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Monday, January 24, 2022

The Fuel Price Could Further Go Up after 31 December 2021

Economy The Fuel Price Could Further Go Up after 31 December 2021

By Liywalii Kanyimba

In my last thought piece on fuel subsidies, I raised the question on whether or not fuel pump prices will further go up after 31 December 2021. This is on the backdrop of the suspension of duties and VAT applicable up to the aforesaid date (unless there is an extension I am not aware of).

Since then, I invested my reading time and research to understand how subsidies work and what exactly we are talking about in the case of Zambia, building up on the statement by the energy regulator, the Energy Regulation Board (ERB), that ‘the increase in fuel pump prices was necessitated by the removal of subsidies on petroleum products to reflect the correct prices of the commodity.

For context, subsidies in most analyses can be broken into two types, those given to producers of a given commodity and those to consumers. In the case of Zambia, the fuel subsidy is primarily a consumer subsidy, one which reduces the end price of petroleum products through government controls of the cost.

William Blyth, an expert in energy security and climate policy and author of a 2013 report on fossil fuel subsidies for the UK’s Environment Audit Committee stated as follows:

“Consumer subsidies are in fact often applied to products…..which only the relatively rich can afford. And that subsidy is coming from the tax base. So, in fact, what you see is that that subsidy is actually creating a transfer of wealth from poorer to rich people.”

With the context set above, what is the breakdown of Zambia’s fuel subsidy? Is the information disseminated on this very important issue accurate?

The Secretary to the Treasury, Mr Felix Nkulukusa brought into exposition in one of his thought pieces justifying the removal of subsdies that Zambia’s fuel subsidy is about USD 67 Million per month or USD 800 million per year, according to him the National Treasury is losing. He further went on to say that “more than 60% of fuel in Zambia is consumed by the mines….with only less than 2% being consumed by ordinary and vulnerable people who are genuinely supposed to be subsidised”.

In my view, the real beneficiaries are the mines and those alike and accordingly, should be the ones not to be subsdised as opposed to the approach adopted to impact all including ordinary and vulnerable Zambians that the Secretary has acknowledged as being the ones that are supposed to benefit.

Information that has emerged so far in the public domain indicates that the above USD67 subsidy cost per month comprise of two things:- USD 26 Million price differential arising from the exchange rate fluctuation and balancing of world market prices; and USD 41.4 Million (more than 60%) lost because of suspending taxes (VAT at 16%, Customs Duty at 25% and Excise Duty of K0.64/ltr on petrol and K0.62/ltr on Diesel).

The above occurs clear that the recent K4 fuel pump price increase has only factored in the cost of exchange rate fluctuations and balancing of world market prices. This means the rest of the suspended taxes, accounting for more 60% of the fuel subsidy have not been adjusted for in the current fuel pump prices as these remain suspended to 31 December 2021.

It is therefore partially inaccurate as pointed out by the energy regulator that the increase in fuel pump prices is due to the removal of the subsidies to reflect the correct prices when the suspension of the taxes accounting for more 60% of the fuel subsidies has not been lifted.

When the suspension of the taxes is lifted since the government’s direction is to do away with the subsidies, inevitably the fuel pump prices will further increase. And maybe suggestions that the pump price per litre should be above K30 should be correct looking at the amount of the monthly subsidy yet to be removed.

This said and the immediate adverse impact a wholesome removal of subsidies has on the cost of living for ordinary Zambians, as confirmed by the Secretary to the Treasury that more that 98% of the fuel and electricity subsidies combined benefit the mines and those alike at the expense of ordinary Zambians and the vulnerable who deserve to be subsidised, it may be advisable that a targeted approach towards the mines and those alike is considered in the next subsidy-removal phase for the sake of managing the cost of living.

32 COMMENTS

  1. This is not the full story. Yes, the most vulnerable don’t own cars but they still ride on cars as whn they hire a taxi or whn they get on a bus. The food the vulnerable eat is also transported by vehicles that run on petroleum hydrocarbons. That said, I know that Zambia is in debt and it’s Zambians who must pay back this debt. The subsidy was being paid by revolving government debt: that is government has been issuing debt instruments to pay the subsidy. When these mature, government would issue fresh ones to pay investors in maturing treasury bills. That’s not the way to run a country as it has driven interest rates up.

  2. In other words, I’m saying that this is going to hurt but surely over-borrowing hurts whether at personal level or government level. The PF government which carelessly borrowed was tolerated for too long and look at the mess they hv left us all in! Hv people forgotten the money videos? Where do u think all that money csme from?

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  3. For as long as the fuel and electricity prices are cost reflective , there is no problem.Why should a product or service be provided at a loss.
    Have you tomatoes or eggs being subsidized by sellers at the market?
    The UPND should just get rid of the PF linked OMC’s and also clean up ZESCO of PF cadres who have made it inefficient with a bloated workforce/poor management .Eventually the price of fuel and electricity will stabalise.

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  4. @1 Independent! Even if you remove all suspected PF supporters from Zesco and other institutions, upnd will still fail.

    Stop pretending, face the reality. This country is heading for tough times. A lot of people will die from hunger.

    HH is working for IMF instead of working for the people who voted for him and who didn’t. The goodness is that hunger doesn’t know upnd supporters or opposition supporters.

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  5. Henry @ 5, please answer the question, who will pay the fuel debt your PF left? If u can’t answer the question, why should anyone listen to u?

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    • Why are you responding to this ‘Henry’ chap who has never been objective, these are people who are always on a side of a party than on the side of reason, his blogs are skeweed

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  6. To justify removal of subsidies and endorse fuel price hikes with the justification thereof is not only shallow thinking but failure to think and plan for national development proactively. When you load your mess on lenders who in turn prescribe conditions to you on how you should run your country is similar to relinquishing your sovereignty as you allow them to ride one you.
    Achieving national development backed by good policies is definitely neither one dimensional nor delusional. This is where economists and accountants fail. They concentrate on academic spreadsheet analysis and shutter thinking out’a box. With national resources in abandace and you keep worrying about how overborrowing you’ve been only shutters your dream of innovation, creation and emancipation. Research and…

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  7. Thorn in the Flesh @ 7, u hv debt that is due for payment in 2022. How do u hope to exploit those other resources u hv with debts u cannot pay? It’s u failing to think straight.

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  8. They concentrate on academic spreadsheet analysis and shutter thinking out’a box. With national resources in abandace and you keep worrying about how overborrowing you’ve been only shutters your dream of innovation, creation and emancipation. Research and develop Zambians. Research gives facts on the ground. Look inwards with reference to the outside world and not vice versa.
    Wake up and embrace will power. Alot of countries out there need subsidies, Zambia too needs them. Our democracy also provides for a situation where a leader reckons that it’s not all about a Zambian economic prudence but a tradeoff that doesn’t allow for electorates or citizens to support the debt burden at all costs. You may have good plans but Zambians will surely kick you out even before the goodies you…

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  9. They concentrate on academic spreadsheet analysis and shutter thinking out’a box. With national resources in abandace and you keep worrying about how overborrowing you’ve been only shutters your dream of innovation, creation and emancipation.
    Research and develop. IMF won’t help you develop. You’re just a another customer to them.
    The Will Power that looks within stipulate that when a Donald Trump wants to shutter Huawei and ZTE out’a
    AMERICAN gadget Operating System (OS) in the name of Android, a Ji Shin Ping will counter that by making pragmatic pronouncements to his nationals that WILL POWER will enable him develop the CHINA OS for mobile phones.
    Oooooh didn’t CHINA do just that by looking within! The Zambian market is now filled with non Android smart phones.
    Way out?…

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  10. @6: Nemwine. I will answer by asking you a question. Are you happy to see high poverty levels, are you spared as a upnd supporter

    I am not ashamed to be PF. The poverty levels in Pf would be better than new dark government. Your god is working for imf and to enhance his businesses.

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  11. They concentrate on academic spreadsheet analysis and shutter thinking out’a box. With national resources in abandace and you keep worrying about how overborrowing you’ve been only shutters your dream of innovation, creation and emancipation.
    Research and develop. IMF won’t help you develop. You’re just a another customer to them.

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  12. The Will Power that looks within stipulate that when a Donald Trump wants to shutter Huawei and ZTE out’a
    AMERICAN gadget Operating System (OS) in the name of Android, a Ji Shin Ping will counter that by making pragmatic pronouncements to his nationals that WILL POWER will enable him develop the CHINA OS for mobile phones.
    Oooooh didn’t CHINA do just that by looking within! The Zambian market is now filled with non Android smart phones.
    Way out? Research and develop Zambians.

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  13. Henry @11, why do we hv high poverty levels in spite of PF fuel subsidies we hv just come out of? I’m not trying to persuade u to become HH’s supporter. I’m just trying to make u see sense despite being a PF supporter. PF never allowed HH to visist some parts of the country to campaign but he still won some parliamentary seats anyway. Imagine what the situation would hv been if he had been allowed to campaign freely?

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  14. My anger comes from the fact that supporters of HH don’t seem to understand what this is all about or they are deliberately underplaying the truth. HH was sure that the government had borrowed heavily but HH came with all sorts of formulas that would lead to drastic reduction of fuel pump prices. This the supporters used to convince voters to give them that killer punch vote. To say that the subsidies only benefit the rich people is total nonsense….bus fares have gone up, mealie meal prices have gone up… things which the poorest people use. So how doesn’t this affect the poor. Somehow the author has explained better than the entire cabinet has tried in their efforts to convince us.

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  15. A very nice Christmas present from the new dark govt haha. Me I am profiting from fuel increase due to my businesses in oil industry. The ones siffering are you who voted upnd

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  16. Some of us were thinking that these guys had better skills to better zambian economy, but they have proved to be more useless than their predecessors.
    They only think zambias survival depends on the western world, no sir Zambia can navigate through the current situation without either China, since we have all resources right here in Zambia.

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  17. The lack of confidence in this government is what causing a lot of problems to Zambians, if you compare these so called educated characters to the late Sata, Sata had that skill to create what was missing, yes he had, non of the educated ever dared to rebase the kwacha, or create more provinces nor build infrastructure.
    If this man lived longer Zambia would have advanced higher.

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  18. Zambia can survive if we had intelligent and brave leaders like Sata, but I don’t know when someone will arise to take on this momentous task.
    Magufuli was a great innovator but died young.
    Many Zambians thought this government could do something but it ended up with empty words, well I know so many guys who talk big but achieve very little and I get disappointed.

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  19. All what Zambia needs is a president who is innovative and not these empty talkers empty tins make a lot of noise.
    KK tried to do good and he did but Chiluba and his team were deceived by the same western world we keep running, not knowing that these guys have their own agenda against Africa.

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  20. No one can increase fuel price twice in a space of one month.This is trying to demean
    New dawn government UPND is paying for
    The PF borrowing and failing to pay back.
    Zambians should blame PF for what we are
    Going through.

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  21. The ERB had already said they will be reviewing fuel prices after every 30 days so if the dynamics from the last time fuel was adjusted has changed then obviously fuel prices will be changed whether up or down will be determined by import costs.

  22. Let us know that our able president means very well for everyone in almost everything he is doing,when you check his rich Curriculum Vitae (CV) you will realize that 90% of what he has been doing over the years have led him to where he is today not by chance but purely through hard work and focus.

    The fuel pump price hike was long overdue even if we had PF in power now it could have been the same story,l remember last year the ERB suggested an upward adjustment of fuel pump price and electricity tarrifs as our currency the kwacha kept on losing value to other major convertible currencies like the US dollar since we buy the crude oil in foreign currency.

    The government in power then had an eye on elections and not citizens let no one cheat you fellow citizens nowonder they were…

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  23. Ever since Kenya declared its first case of Covid-19 in March 2020, the country has ramped up its public debt by 1.42 trillion Kenyan shillings ($12.5bn, £9.3bn).
    Part of the conditions attached to a recent $2.34bn IMF loan to Kenya is that the country raises its tax revenue – hence the taxman is hounding Kenyans online.

  24. The elephant in the room here is the regulator. No one seems to be questioning the financial function of ERB. It does have that aspect to it; if it works as a regulator should there is an untold story that no one is even addressing. We may not be talking about subsidies here but how engaged the regulator will or is in terms of tracking fuel pricing. Enough said.

  25. Had PF won the 2021 August elections, Zambia was going to be the worst performing economy in the world. Their was lack of discipline in the management of the economy. President HH will deliver. This time around will not handover power to individuals who come by chance. We encourage all political parties to have the country at heart in selecting presidential candidates. Noise and riddles even if they delude voters are not good for the well being of the country. There are good men and women in all parties that should be brought to the front line.

  26. To tell the truth, I think that this opportunity of increasing fuel pump prices after 31 December 2021 is kind of absurd and, from my point of view, is not a justified thing. Unfortunately, we have more and more price increases which entail some negative consequences and a lot of people become vulnerable in this case. From my point of view, it is really difficult to justify this doing away with the subsidies and find a sound explanation of it because a lot of countries are in need of subsidies and we can’t deny the fact that this cancellation will entail some negative consequences. Honestly, I don’t support this policy and I can’t agree with it.

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