said was pushing up inflation levels and making the country to be a high cost destination.
“The IPP formula by the ERB has failed to address the interest of consumers and has instead pushed up inflation levels,” he said.
He proposed that an open framework system should be established to ensure openness, transparency and accountability on the operations of the IPP.
“There is need for foreign energy experts to come to Zambia and advise the country on how to structure the IPP arrangement.
The daily, weekly or monthly watch prices on the international market should not be used as guidelines on the pricing of fuel products in Zambia,” he said.
Agro Fuel Investment business development manager, Sajeev Nair observes that the existing mechanism for crude oil imports, refining and the IPP pricing formula is marred with serious flaws which result in unjustifiable increases in prices for petrol, kerosene and diesel.
Mr Nair said lack of competitive environment in the crude oil imports in Zambia also contributed to escalating fuel prices.
He said Indeni Oil Refinery had currently dominated the crude oil importation and refining process saying there was no competition in the sector.
According to Mr Nair, encouraging competition in crude oil importation segment would contribute to reductions to fuel prices in Zambia.
“The IPP formula is far from being a satisfactory model in deciding the prices of petroleum products. The price formula neither reflects the market realities nor the actual cost structure,” he said.
Mr Nair said the recommendation presented by Indeni’s consultants to increase the cost of fuel through an upward revision of the IPP was unjustifiable and that the ERB and the people of Zambia should reject it.
He proposed that Zambia should introduce national or international tender practices for supplying crude oil at Indeni Oil Refinery.
Mr Nair said the move would provide the oil marketing companies (OMCs) with the benefits of competitive business environment in importing crude including undertaking all the associated tasks such as mobilising resources, shipping, ferrying, clearing and transporting to the refinery.
He said the cost of the crude oil import would be much lower than what was currently being calculated under the IPP.
“Why don’t we allow the importers to explore and tap foreign exchange from abroad to finance the cargo at a much lower interest rate?
In this way, the ERB could ensure quality, fair prices and availability of petroleum products in Zambia by following best regulatory practices that are accepted internationally,” Mr Nair said.
TAZAMA Pipeline general manager, Davison Thawethe said the IPP formula in the current form had some calculation problems.
Speaking in Lusaka during the ERB meeting on IPP recently, Mr Thawethe said most of the cost heads of IPP supposedly incurred by Indeni were not realistic.
But British Petroleum Zambia managing director, Cremion Mapfumba argued that the IPP model was robust and suggested that Zambia should continue using the same IPP formula.
He, however, admitted during the same ERB meeting on IPP that there was need to effect some adjustments to the system to make it more effective.
Mr Mapfumba said there was need to review every element of IPP price calculation formula to curb the problems that were related to it.
According to Mr Mapfumba, there is need to adjust prices in the IPP formula based on various realities.
He observed that rail transportation was not working as expected hence road transportation cost was the best indicator for calculating IPP.
A Lusaka based businessperson and a concerned motorist, Dennis Wood said there was need for Zambia to improve on the IPP formula despite the Government’s efforts in mitigating the high fuel prices.
Mr Wood said the IPP system had not done much to improve fuel prices saying the IPP pricing mechanism used was ineffective.
“In Zambia, we import between 450,000 to 550,000 tonnes of petroleum products annually. Given this magnitude of imports, there is a general tendency by the Government to rely heavily on the petroleum sector to mobilise revenues.
It is my considered opinion that the ERB has the influence to make fuel prices affordable for the motorists and the millions of poor households that use kerosene for cooking and lighting,” Mr Woods said.
He said there was a strong case for the Government and the ERB to directly support and develop a pricing system that was pro-poor.
Mr Woods observed that overhauling the prevailing duty and tax structure in the petroleum sector was a good starting point.
He said the move would remove the cascading effect of a rise in petroleum prices and keep a close eye on the high volatility of petroleum prices.
“I urge the Government and the ERB to support the poverty reduction policies and strategies that we so often talk about but, in effect, do nothing, thus making the poor poorer,” Mr Woods said.
By ERB’s creation of an open and competitive market with clearly defined and well-enforced rules and regulations for all players in the petroleum sector, Mr Woods said the ERB would be an enforcer of the law rather than being the judge and the jury in the petroleum sector.
He said ERB should ascertain the cost of input and conversion costs of the upstream and downstream of the fuel chain on an actual cost basis without inflating the costs by several assumed costing factors.
By now, fuel has remained to be a key element in most industries hence the need for all various stakeholders in the energy sector to put up various supportive measures to stabilise fuel prices in Zambia.
Times of Zambia
