Authority (Mera) says it will sustain the current fuel pump prices, thanks to the Price Stabilisation Fund (PSF) which compensates trading losses in line with automatic fuel adjustment formula framework.
Mera director of economic regulation Eunice Potani said this on Friday in response to a question on whether the PSF—an account that accumulates funds from fuel sales meant to cushion products that would raise inflation—is going to sustain cushioning consumers when fuel prices on the global market are on the rise, now at around $80 (about K57 000) per barrel.
The energy regulatory authority has not raised fuel pump prices since November 2016, cushioning consumers using the PSF, despite all the indicators such as the exchange rate and landed cost of the product due to global oil price rise necessitating an increase.
The Mera board chaired by Bishop Joseph Bvumbwe has maintained fuel pump prices at K824.70, K815.80 and K648.70 per litre for petrol, diesel and paraffin.
Potani, however, said the sustainability of fuel prices over the 19-month period shows that the PSF position has been healthy to pay in full compensation to importers, thereby enabling them to continue to import the required volumes in an environment of rising FOB prices.
He said: “On the basis of the current performance of the trading by importers, we believe the PSF should continue to cover importation losses while Mera continues to observe the upward trajectory taken by FOB prices on the international market.
“When the trigger threshold for reviewing prices is reached, the authority will act accordingly as it has done in the past.”
Potani said the PSF fluctuates where on a monthly basis money is collected and paid to various importers based on declared and validated trading they had in that month.
In November last year, an official from Mera told journalists in Salima that K3 billion is enough to cushion a possible rise in fuel prices.
Economists have cited rising global oil prices as one of the risks to economic prospects.
Nico Asset Managers Limited research associate Linly Mtelemuka said in an interview yesterday any rise in global oil prices poses risks to the macroeconomic stability, but is subject to having a stable PSF.
“If the fund is not sustainable enough, we should be afraid because a rise in fuel prices could trigger a rise in non-food inflation which could negatively impact overall prices of goods and services as well as the exchange rate,” she said.
In May 2012, Malawi adopted the automatic pricing mechanism designed to ensure full-cost recovery.
Under the arrangement, pump prices are supposed to be reviewed based on a minimum of five percent change in two parameters: the behaviour of the kwacha against the dollar and international FOB prices of petroleum products.