Malawi Energy Regulatory Authority (Mera) has expressed hope of reduced local fuel pump prices following a 13.4 percent projected decline in global oil prices.
The optimism is based on global oil price projections showing that oil prices will, between now and 2020, average $59.2 [about K43 808] a barrel, a 13.4 percent drop from the 2018 average.
This is due to oversupply of the commodity, according to information contained in the second Monetary Policy Report of the Reserve Bank of Malawi (RBM).
Mera chief executive officer Collins Magalasi, in an interview on Thursday, said that while operational costs of landing the product into the country could affect fuel pricing, the declining prices on the global market raises a possibility of lower fuel prices going forward.
Magalasi, however, said it is difficult to predict by what margin the prices could go down.
He said: “It gives us hope that local prices of petroleum prices could also be lower, but nobody would be able to know as to how much because there are so many factors to consider.
“For example, we don’t know what the transportation costs at that time would be and we don’t know if the demand for insurance of the product will be higher or lower.”
Consumers Association of Malawi (Cama) executive director John Kapito said one would expect consumers to benefit from global fuel price drop through reduced local pump prices.
Enwell Kadango, general of Petroleum Importers Limited (PIL), a consortium of private sector fuel importing companies, said despite the global prices coming down, there are also other costs to be considered to have the product in the country.
“Normally in fuel pricing, you look at the global prices and also costs of bringing the product in the country which informs the impact.
“Beyond the costs of currency, you have transport costs, port charges, road transport, insurance costs and sometimes natural disasters like what happened in Beira Port [in Mozambique] where we bring in 60 percent of our product.
“There, we had to spend $100 [about K74 000] more per metric tonne to bring in our products via Zimbabwe through a pipeline and then we have to take our truck to Harare [in Zimbabwe] to lift the product,” he said.
National Oil Company of Malawi (Nocma) spokesperson Telephorus Chigwenembe said while it is the duty of Mera to determine fuel prices based on various factors which affect the pricing structure, price movements on the global market may not directly excite or depress them.
Economics Association of Malawi (Ecama) executive director Maleka Thula said if indeed global oil prices follow the projected trajectory, inflationary pressures arising from non-food channel will be reduced.
“Apart from having a direct impact on transportation sector, fuel price affects cost of production in several other sectors, including manufacturing; hence, a decrease in oil price potentially reduces inflation pressures in various sectors of the economy and contains overall headline inflation,” he said.
RBM spokesperson Mbane Ngwira said when making its inflation forecasts, the central bank uses the worst case scenario with oil prices pegged at $70 (about K52 000) per barrel.
“This implies that any price below $70 is beneficial to our fight against inflation and will assist us attain our medium-term target,” he said. n