University of Malawiâ€™s Chancellor College economics professor Ben Kalua has said the implementation of an automatic fuel pricing mechanism (APM) is sustainable and will mitigate losses importers in the country incur.
Kalua was speaking in an interview on Monday in the wake of fluctuations in prices of fuel following the adoption of the new fuel pricing regime by the Joyce Banda administration.
Since the adoption of the pricing strategy in May, fuel prices have been adjusted three times, the latest being an increase in the petroleum products effective last Friday.Â
The automatic pricing system is linking pump prices to procurement costs and exchange rate movements with a plus-minus five percent of trigger band.
â€œAnything that is automatic is sustainable unlike anything that is managed. This [automatic fuel price adjustment] has been there for a long time,â€ said Kalua.
Kalua said any shock positively or negatively affecting the country will trigger automatic changes in the fuel pricing mechanism.Â
The economics professor explained that Malawi has â€˜endogenousâ€™ or internal shocks as well as â€˜exogenousâ€™ factors thatÂ continue to exert pressure on the countryâ€™s fuel price build-up.
On internal shocks, Kalua cited demand and supply for foreign exchange as one key endogenous shock that affects Malawi fuel price.
Economic Empowerment Action Group (EEAG) president Lewis Chiwalo concurred with Kalua that Malawi does not produce fuel; hence, any adjustment on the global market directly affects the land-locked country.
â€œThis is the reason we need to react to trends on the international scene. We have been struggling for quite a long time and importers have been incurring huge losses. This automatic pricing is a welcome development,â€Â said Chiwalo.
He reasoned that should fuel importers continue to incur losses, it might negatively affect their businesses which may result in massive job losses.
Currently, pump price adjustments, according to the new pricing system, are reflecting changes in the value of In Bond Landed Cost (IBLC) of petroleum products and movements of the kwacha against the US dollar. Â
To minimise the impact of frequent fuel price fluctuations on the international market, the adopted pricing regime is operating within a specified threshold of five percent.
This means that any change in IBLC of more than five percent threshold will trigger a price adjustment.
The Malawi Energy Regulatory Authority (Mera) chairperson Lyton Zinyemba said recently that the authority expects that the APM implementation will bring confidence in importers that they will recover their costs thereby ensuring a seamless supply of fuel products in Malawi.Â