News of a fuel pump price hike effective August 10 2012, barely one month after the prices were reduced, took many consumers by surprise. Some wondered why, within 30 or so days, prices could be revised upwards after being reduced.
However, the upward revision of local pump prices was more than expected. Given the newly-adopted automatic pricing mechanism (APM), which entails that prices be revised either upwards or downwards, depending on changes in variables such as the Malawi kwacha exchange rate against the dollar and international oil prices, among other factors, there was no other option for the Malawi Energy Regulatory Authority (Mera) than to raise the prices.
With the APM, each month, Mera will be reviewing changes in the variables to determine either an upward or downward adjustment. For example, in effecting the August 10 price increase, Mera considered the fact that the kwacha exchange rate depreciated by 2.15 percent in July from K278 during the last review to K284 per dollar as at August 6 2012.
During the same period, free on board (FOB) prices on the international market increased by 8.562 percent, 6.33 percent and 6.34 percent on petrol, diesel and paraffin, respectively. These factors resulted in increased landed cost for petrol, diesel and paraffin by 8.05 percent, 6.47 percent and 6.32 percent, respectively. From this picture, one can see that the raise was inevitable.
Like I said in an earlier entry, pricing is a sensitive issue to both the buyer and the seller. Perhaps it is in this context that the wise of old coined the saying ‘one man’s meat, is another man’s poison.’
This is evidenced in reactions to price adjustments in our daily lives. For example, when fuel pump prices went down on July 5 2012, naturally, consumers celebrated whereas retailers were hit below the belt as they had to endure selling at lower prices stocks bought at higher prices.
During the July review, some fuel retailers lived in denial and maintained old prices whereas others swiftly adopted the new prices. Some of the retailers accused Mera of employing dictatorial tactics and lacking transparency regarding the price review. They said they should have been given notice.
In fact, one retailer told me he made a loss of almost K2 million due to the July price reduction. Hours before the price reduction was effected, this dealer had taken delivery of 20 000 litres of petrol bought at K463 per litre, hoping to sell at K490 per litre only to sell it at K441.10 per litre. Now, the 20 000 litres was worth K9.2 million, but this retailer was now to earn K8.8 million. This dealer may not be able to service the loan he took from the bank and, eventually, consumers may not find fuel at this particular station.
That is the sad reality of business where sometimes you win and sometimes you lose.
