True to the saying ‘when elephants fight, it is the grass that suffers’, it emerged this week that the Malawi Energy Regulatory Authority (Mera) is in yet another turmoil.
The optics do not look good for Mera yet. In reality, the regulator is merely on the receiving end of decisions by a central government that has chosen positive political optics over economic realities of market forces in terms of local fuel pump prices.
Earlier this week, it was heart-breaking to learn from a meeting between the Parliamentary Committee on Natural Resources and Climate Change and Parliamentary Committee on Government Assurances and Public Sector Reforms, on one hand, and the Ministry of Energy, on the other side of the table that the Malawi Rural Electrification Programme (Marep) Phase 9 is suffocated in terms of funding.
To make matters worse, Mera has not remitted the rural electrification levy in the fuel pump price build up since July 2022.
This revelation comes against a background of the regulator also owing fuel importers in excess of K785 billion in import losses incurred due to low prices. In an ideal scenario, the importers recover their losses by claiming from the Price Stabilisation Fund (PSF) in the pump price build up. However, this was depleted way back due to the artificial pricing.
In my August 22 2024 entry under the title ‘Take politics out of fuel pricing, let market forces dictate’ I quoted my June 2021 entry of Business Unpacked headlined ‘When political convenience drives fuel pump prices’ in which I lamented the tendency to discard economic fundamentals for political expediency in deciding the pump price of fuel.
The June 2021 write-up was influenced by a Mera update on economic fundamentals and their impact on the landed cost of petroleum products dated June 8 2021 which indicated that the scale largely tilted towards adjusting local pump prices upwards.
Under the Automatic Pricing Mechanism, whose key triggers are the changes in the value of the kwacha exchange rate to the dollar and free on board (FOB) prices of refined petroleum products on the international market, prices are supposed to be adjusted whenever the change in the landed cost or the exchange rate goes beyond minus/plus five percent bracket.
Despite having the formula in place, over the years, subsequent administrations have tended to disregard it and use political expediency mostly by suppressing the actual price. However, there is always a limit one can sugarcoat things as the variables always have a way to haunt you later.
Mera is also in the awkward situation because the importers use the official exchange rate as determined by the Reserve Bank of Malawi.
On paper, the authorised dealer banks quote the official rate, in reality the importers pay more in form of charges. For instance, the official exchange rate quotes the dollar at K1 751, but importers pay for the same at up to K1 900.
The Mera board has made several recommendations for upward price adjustments based on the business sense, but their proposals have been slid under the carpet.
Honestly, I sympathise with Mera because it is the face of fuel and energy pricing in general, not the ‘big brother’ behind the scenes thwarting the efforts to operate as a business. At the end of the day, it is the regulator that is seen as clueless.
The political decision to ignore market realities today will have long-term consequences on the economy post the September 16 2025 General Elections and we will be back to square one of starting to rebuild the economy… The vicious circle will continue.
Whatever the case, economic realities should influence economic decision-making, otherwise the country is sitting on a time bomb.
For now, the rural masses waiting for electricity connection under Marep 9 should be told that politicians are “starving” the fund to “buy” their votes, as it were. I guess that will make political sense than to throw Mera, Electricity Supply Corporation of Malawi and others under the bus.
It would be wise to draw lessons from former Australian Prime Minister Paul Keating (December 1991 to March 1996) that “good economics is good politics”, meaning that when you get things right on the economic front, the political side takes care of itself.
