Business Unpacked

Politicking with fuel prices turns back to haunt Mera

 In the thick of yet another episode of fuel scarcity in the country now in its fourth week and counting, Malawi Energy Regulatory Authority (Mera) has found itself in a situation where it is ruing the procrastination in reviewing petroleum pump prices.

To be fair to Mera, though, the situation is courtesy of the Executive’s apparent political decision to keep fuel pump prices unresponsive to market forces.

But that as it may be, Mera is a Malawi Government agency entrusted with regulating the energy sector and should, therefore, be on top of things. From the look of things, it appears that the arrangement is on paper as a ‘big brother’, as it were, seems to be calling the shots in the background to suppress the prices contrary to market forces.

When I read the front page story in The Nation edition of October 18 2024 under the headline ‘Fuel prices under review’, surprise was my instant reaction. I was surprised that Mera appeared to be helpless despite having the tools like the fool who got thirsty in the abundance of water as reggae legend Bob Marley sang.

In my June 2021 entry of Business Unpacked headlined ‘When political convenience drives fuel pump prices’ and several others I lamented the tendency to discard economic fundamentals for political expediency in deciding the pump price of fuel.

At that time, a Mera update on economic fundamentals and their impact on the landed cost of petroleum products dated June 8 2021 indicated that the scale largely tilted towards an upward adjustment of local fuel pump prices.

Under the Automatic Pricing Mechanism (APM) adopted in 2012, whose key determinants 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 expected to be adjusted whenever the change in the landed cost or the exchange rate goes beyond minus/plus five percent bracket to ensure that importers recover importation losses.

But then, it has transpired that in reality, the APM and its fundamentals do not always decide what consumers should pay at the pump. Politics does, discarding the economic realities in the process.

Every time politics takes over the control, Mera has turned to the Price Stabilisation Fund (PSF) built in the petroleum prices to cushion importers and consumers, kind of massaging the masses to believe all is well.

However, as I stated in an earlier submission in August this year titled ‘Take politics out of fuel pricing’, there is a limit to which the PSF can do the cover up as it too gets depleted as is the case now.

In the October 18 2024 story referred to above, Mera director of finance Zacharia Ng’oma was quoted as having stated that the regulator’s board of directors had “started reviewing fuel prices”. He said based on the circumstances, the prices are supposed to go up as the kwacha exchange rate to the dollar, inflation rate and changes in international prices have heavily affected the capacity to recover working capital for fuel importers. I would add that the foreign exchange scarcity has complicated the situation as importers are forced to source at higher rates.

The APM formula ensures that pricing reflects the cost of bringing fuel. But between November 2023 when pump prices were last adjusted and now, a lot has changed and action needed to be taken yesterday.

Since 2012, the pricing formula has influenced pricing and I am wondering why the Mera board appears to be toothless by making “consultations”. Politics and economics complement each other and, as they say, good economics make good politics. In other words, where politics overrides economics, the consequences have often been disastrous as reality tends to catch up with you sooner or later.

The Mera board can argue that it has made several recommendations for upward price adjustments based on business sense but their proposals have not succeeded, but the public does not know the ‘big brother’ thwarting efforts to run fuel imports as a business.

I do not want to be a prophet of doom, but the reality is that the country is sitting on a ticking time bomb ready to explode by prioritising politicking over economic realities. Some of the consequences are the now perennial fuel shortages that keep reducing productivity in an economy already on life support machine.

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