Trade finance woes haunt fuel retailers

Local fuel retailers are paying more for fuel than they could have if Malawi finalised a $60 million (about K102 billion) World Bank deal to ease importation of the commodity, officials have confirmed.

Consequently, Malawi’s average pump price of about K2 632 per litre are above the shadow price of about K2 176 per litre as of late January 2024, according to published World Bank data.

Additionally, Malawi is paying extra to source fuel on the international market, unlike in the past when it could buy the same at competitive prices.

World Bank calculations based on Malawi Energy Regulatory Authority (Mera) data and State of New York Transportation Fuels Spot Prices show that since 2021, there have been huge disparities between Mera reported Free on Board (FoB) prices and those on the international market.

In October 2021, prices of both diesel and petrol on the global market and those reported by Mera were $0.7 (about K119) per litre.

However, as at October 2023, the price of diesel was $0.64 (K1 088) per litre and petrol was $0.6 (K102) per litre on the global market while Mera’s FoB prices were at $0.86 (K1 462) per litre for diesel and $0.94 (about K1 598) per litre for petrol.

This is happening four months after the World Bank approved a $60 million (about K102 billion) facility through an International Development Association grant to ease importation of essential commodities under a project which is yet to roll out.

In an interview on Tuesday, Reserve Bank of Malawi (RBM) spokesperson Mark

 Lungu, whose institution was supposed to be recommending financial institutions to participate in the scheme, confirmed that Malawi is yet to start benefitting from the facility because discussions are ongoing.

He said: “World Bank is looking for a guarantee from government in case commercial banks default. So, authorities are working on that.”

In a statement following the approval of the three-year De-risking Importation of Strategic Commodities project on November 20 2023, World Bank country manager Hugh Riddell said the project sought to provide back-stopping support to local commercial banks to ease the flow of critical imports amid concerns over a loss of confidence from corresponding banks.

He was quoted in the statement as having said the project sought to support economic recovery with a specific focus on the private sector.

“The project complements the government-led macro-fiscal reforms under implementation and aims to restore the long-term functioning of markets,” said Riddell.

Mera spokesperson Fitina Khonje was yet to respond to our questionnaire.

Meanwhile, in its recently published Malawi Economic Monitor, the World Bank warns that fuel supply situation in Malawi remains challenging as the foreign exchange market has not stabilised yet and retailers struggle to raise the additional working capital for their now significantly more expensive stock.

Malawi requires $250 million (about K425 billion) to meet its import needs in a month translating to $3 billion (K5.1 trillion) per annum, according to RBM data.

Out of this amount, $60 million (about K102 billion) goes towards importation of fuel, according to Mera.