Following a meeting that Parliamentary Committee on Natural Resources & Climate Change had with Malawi Energy Regulatory Authority (MERA) on Monday, August 26 to understand the issues surrounding the importation of fuel and fuel levy collection in the country, the Committee recommends that MERA should reasonably adjust upwards prices of fuel.
Malawi Defence Force delivering fuel
However, committee emphasises that “the adjustments should be strictly for the purposes of cost recovery and not for increasing profits” and to “keep in mind the hardships that people in the country are already facing as a result of the calamities that the country has gone through”.
In its report presented to Parliament today, August 28, the committee stresses that to ensure the continuity of service provision in the country, the need “to adjust the fuel prices cannot be overemphasised”.
The committee called for the meeting with MERA taking into consideration of the devaluation of the Malawi Kwacha by 22% in May 2022 and the subsequent 44% depreciation of the local currency which was effected in November 2023.
Through these economic developments, the committee observes that “the energy sector has been facing serious bottlenecks pertaining to the importation of fuel into the country”.
“Scarcity of forex and disparities in the cost of foreign currency as indicated by the Central Bank and what is obtaining in the commercial banks has resulted into fuel landing into the country at a cost higher than that recommended by MERA.
“This development has compounded into failure by the oil marketing companies to remit the fuel levies they collect to MERA as they are banking on the same resources to beef up their working capital.”
During the meeting, the committee observed was appraised that due to the non-remittance of levies by the oil marketing companies, the institutions — such as the Ministry of Energy and the Roads Fund Administration — that benefit from the collected levies are struggling to discharge their mandate.
The committee says it noted “with concern that the progress of implementation of road projects in the country was stalled” and that similarly, implementation of Malawi Rural Electrification Project (MAREP) “could be affected if the levies are not remitted as per requirement by law”.
“Since the pump price is lower than cost of importation, suppliers are using the same levies to supplement working capital to sustain their operations and ensure continued fuel supply into the country.”
The Committee was also informed that the Ministry of Energy has a route-mix policy where 20% of fuel is meant to be hauled through rail from Nacala port in Mozambique, 30% from Dar es Salaam port in Tanzania and 50% from Beira port in Mozambique.
While it was pleasing with the country’s re-introduction of fuel transportation by rail, the committee was appraised that as at August 2024, a total of 6% of the country’s fuel was being transported rail.
“The Committee was informed that transportation of fuel by rail is supposed to decrease the landing cost of fuel into the country and the fuel pump prices. “However, it was indicated that the 6% of fuel being transported by rail was too minimal to effect an impact on the prices of fuel in the country. It was highlighted that the real impact will be felt when transportation by rail exceeds 30%.”
The committee further says it was informed that “some of the challenges derailing the increase in usage of rail transportation of fuel into the country were the lack of storage facilities in Nacala and rail connectivity for offloading in the local depots”.
“On this note, the need for increased storage facilities in Nacala and offloading rail connections for depots across the country was emphasized.
“The Committee further found it was not possible for MERA to net-off the levies as some were legal in nature. For instance, by law, MERA is required to pay the Ministry of Energy the rural electrification levy and the road levy to Road Administration Fund, among others.
“The Committee was informed that to ensure inefficiencies of the importers are not compensated, MERA critically scrutinises the cost and deal with allowable costs and only pay the approved rates.
“On this issue, the Committee was assured that MERA had taken a corrective measure and was using the average foreign exchange rate of what had been paid in the past 3 months.
“Additionally, MERA assured the committee that the transportation rate that importers get amounting to MK4 per litre will not be part of the adjustment.”
The committee further recommends that in the future, “MERA should not wait for such accumulation of loans and bills so as to ensure moderate price adjustments” and that the regulator “should continue with the corrective measure and use the average foreign exchange rate from the commercial banks”.
“The country should embrace modern technology by moving towards the usage of electronic vehicles which could reduce the over-reliance on fuel.”
The committee concluded in its report, saying: “The importance of energy to the socio-economic development of Malawi cannot be overstated — petroleum products are a strategic commodity.
“To ensure the continuity of service provision in the country, needs to adjust the fuel prices cannot be overemphasised.”
Meanwhile, Consumers Association of Malawi (CAMA) has also added credence to the calls for MERA to increase the pump price, saying the Authority has for a long time been holding back upward adjustment of fuel price which has resulted in the accumulation of heavy losses by the petroleum importers.
Thus CAMA is requesting MERA “to immediately adjust prices of fuel to avoid unnecessary impending fuel scarcities that will hurt both the consumer and the whole economy”.
“The current losses suffered by the petroleum importers are unsustainable and continue to challenge the continued importation of fuel in the country,” says CAMA Executive Director John Kapito in its public statement also issued today.
“Price increases of petroleum products negatively affect consumers because of its price trigger effect on other goods and service. However, when this is weighed against the scarcity of fuel on the market and its negative effects, CAMA believes that the effects of regulated higher prices are a better devil than fuel scarcities.
“The reasons behind the high current fuel price increase is as a result of the decision by the International Monetary Fund (IMF) to devalue the kwacha and a weaker kwacha will continue to trigger price increases especially on strategic commodities like fuel.”
Kapito emphasises that MERA’s mandate is to regulate and not to control prices of fuel and that fuel prices “must never be politicised”.
“MERA should maintain its independence and refrain from creating unnecessary challenges to both consumers and fuel importers.
“Any consequences as a result of holding the prices will hurt the consumer more. It is, therefore, economically unsustainable to continue with lower prices that are below cost and accumulating the huge losses whose debt will have to be paid by the consumer.”
Kapito further says scarcities of fuel, as experienced before, “have serious negative economic and social effects on consumers and the economy”, which include;
1. Fuel being only found on the black market at double the regulated pump prices;
2. Critical services are disrupted such as distribution of goods and services and movement of people;
3. The health sector is heavily affected as ambulances are unable to operate;
4. Goods and services become expensive because of high prices of transportation; and
5. Both small scale and big industries stop their operations.
CAMA also maintains that as MERA adjusts the fuel prices, it should consider prices that “are affordable and fairly compensate the fuel importers and ensure continued supply of fuel on the market”.
