Plans by Petroleum Importers Limited (PIL) to sign an agreement with a supplier to facilitate payment for fuel in the local currency amid foreign exchange scarcity have failed due to uncertainty over the kwacha’s fluctuation.
If the deal had gone through, PIL, a consortium of private sector oil marketing companies, would have brought in a combined 35 million litres of fuel comprising 20 million litres petrol and 15 million litres diesel, thereby easing pressure on forex.
Malawi Energy Regulatory Authority (Mera) chief executive officer Henry Kachaje, whose institution was supposed to vet the deal, in an interview on Thursday confirmed that the deal was off-track.
He said the supplier backed out at the eleventh hour after noting that it was not viable to proceed with the transaction due to fluctuations of the kwacha.
Said Kachaje: “The main reason is that the supplier was skeptical with the exchange rate. They are not sure if by the time they want to change the kwacha, the exchange rate to the United States dollar will be the same.”
He said in the meantime, there is no any other deal for Malawi to import fuel using the kwacha.
In August this year, PIL unveiled plans to sign an agreement with a supplier to be paid in the local currency for fuel imports.
Kachaje said the deal would have been purely a bilateral agreement between PIL and the potential supplier.
He said: “Our role would have been to vet the deal. But so far, there is no deal as it did not materialise because the supplier backed out. They thought the deal was not viable for them to continue with the transaction.
“At the moment, there isn’t any other offer. To be honest, the supplier is a bit skeptical with the exchange rate.”
But Kachaje said on the general fuel situation, the country was in a much safer position now than last month.
He said: “Our stock cover keeps rising as the National Oil Company of Malawi [Nocma] is making progress on stocking the strategic reserves.
“What I know is that we have more than what we are able to support the market on a daily basis. We are able to bring in more after restocking the strategic reserves.”
PIL general manager Martin Msimuko said he was abroad for the past three weeks and would not comment on the matter.
But he is on record as having said the deal was going to be a one-off arrangement that could have been sustained depending on implementation.
The arrangement came amid erratic availability of fuel on the local market in the past two years due to shortage of foreign exchange.
According to Mera, the country requires $60 million to meet the monthly demand for fuel. On average, $40 million is what is accessed per month and in some months the country is only able to secure $20 million for fuel imports.
Based on the estimates, it means government requires at least $600 million annually for fuel imports alone, yet the country can only generate about $1 billion (about K1.2 trillion) annually from exports against an import bill of $3 billion (about K3.5 trillion).
Economist Milward Tobias said the arrangement could have been a huge relief, especially as the Malawi economy does not have sufficient foreign exchange in supply.
In the past two years, Malawi has been reeling under an acute foreign exchange shortage due to supply and demand imbalances on the domestic foreign exchange market, largely evidenced by low forex supply, declining official foreign exchange reserves and widening spread of rates on the market.
Mera data shows that on average, Malawians use 1.1 million litres of petrol and one million litres of diesel a day.