Minister of Energy Newton Kambala says local consumers can no longer be cushioned from global changes in fuel prices because the Price Stabilisation Fund (PSF) is depleted and government owes fuel suppliers K40 billion.
The minister said this in Parliament yesterday in response to remarks by opposition Democratic Progressive Party (DPP) spokesperson on legal affairs in Parliament Bright Msaka that government should use the PSF to cushion consumers from frequent changes in global petroleum prices and other variables.
Msaka was apparently reacting to the fuel pump price increase Malawi Energy Regulatory Authority (Mera) announced on Monday this week. This is the second fuel pump price hike since President Lazarus Chakwera and his Tonse Alliance came to power through the court-sanctioned fresh presidential election on June 23 2020.
In an interview after Parliament adjourned, Kambala accused the DPP administration of reducing fuel prices more than necessary for political expediency other than based on economic principles.
The minister said: “They [DPP] did that for political reasons. They thought they will win the hearts of Malawians [in the run-up to the fresh presidential elections] by reducing the fuel, but Malawians are not foolish. Malawians knew the reduction was political.”
Kambala said government now owes fuel suppliers a whopping K40 billion as a direct consequence of the DPP administration’s “mistakes” on fuel pricing.
He said government has since negoatiated with the suppliers to clear the debt in instalments.
Kambala justified the recent fuel price hike, saying it is in line with moves to align fuel pump prices with international trends and to generate money to clear the debt.
He said the price increase Mera announced on Monday is lower than what should have been effected because government realises the need to protect Malawians.
But Msaka, both in Parliament and in an interview outside, called on government to use the stabilisation fund to cushion Malawians from fuel prices hikes.
He said government should be responsible in the management of fuel prices and the PSF.
Msaka accused government of taking advantage of the fuel prices on the global market to milk Malawians who are already poor.
He said: “Government should think of the poor Malawian when making such decisions. Increases in fuel price affect all other commodities.”
Msaka, who did not respond to Kambala’s comments that the PSF was depleted by DPP administration and left it K40 billion in the red, also lamented that the fuel prices in Malawi are among the highest in Africa.
In an interview last evening, energy expert and former Energy minister Grain Malunga said if not properly managed, it is possible to deplete the PSF which was established to cushion consumers and cover importers’ losses.
He said in the run up to the fresh presidential election , the DPP administration reduced fuel prices to amass votes; hence, the impact on the PSF.
While noting that lockdowns induced by Covid-19 at the time also contributed to reduction of fuel prices due to less demand, Malunga said: “The Price Stabilisation Fund was put in place to ensure that petroleum importers do not lose out when the fuel is in the fuel reserves.
“When you keep fuel in the reserves, the money does not generate interest as is the case when you put the money in a fixed bank account.
“The fund was also put in place to cushion fuel prices when the kwacha devalues. The money helps in ensuring that the prices do not go up.”
However, he said government can replenish the fund again and that was one of the contributing factors to the fuel price adjustment besides responding to the global trends.
On his part, University of Malawi’s Chancellor College economics professor Ben Kaluwa warned that Malawians will be heavily affected by the fuel adjustments that government is making.
He said any increase in fuel prices has the ripple effect on the economy.
“Fuel is a major input in production and transportation. So any increase impacts on the lives of people as prices of products and services go up,” said Kaluwa.
In a statement announcing the price hike, Mera said it had assessed the combined effect of the movement of the free on board prices and the Malawi kwacha exchange rate to the dollar as well as changes in local factors that determine the maximum pump prices.
Mera said the In-bond landed cost for petrol, diesel and paraffin went up by 9.60 percent, 9.70 percent and 8.93 percent respectively in March compared to February; hence, influencing the price adjustment under the Automatic Pricing Mechanism.
Effective yesterday, petrol is now fetching K899.20 per litre from K834.60 per litre since December, representing a 7.74 percent change. Diesel, mostly used by industry and utility service vehicles, is now costing K898 per litre from K826.40— an 8.66 percent increase— while paraffin is now at K719.60 per litre from K613.20, a 17.35 percent adjustment