Fuel crisis looms in Malawi

Malawi Government has asked local oil firms to be patient as it sorts out their under-recovered money, which has now accumulated to K11.5 billion (about $38 333).

But Oil Marketing Companies (OMCs) have warned that Malawians risk queuing and sleeping at fuel stations again if authorities further delay to release the billions in unpaid loss compensations that could shore up their working capital and avert a potential crisis.

The said money was accumulated during the Bingu wa Mutharika administration, which subsidised fuel to cushion people against frequent price adjustments, a policy that critics said was only postponing a problem that would still come home to roost.

To help fuel companies hedge against importation losses, government was supposed to pay the OMCs for any losses using the price stabilisation fund (PSF) levy.

However, this fund was almost always too low to cover widening loss margins as global oil prices galloped at a speed the PSF could not keep up with, leaving it in the red; hence, the piled under-recoveries.

But when the Joyce Banda administration took over, it overturned that policy to mitigate against importation losses by introducing a fuel importation and pricing regime based on the so-called automatic pricing mechanism (APM) that allows full cost recovery for all fuel imports.

The Banda administration, however, retained the PSF so that operationally, it serves to compensate importers directly by absorbing all changes in product landing cost that are within ± 5 percent of In Bond Landed Cost (IBLC).

Under the APM, fuel pump prices are being adjusted to reflect fuel price movements on the international market and allow fuel importing companies to recover importation costs on real time basis, according to the Malawi Energy Regulatory Authority (Mera).

This is why effective June this year, pump price adjustments have tried to reflect changes in the IBLC value of petroleum products and movements of the kwacha against the US dollar.

To minimise the impact of frequent fuel price fluctuations on the international market, the APM is operating within the threshold of ±5 percent, which is also the trigger limit.

A change in IBLC of more than five percent triggers a price adjustment. Compensation within ±5 is supposed to be through the PSF in the price build-up, which has also been set at five percent of the IBLC.

No quick solutions

In an interview on Wednesday, Energy and Mines Minister Dr Cassim Chilumpha said there were no quick answers to problems in the fuel industry as the country grapples with “huge financial problems”.

He said government was working towards easing the burden for the ordinary Malawian, oil importers and marketers who are all reeling from the aftermath of bad economic policies.

Said Chilumpha: “No matter which way government goes, people will be complaining. If we decide to increase the profit margin for OMCs, the average Malawian will be up in arms. My position is not very easy. We are talking with the marketing companies and it is my hope that the talks will continue.

“The issue gets more complicated with importers. The previous administration was not allowing them to sell fuel at economic prices, effectively subsidising the consumers. These subsidies were not being paid out; hence, the accumulation. We are looking for ways to pay the debt as we also continue talking with them.”

A well-placed industry source, speaking on condition of anonymity, said: “We have all this time been operating on under-recoveries, which has also led to our failure to remit levies. The blame goes to government for failing to adjust prices in line with world oil prices. We are optimistic that the APM will improve things, but our challenge is the backlog that is outstanding.”

Weekend Nation has established that while importers are pressuring government to pay for their losses, they too have failed to remit levies to government now estimated at K9.6 billion (about $3.2 million).

The delayed remittance of the levies to Mera for onward transmission to beneficiary agencies such as the Malawi Rural Electrification Programme (Marep), Malawi Bureau of Standards (MBS) and Roads Fund Administration (RFA) may have delayed implementation of projects whose funding come from fuel levies collected through the pump.

Meanwhile, another industry player, speaking on condition of anonymity, accused government of only cushioning retailers and hauliers, but failed to consider wholesalers.