As power outages worsen, fuel prices increase

The overall effect of the on-going wrangle between the National Oil Company of Malawi (Nocma) and Petroleum Importers Limited (PIL) is the upward adjustment of fuel prices by a total of 10 percent within a space of four months. This is happening as power outages are worsening—all taking place on DPP government’s watch.

Fuel prices went up effective Wednesday midnight from K932.50 to K990.30 per litre for petrol and K935.60 to K990.40 per litre for diesel—increases of 6.20 percent and 5.89 percent, respectively. The price of paraffin went up from K755.30 to K785 per litre.

This is the second fuel price increase in just four months. In July the price of fuel went up by the same margin. This is bad for Malawians and those managing the importation and sale of fuel in the country seem not to have any regard for the people. We all know what happens when the price of fuel goes up.

In simple terms, since July this year, consumers will now be spending 10 percent more on transport costs alone. But as we all know fuel price increase has a ripple effect on many other sectors. So it is not just the cost of transport that will go up. Fuel price increase is inflationary. It erodes people’s buying power. But sadly this is what Malawians have to endure.

In the latest impasse between Nocma and PIL, the latter in August stopped lifting fuel from the Nocma. PIL did this after Nocma chickened out of a 50:50 fuel importation deal with PIL. Mera says the deal was not normal in a liberalized market. The development left the State-owned Nocma which government nominated as the strategic fuel reserve manager in 2016 stuck with 26 million litres of fuel in its strategic fuel reserves going nowhere.

Initially, PIL had been buying 10 percent of its fuel from Nocma. This arrangement assured Nocma that the fuel in its strategic fuel reserves would be rotated thereby ensuring that it has new stock every six months. Fuel has a shelf life. But after Nocma opted out of the 50:50 importation deal with PIL, the latter responded by halting lifting fuel from Nocma.

If this scenario persisted, Nocma would have been pushed out of business because it could not have been able to pay its suppliers. Nocma relies on its sales to raise money to pay its suppliers. With the reduction in its sales, the company could not have been able to raise enough money to do this. Mera chief executive officer Collins Magalasi says the development also meant suppliers would have blacklisted Nocma.

To deal with this challenge, Mera intervened by operationalising rules and regulations governing the importation and sale of fuel in the country effective November 1. Among other things, the regulations are that fuel importers should have fuel storage reserves or only import what they can store.

But the challenge is/was that Mera as the regulator of the energy sector in the country could only operationalise the rules and regulations gradually. It would not just have stopped private firms such as PIL which unlike Nocma, has contracts with oil marketing contracts—from importing there and then.

Mera was thus forced to settle for a win-win situation for both Nocma and PIL where the former continues to import fuel but at the same time force PIL—which risked losing trading licenses for not having storage facilities—to also continue buying from Nocma until they build their own storage facilities. Left with no option but to buy the bulk of its stocks from Nocma, PIL’s bargaining chip was to lobby for an increase in the price of fuel to cover the cost of transporting fuel to rural areas. But in all fairness this was done without considering the consequences on the consumer and the economy as a whole.

As if this is not bad enough fuel is becoming more expensive against the background of President Peter Mutharika’s assurance to Malawians that power outages would by now have been history.  But as we have all seen, the opposite is true. The bottomline is that power outages and fuel price increases translate into more hardships for Malawians. And all this is happening with only six months to the next elections. Action speaks louder than words. The DPP government is sending a clear message to Malawians.