Malawi Energy and Regulatory Authority (Mera) says the decision to remove the distribution margin from oil marketing companies (OMC) will benefit the rural population which has been denied access to petroleum products for a long time.
Recently, President Peter Mutharika approved implementation of various reforms within the liquid fuels and gas sub-sector which, among others, include the transfer of the distribution fund and introduction of the fuel bulk procurement system for Malawi.
The new reforms have seen the transfer of the distribution margin from OMCs to Mera.
In a written response to a questionnaire on why Mera should claim the distribution margin when it hardly distributes fuel, Mera senior consumer and public relations officer Fitina Khonje said the regulator has been forced to act to check the behaviour of some of the OMCs which were not supposed to benefit from the earlier arrangement.
She said: “The distribution margin was introduced in the price build up of petroleum products in order to incentivise and compensate oil marketing companies which were distributing petroleum products beyond an agreed radius from their operating depots, and covered more distances to reach the rural areas.
“Not all OMCs qualify for the distribution margin as some concentrate on cities and big trading centres only. With time, this principle was abandoned and all OMCs were claiming the distribution margin on every litre sold regardless of the distance covered and rural areas serviced.”
Khonje said after noting that OMCs were no longer investing and distributing petroleum products in some rural areas, thus denying other populations access to petroleum products, it was recommended that the distribution margin be removed.
She said the regulator, based on its mandate as granted under the Energy Regulation Act, shall use the funds to compensate only those OMCs that reach the rural areas where there is significant demand.
“This will ensure that investors have reasonable returns to sustain their investment while at the same time facilitating increasing and equitable access to energy supplies and petroleum products in particular,” she added.
Khonje played down fears that the move will affect profitability of businesses in the marketing and distribution of petroleum products.
Malawi has one uniform price for petroleum products regardless of whether a station is in town or in a rural area. n