Malawi yet to benefit from falling global oil price

Malawians will have to wait a little longer before benefiting from falling global oil price because the country lags behind by one month in terms of responding to price movements on the international market, an oil expert has said.

National Oil Company of Malawi (Nocma) chief executive officer, Robert Mdeza, a respected voice in the fuel industry, told Business News on Wednesday that the drop in local pump prices, which could happen in January, will depend on the kwacha exchange rate to the dollar being stable.

He was asked to explain why local pump prices of fuel have not eased since commodity’s price on the global started dropping in the second half of this year.

Oil prices on the global market have fallen to a five-year low of $54 a barrel as ofWednesday, according to Bloomberg, triggered largely by declining demand and increased supplies, because oil cartel Organisation of Petroleum Exporting Countries (Opec) has refused to cut output to shore up plunging prices.

Since the country re-adopted the automatic pricing mechanism (APM) in May 2012, fuel pump prices are adjusted to reflect fuel price movements on the international market to allow fuel importing companies under Petroleum Importing Limited (PIL) to recover importation costs on real time basis.

Pump price adjustments reflect the changes in the value of In Bond Landed Cost (IBLC) of petroleum products and movements of the kwacha against the dollar, according to Malawi Energy Regulatory Authority (Mera). APM operates within a threshold of plus or minus five percent, which is also the trigger limit, meaning that a change in IBLC of more than five percent will trigger a price adjustment and vice-versa.

This means that any movement in the value of the kwacha either way has an effect on fuel pump prices.

Said Mdeza: “The gains that Malawi could have accrued when fuel prices started falling on global market have also been wiped out by the massive depreciation of the kwacha since September.”

He said prices that are obtaining now on the local market are averages for November, which are calculated according an to internationally accepted formula.

Mdeza said this means that the average price of December will be felt in January.

Mera officials have not responded to a questionnaire sent on Tuesday this week to comment on the global fuel price fall and what effect it could have on Malawi.

But the energy regulatory body last raised fuel prices on November 8 2014 by about seven percent after considering trends in the world petroleum products’ prices and changes in other macroeconomic fundamentals on the local market and their impact on energy prices.

Oil price has slumped about 45 percent this year, according to Bloomberg.