In the run up to what was a rare highly anticipated fuel pump price hike from Malawi Energy Regulatory Authority (Mera) and Consumers Association of Malawi (Cama) executive director John Kapito demanded greater accountability for levies in the petroleum price build up.
This is not the first time calls for accountability for the fuel levies. In fact, Kapito and several other commentators have previously lobbied for removal of some of the levies to help ease the price consumers pay at the pump.
What are the levies in the fuel price build up? Currently, there are six. There is the road levy which finances road construction and maintenance through the Road Fund Administration. Then there is the energy regulation levy used to fund budgeted activities by Mera.
Malawi Bureau of Standards (MBS) cess levy is also in the price build up and finances quality monitoring and development of standards while the rural electrification levy funds the extension and provision of electricity to rural and remote areas to increase access to power.
The price also includes storage levy that finances the development and expansion of internal fuel storage capacity. Following last Saturday’s price review, the Mera board changed the name of this levy to Strategic Fuel Reserves (SFR) levy and will now be handled by the National Oil Company of Malawi.
Price Stabilisation Fund (PSF), perhaps one of the most publicly known, ensures price stability and certainty. PSF works in such a way that when it collects adequate revenue that can compensate importation losses, pump prices are maintained even where other variables point to possible adjustment.
Before the April 10 2022 price review, the levies in the fuel price build up added up to about K254.83 per litre. However, after the Mera board reviewed the levies and decided to suspend some, notably the rural electrification levy, the total sum of the levies in the price is about K221.15 per litre.
It is worth noting that some of the levies were slashed while others were not adjusted upwards in a bid to avert a one-off huge increase. If the levies were revised upwards and the suspended ones retained, the pump prices would have most likely gone up beyond the average 22 percent effected.
The recent review pegged the energy regulation levy at K15 per litre, a K4 slash while the road levy was maintained at K141.54 per litre of petrol and K138.13 for diesel. MBS cess levy is at K3 from K3.08, SFR levy, at K10, distribution fund at K4, carbon tax at K5 and PSF at K42.61 per litre of petrol, K49.72 for diesel and K33.19 paraffin. The suspended rural electrification levy takes K51.75 per litre. Note that SFR has replaced storage levy which was K5 per litre.
Each levy acts like a vehicle to facilitate mobilisation of funds for specific programmes and to drive the government agenda.
The levies have always been a bone of contention. I recall in 2016, in the aftermath of a fuel price hike, the Malawi Confederation of Chambers of Commerce and Industry (MCCCI) joined the calls for a revision of levies in the price of fuel.
In its submission at the time, MCCCI queried why fuel consumers should be funding MBS levy and rural electrification levy. The chamber further wondered why road levy should apply when buying fuel for non-road transport use such as in factories or stand-by generators.
The argument has always been that the free on board (FOB) prices would be compensated by removal or reduction in some of the levies, thereby easing the price burden shouldered by consumers.
The PSF accumulates funds from fuel sales to cushion the price of petroleum on the local market and ensure stability, especially in cases where global prices swing like a pendulum. To ensure stability, Mera, therefore, adopted a system where importers are compensated losses incurred using the fund.
The calls for more transparency on the levies come against a background of abuse of the PSF in 2015 when Mera turned itself into a financial institution and extended a K3 billion ‘loan’ to financially struggling State produce trader Agricultural Development and Marketing Corporation (Admarc) to buy maize. To date, Admarc is yet to pay back the money in full.
Truth be told, levies are here to stay. If anything, they can just be modified or maintained at lower rates. Many countries use fuel levies to raise funds for specific activities. What is needed is to strike a balance by ensuring that such levies do not significantly influence the pump price and, above all, every tambala should be accounted for.
