Fuel prices up amid rising global demand

After three months of protecting Malawians from an inevitable fuel price increase without the price stabilization fund, market forces last night drove government to raise pump prices by 22.8 percent on average.

The increase—the first in six months since March this year—appear conservative when compared against In Bond Landed Cost (IBLC) for petrol, diesel and kerosene, which rose by 21.13 percent over the past six months.

Announcing the new fuel prices at a press briefing in Lilongwe last evening, the Malawi Energy Regulatory Authority (Mera)  chief executive officer Henry Kachaje said petrol will now fetch K1 150 from K899.20, representing a 27.89 percent hike.

Diesel is up 24.72 percent from K898 to K1 220 while kerosene will attract 15.79 percent more at K833.20 from K719.60.

But IBLC—made up of free onboard price (FOB), freight, product insurance, handling charges, in-transit losses, and the Malawi kwacha exchange rate—shot by an average 21.13 percent between March and September this year.

FOB prices alone of petrol, diesel, and paraffin jumped by 25 percent just in September, reflecting the rise in global oil prices.

Over the past 12 months, global oil prices have rallied on the back of a back-on-its-feet world economy as Covid-19 infections fall, lockdowns fade and industrial output surges with more people returning to work.

Explained Kachaje: “Oil prices dropped at the start of the Covid-19 pandemic. In April last year, they fell below zero for the first time in history as lockdowns wiped out demand while producers continued to pump crude from their wells.

“Demand has been rising in recent months as economies around the world have started to reopen, pushing world oil prices upwards.”

Reacting to the increment in an interview last evening, Consumers Association of Malawi (Cama) executive director John Kapito said while the increases are justified, Mera should have considered staggering the hikes over a number of months.

He said: “In terms of justification, there is no argument at all. Prices of fuel the world over have been going up for a long time. (But) if you increase fuel gradually, say like seven percent at each go, consumers don’t feel it much.”

Apart from the retreating Covid-19 pandemic, oil-producing nations under OPEC+ have kept supply tight as seen in the stubbornly low production quotas despite rising demand as countries build up stocks, leading to fuel price spikes globally.

With winter approaching in the West, which will require more heating and the gas-guzzling festive season coming at a time travel restrictions ease worldwide, demand can only rise over the next few months, guaranteeing elevated fuel prices for a while.

Given that Malawi is not a fuel producer and is landlocked, there is precious little the Lazarus Chakwera administration can do to stop fuel prices from rising.

The price stabilisation fund—Mera’s rainy-day reserve that helps keep fuel prices low by helping to compensate oil importers for any losses—dried up around June, taking away the only tool available to Mera to cushion fuel consumers against the full weight of hikes.

Meanwhile, the administration has signaled that it will work to control the little factors it can, including executing a policy mix that can keep the kwacha steady and help to soften the blow since the exchange rate is one of the major variables in the price build-up.

Economist Milwad Tobias Tobias agreed in an interview last night that government has no control over global fuel price movements, but keeping the Malawi which stable could help minimise local fuel price increases.

Since the last IBLC review in March 2021, the local unit has softened by just 4.52 percent from an average March 2021 exchange rate of K787.85 per US dollar to the current average exchange rate of K823.49 per dollar.

The administration is also looking to cut transport costs for fuel by pushing up the share of fuel transportation by rail—which is far cheaper than road—from the current two percent to having at least 30 percent of petroleum products uplifted by rail through the Nacala port.