• Monthly fuel price reviews are not entirely new to Zambia.
• Shortening the pricing cycle from 60 to 30 days entails the price of fuel is more responsive to changes in exchange rate and international oil prices.
• It will be recalled that from 2008 up until December 2021, fuel prices were being reviewed every 60 days.
Energy Regulation Board (ERB) says monthly fuel price reviews will minimize Government’s exposure to losses in the exchange rate in case of a depreciating local currency.
Responding to Money FM’s Press query, Board Acting Public Relations Manager Musonda Chibulu, said international oil prices and performance of the Kwacha against the United States dollar, are two major factors that determine Zambia’s pricing of fuel.
Mr. Chibulu explained that under the monthly fuel price review, fluctuations in the exchange rate and international oil prices will therefore determine whether prices should be maintained, revised downwards or upwards at the end of each month while taking into account the minimum 2.5% threshold required for prices to be adjusted.
“It must be noted that monthly fuel price reviews are not entirely new to Zambia. A similar pricing cycle was used prior to 2008 in Zambia. Pricing of fuel in Zambia is determined by two main factors namely: the international oil prices and the exchange rate of the Kwacha against the United States dollar (US$), which is the currency used for fuel trade on the international markets,” Mr. Chibulu said.
He stated that shortening the pricing cycle from 60 to 30 days entails that the price of fuel is more responsive to changes in both the exchange rate and international oil prices, hence, any benefits that would be derived from the appreciation of the Kwacha and reductions in oil prices during the 30 day pricing cycle, would accrue to consumers in the following months’ price review.
“Further, having a shorter responsive pricing cycle would also minimize Government’s exposure to exchange losses in the case of a depreciating local currency thereby ensuring that enough revenue is collected to sustain the continued importation of fuel.”
And Mr. Chibulu noted that consumers were not benefiting from any appreciation in the Kwacha or drop in international oil prices that may have occurred during the 60 day period in which prices were being reviewed, therefore the decision to migrate to a 30 day pricing cycle for Petrol, Diesel and Low Sulphur Gas Oil.
“It will be recalled that from 2008 up until December 2021, fuel prices were being reviewed every 60 days, based on individual cargos/shipments of fuel imported through TAZAMA. Each cargo took about 60 days to be consumed on the local market before the next shipment was imported and priced.”
“What this meant was that fuel prices would be maintained at the price at which the cargo was priced, irrespective of changes in prices on the international markets or in the exchange rate of the Kwacha against the US Dollar during that 60 day period. The locking of the fuel price for a 60 day period or longer meant that consumers did not benefit from any appreciation in the Kwacha or drop in international prices that may have occurred during the 60 day period.
Mr. Chibulu’s comment comes in the wake of concerns by stakeholders that the monthly fuel reviews by ERB may trigger another increment in fuel prices in the country depending on how oil prices will be faring on the international market at the end of each month.