Sunday, June 23, 2024

Zambia’s Fuel Price Increases Are Farce And A Sham

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EIA expects Brent crude prices will average $71 per barrel in 2018, $68 per barrel in 2019

The upward fuel price adjustment which went into effect on October 2nd, 2018 as announced by the Energy Regulation Board (ERB) is laughable at best and criminal at worst. It should be noted that this is not the first time that the ERB has had to give a bogus explanation as to why the upward price adjustment is necessary.

The increases have less to do with the market Crude Oil Commodity prices and are entirely a governance issue. It is a desperate move by the government to fulfill their debt obligations to the IMF and China, among other things.

Crude Oil Commodity is sold on the global market through crude benchmark(s) serving as reference price for buyers and sellers of the commodity. There are three primary benchmarks; West Texas Intermediate (WTI), Brent Blend, and Dubai/Oman Crude. The spread between and among the benchmarks are known to have wider or narrower spreads as they experience volatility associated with the index. What is important is that these benchmarks track one another due to arbitrage transactions resulting from future contracts of the commodity (as an underlying commodity) and through “Put” and “Call” options.

According to the Energy Information Administration (EIA), a renowned authority in the collection, analysis, and dissemination of the global energy information aimed at promoting sound policy making, efficient markets, and public understanding of energy and its interaction with the economy and the environment, there is still an abundance of Crude Oil Commodity inventory around the world, despite the upward adjustment in Crude Oil Commodity we have seen lately. The successes of improved crude oil extraction technologies in horizontal drilling and fracturing is the reason why we have an abundance of the commodity in inventory. The new normal in the Crude Oil Commodity pricing is rapid fluctuations in the pricing and maybe an occasional upward spike resulting from geopolitical imbalances. These fluctuations are widely believed to be non-sustaining and are easily countered by the supply abundance. It is also believed that the government should be justified to make needed price adjustment in those circumstances. However, what the Zambian government has not been known to do was making those similar downward price adjustments when the Crude Oil Commodity price on the global market adjusts in the downward direction.

What is being done by the Zambian government, through the Energy Regulation Board (ERB) is not only unconscionable, but frankly an unfortunate turn of events when the majority of people of Zambia need all the help they can get from it to cushion the negative impact of the ongoing economic tornadoes resulting from massive government corruption and blatant escalation of failed policies in almost all areas of the economy. For too long, ERB has taken advantage of the unsuspecting general public with the unscrupulous pricing strategies supported by irrational and uncorroborated reasons to justify exorbitant pricing schemes. They have managed to get away with it due to the lack of knowledge and the tools on the part of the general public to navigate the complex puzzle of Global Crude Oil Commodity pricing.

For ERB to capitalize on the small and occasional Brent benchmark (or Dubai/Oman Crude, or even WTI Crude at times) fluctuations to justify increasing the fuel prices in Zambia is outright immoral. But what we did not frequently see is a similar response from ERB downward price adjustments from the crash of Crude Oil Commodity prices in the past 5 years. In the same preceding period, Brent Crude benchmark at one point crashed from a high of $140 per barrel to as low as $26 per barrel. In the United States, a corresponding price decline of an average high of $4 per gallon to as low as $0.90 per gallon of gasoline (fuel) at the pump was experienced during the same period, thereby giving the consumers the savings from the price adjustments. We did NOT see any significant downward fuel price adjustment in the Zambian pricing scheme from the ERB.

Here is what’s at play:

  1. If the Zambian government is sourcing Crude from suppliers at higher prices and are locked in such exorbitantly high contracts, it’s time to CHANGE!
  2. If we are not able to adjust our fuel prices at the pump when the rest of the world is doing it, it’s time to CHANGE!
  3. If the Zambian government does NOT have in place a strong Crude HEDGING STRATEGY in times of abundance, it’s time to CHANGE!
  4. If the Zambian government does not currently have a Crude Strategic Petroleum Reserve & Storage (Crude-SPRS) initiative in place, it’s time to CHANGE!
  5. If Zambia has not undertaken a SERIOUS Aggressive & Accelerated Oil and Natural Gas Exploration & Production, it’s time to CHANGE!
  6. If Zambia has not taken a SERIOUS Evaluation of Local Refinery Whilst Considering Other Sources of Refined Products, it’s time to CHANGE!

We urgently need a Robust Road Map to Energy Self-Sufficiency in Zambia!

About the Author:
Mr. V. Ngoma, is an engineer with 20 years experience working for various global energy (oil and gas) giant corporations with operations around the world. He holds a Bachelor of Science, Engineering, an MBA in Finance and Accounting, and a Masters Certificate in Global Marketing. Mr. Ngoma has attended various oil and gas short courses, conferences, seminars and trade shows around the world. He has also authored and co-authored a number of papers dealing with the oil and gas industry.

36 COMMENTS

    • Honestly, what is a sham, is your caps and fulls stops and above all the grammar Mr Ngoma

      Very difficult to read for someone who has accrued some much baseless experience as stated in your article, which quiet honestly you were better off not sharing.

      Oh dear

      Thanks

    • Ngoma is telling the truth, nothing but the whole truth!

      For those of us that know him personally, we know he is a no nonsense type of person – says it like it is.

      And yes, as some of us asserted when the fuel hikes were announced, the price of oil has nothing to do with the fuel price hikes.

      So there you have it.

      Would you believe a government that negotiates to buy oil that lasts only 6 days? At an exorbitant price?

      This government is way too shady, even Eminem has nothing on them.

    • Mushota,

      how funny that YOU talk about somebody’s grammar!
      Do you ever read what you yourself are writing for all to see??!

  1. What can lungus GRZ with advisores like KZ know apart from bribes from the highest bidder ????

    Lungu himself is the most corrupt president ever in Zambia, as long as he gets his cut , the Zambian populations do not matter….

  2. This a DONT KUBEBA. govt Thats why they shut membes POST and deported Lumumba.

    When sata formed PF his target was illiterates. No money in your pocket. And illiterates believed.

    Ati my father was a kuk. I have seven guns and one krusida. Illiterates believed.

    • That’s African voters for you, they simply voted for him because he was talkative. Aba bambi ati baliba humble.

    • It is easy to buy votes in rural areas.

      Just give them a Pamela and Kapenta.

      For those that still resist, buy them a bottle of fanta and a loaf of bread.

      Then rig the elections to make up the difference.

  3. Checkmate…indeed from mid 2014 to mid 2017,the oil prices plunged to their lowest levels and we saw how economies dependent on oil revenues shrunk (Angola and Nigeria case in point).However was this fall in world oil prices reflected in the Zambian economy to benefit a common consumer? Why is it that ERB is elastic (responds) to increase in oil prices but inelastic( not responsive) to fall(decrease) in prices of the same commodity?

  4. ERB is lying period.The problem which has caused the fuel hike is failure by government to manage the exchange rate.in 2008 Crude oil per barrel went to $145 and the price of fuel in Zambia was less K6-7 per litre bcoz the exchange rate was K4.5-$1.why should the price be at 16.02 kwacha per litre its bcoz kwacha has lost buying power chapwa.What has happened is the incompetent of Lungu and his ministers to manage the economy. Sata left kwacha to K5 to $1.Lungu has depreciated the Kwacha to more than 300%(K13 to $1 in 3.5 years.Therefore the price of a barrel is within the range.

  5. Conti

    Lungu has advisors who are corrupt full of deal chapwa.The guys just think of women and making money as a result we are in trouble.If the money had heart for the country he would have made laws which would make mines to keep money in Zambia.At the moment Zambia has no dollas and no need even to call foreigners to invest coz of usel-less laws in place.All investors should be made to keep money in Zambia then the exchange rate would improve.All these shopping mall we have just change kwacha into dollas every day.If we had Zambian companies we would have a lot of dollas but all dollas are swept by chinese,labenese,mines owners and indians who send dollas to their respected countries. Let us encourage to have indigenous manufacturing companies so that we can start exporting also.

  6. Procurement, supplying, transportation and marketing of oil is marred with scandals especially that its a preserve of the senior government officials and a former leader. Relatives and trustee of these officials are at every point of the chain getting their cuts. It is a situation where government is playing its own citizens. I might not be surprised to learn that the fairly cheap Saudi oil deal could be running except government officials are doing what they do best, ripping us.

    • The cheap oil only lasted for 6 days bwana.

      It is all gone.

      Also gone is the 20 miilion US Dollars they paid for it.

      But we all know the amount they paid was a lot less than that.

      That is corruption at work.

  7. PF currently is saying things that are suspect.People are not agreeing with you.. Firstly the people that are talking are qualified in something else eg Dora in mass communication, Amos in something else and do not have the investigative skills to understand the technical side of the subject(s) let alone to know what the people of Zambia are thinking. Two things that have shamed PF: 1= Internet calls tax defended by Dora, 2=Price of fuel increase defended by Dora and Amos. Weigh your chances with LUAPULA United coming? Dont join us, we dont want contamination. Muzapita kuti a Dora na Amos? The president will have protection but not you guys. Sata said more money in the pockets, and you, using his name are doing the opposite.Last days of PF!!!!!!!!

  8. “…the Zambian government has not been known to make needed downward price adjustments in those circumstances when there are fluctuations which are widely believed to be non-sustaining and are easily countered by the supply abundance.”
    This is because we have a currency called the Kwacha whose behavior defies economic logic. The fact that we procure crude oil through third parties does not help the situation either.
    We have on record, politicians, dead and alive, who have at campaign times promised to tackle the issue of expensive fuel by cutting out middlemen and engaging government to government deals with producing countries. Alas once elected this issue just goes dead! They simply become the middlemen
    As for hedging and having strategic reserves, the country cannot afford the…

  9. afford the “luxury” as the leadership’s priority is to perpetuate its stay in office! That would be millions of dollars being held in storage tanks.
    Maybe Mr Ngoma should climb down from his perch in Houston Texas and come to Zambia and make the CHANGE!

  10. So what you are telling me is that Sharon is the last line of defence for the PF on this thread? The village !d!ot Sharon has been given the mantle to represent BR Mumba, Kudos, Upnd Cadre, Zambian Citizen, Nubian Chakuti etc. Loool! Yaba! Sad!

  11. No mention of the depreciating kwacha??! The author has a PHD and he neglects to mention that the kwacha is worth less now than it was 6 months ago. This is why the price of fuel is going up in Zambia. Fuel is bought with US dollars and now you need more kwacha’s to buy those same US dollars.

    • Thanks for pointing out my deliberate omission of the connection between the currency exchange and the price of crude oil (to an extent). I will be taking on that discussion on my next piece.

      The current US Dolar-Zambian Kwacha exchange rate of USD1.00 to ZMW11.70 is purely a government Monerary Policy and has no bearing on the TRUE value of the kwacha against the US dollar.

  12. The Author choses not to refer to why SA, Namibia have seen increases they never seen before.
    PHD!!!!
    You even put seminars in your CV sure!!!

  13. U silly chaps from UPND must leave that Ngoma chap talking academics and simply tell us what your manifesto is on oil procurement.
    Zambia knows what to do but oil cartels have held us at ransom for a long time.

  14. The MMD were crooks but they were not greedy. The PF are greedy crooks! The UPND are greedy crooked tribalists. It Zambia is to move forward we must stay away from these 3 evils. Mr. Ngoma has hit the nail on the head. I don’t if the Minister in the Office of the President has picked anything, he spent his time in the stations so he can only understand station politics

  15. Useless article! Can the author tell its audience the pump price of gasoline and diesel in Norway where the commodity is mined before you start misleading yourself? Guys lets be fair. If you are frustrated being a gardener in diaspora, please you chose “good life” yourself and because you cant beat the natives of those countries, you start to mislead yourself. HH is a frustrated chap and anyone who gets near him goes mad too!
    Check this link ****DELETED***Links NOT ALLOWED*******and get facts about fuel pump prices instead of lying day and night.

  16. African PHD holders, Dr, MBA, Professor etc are just good at yapping criticizing. They have never even invented even something as small as a needle. These Ngoma, Lumumba, Habazookas are just talk and talk. If these armchair critics concentrated their efforts in building Infrastructure, Manufacturing Companies, Refineries in Africa, we would not be in these problems. With all his CV he is still working for a Salary in foreign Country only to come out and sound intelligent. The mistake the PF government made is to go to the Chinese and get money, after that the USA and Britain has gotten furious and started withholding AID cause the Kwacha to lose value and the PF to start buying US dollar at very expensive price causing every imported commodity to increase in price.

  17. This is what happens when you place thieves people from the compounds in statehouse and the irony being that they are hitting there own demographic the most !

  18. @Mushota, give us your own expertise. You must be a PHD. Share with us, break it down for us. You are as stupid as a door knob my friend.

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