President Lazarus Chakwera’s decision to reject a proposed 30 percent hike in fuel pump prices may help keep the commodity’s prices low for a while, but stakeholders warn the decision could boomerang by entrenching shortages and worsening road network, among other unintended consequences.
The Malawi Energy Regulatory Authority (Mera) proposed the hike last week, but the President rejected the decision, which Economics Association of Malawi (Ecama) president Bertha Bangara-Chikadza has described as a double-edged sword.
In an interview on Thursday, Bangara-Chikadza, a macroeconomist, observed that on one hand, maintaining the current pump prices helps stabilise an economy already burdened by high inflation, but on the other, the decision could exacerbate fuel shortages and encourage black-market activities.
She said: “Fuel prices have a significant impact on overall inflation. Once revised upwards, there is also an increase in the cost of living and transportation costs.
“However, if the government and fuel agencies fail to reach a favourable agreement soon, fuel shortages may persist, leading to increased transportation costs and the growth of black-market fuel supply.”
Bangara-Chikadza urged government to invest in rail infrastructure to reduce logistical costs and improve fuel distribution.
“Ecama recommends that the government invests in rail infrastructure in northern Malawi, connecting to [National Oil Company of Malawi] Nocma in the Central Region. This would enable the transportation of large fuel quantities more efficiently and cost-effectively,” said Bangara.
Market analyst Bond Mtembedzeka echoed Bangara-Chikadza’s concerns, describing the country’s situation as “precarious”.
He warned that without a price increase, transporters would lack the incentive to haul fuel, worsening scarcity. However, a price hike would trigger immediate inflation.
Said Mtembezeka, who is also country director for Business Partners International: “If the price isn’t increased, transporters won’t be incentivised to go and haul the commodity, given their complaints about diminishing margins, and the scarcity will continue.
“On the other hand, if the price is increased, we will see prices of goods and services increasing almost immediately across the board. Transportation costs are a significant variable in input costs, and producers tend to shift such costs downstream.”
On its part, the Malawi Building and Civil Engineering Contractors and Allied Trades Association (Mabcata) fears that the President’s decision to reject the fuel price adjustment will worsen the condition of the roads in the country if no alternative is provided to raise funds for maintenance of roads.
For the past two years, the Roads Fund Administration (RFA) has been struggling to fund maintenance of the roads in the country because Mera has had challenges remitting road levy to RFA due to low fuel prices.
In an interview on Thursday Mabcata vice president Kondwani Kadango expressed worry that the decision against raising the fuel pump price will heavily affect road projects and contractors if no solution for funding is provided. He said RFA will not be able to fund projects and the Roads Authority will not be able to engage contactors to carry out projects.
He said the country should expect the poor condition of the roads in the country to worsen as RFA is already struggling to fund maintenance of the roads.
“Government should come in the open to say what the solution is. In this situation, we are in the dark on what the solution is to the funding challenges in the roads sector,” said Kadango.
Importers have been withholding road levy, Malawi Rural Electrification Program (Marep) levy and others collected through fuel pump price to cover for losses in the importation of fuel as landing cost has been higher than the selling price.
As at December 31 2024 the Road Fund Administration (RFA) and Marep were owed K161.2 billion and K123.8 billion, respectively.
In an interview yesterday, Mera spokesperson Fitina Khonje disclosed that as of December 31 2024, the amount owed to the RFA stood at about K161 billion.
This debt stems from Mera’s inability to collect the road maintenance levy, as fuel importers have been using the levy to compensate for under-recovery due to low pump prices.
The fuel crisis has been worsened by Mera’s failure to collect the road maintenance levy, which is included in the fuel pump price build-up.
Fuel importers, legally referred to as licensees, are required to remit the levy to Mera, which then submits it to the RFA to finance road maintenance. However, importers have been using the levy to compensate for under-recovery due to low fuel prices, a practice that is outside the law but has been allowed to cushion consumers from price hikes.
Asked if Mera will be able to raise resources to remit levies but also replenish the price stabilisation fund with the current fuel prices, Khonje said with increasing landing costs and non-responsive pump prices, importers are withholding levies to make up for their capital. She added that the price stabilisation fund can only be sustained through responsive prices.
“Mera is mandated to collect and remit levies stipulated by law and as may be directed by the Ministry of Finance,” said Khonje.
When contacted for a comment on how the institution is coping in the absence of the funds, spokesperson for RFA Masauko Ngwaluko asked for more time.
The July 2024 Malawi Economic Monitor also suggested that fuel is underpriced and that the applied subsidies put pressure on the economy; hence, the need to repeal these.
Centre for Social Accountability and Transparency executive director Willy Kambwandira said Chakwera’s decision to reject a proposal to increase fuel price is just a way of distracting Malawians so that his government is seen to be serving the interests of Malawians.
He said the issue at hand is not about the fuel price but rather availability of the commodity. He said government must improve the situation before talking about fuel price.
“Even if the President can reduce the fuel price the truth remains that there is no fuel in the country and the situation is the worst in Blantyre and Zomba. Let them make fuel available and then we can talk about fuel pricing because this is what matters now.
Since 2012, Malawi has been using the automatic pricing mechanism where ruling pump prices are in line with movements in international prices for petroleum products and the local currency value against major trading currencies.
