Poor petroleum procurement planning affecting Malawi’s fuel supply

Malawi

Lilongwe – An economic symposium on the procurement and management of fuel supplies in Malawi has concluded that poor planning and inadequate foreign exchange are the main causes of Malawi’s fuel supply problems. Organised by the Economics Association of Malawi (ECAMA) and the Malawi Economic Justice Network (MEJN) in collaboration with the Konrad Adenauer Stiftung (KAS) as part of the on-going efforts to promote structured policy dialogue on various issues relating to development and socio-economic policies in Malawi, the forum observed that poor planning and late releases of forex by government has affected the Petroleum Importers Limited (PIL) in bringing in the valuable liquid. The seminar revealed that it takes about 60 days for PIL to complete the process of importing fuel but government bureaucracy, misplacement of allocation of foreign currency and the pricing model does not adequately compensate the few providers of foreign currency for fuel importation. Malawi has in the past two years been reeling from adverse shortage of fuel supply, is situation which has crippled to a halt the wheels of the country’s economy.

Programme Manager with Malawi Confederation o f Chambers of Commerce and Industries Hopson Chavula said one problem is that the government defends its foreign exchange policy as a monetary policy to control inflation. Malawi’s major sources of foreign exchange are currently dwindling due to low earnings from major export earner like tobacco and unpredictable donor inflows. “Lack of long term export diversification agenda has brought the country to this,” said Chavula suggesting the need to go into value addition so that export commodities fetch more value on the international markets. He said most fuel logistical problems emanate from either late payments due to foreign exchange problems or related issues. Dr Davis Lanjesi, the Managing Director of Puma Energy in Malawi formerly BP Malawi, revealed that the average daily fuel consumption is currently estimated at 1.124 million litres or 33.6 million litres per month. “This in essence translates into the annual demand value at US$366million,” he said but was quick to add that actual demand was much higher as additional quantities of fuel are being smuggled from neighbouring countries. Langesi noted that in five years, the estimated demand based on the current fuel imports will be at a minimum of 402 million litres. “This is just suppressed demand as actual demand should be more than this taking into account additional fuel smuggled into the country,” he said adding that a variety of factors including population growth, rising incomes and industry needs are going to create a huge demand for fuel. “This means that the annual Import Bill will significantly rise to more than double in the next five years,” he observed. Tobacco proceeds in the past years have ranged between US$300-US$400 million, and in 2011 the proceeds were far much less. “Clearly this means tobacco proceeds alone cannot sustain annual fuel demand, let alone other importation needs,” he said pointing out that according to the Tobacco Control Commission (TCC), tobacco sales realized by September were only US$158 million.

The symposium recalled that before 2004, the Petroleum Control Commission (PCC) used to import fuel and undertake regulation, while the Government could only come in on price regulation. However, since 2007 when Malawi Energy Regulatory Authority (MERA) was established, energy regulation including petroleum is under MERA as required by the country’s Energy Laws of 2004. The pricing of petroleum products which is handled by Multi Sector Energy Pricing Committee following automatic pricing mechanism introduced in 2000 has however seen government on a number of occasions abandoning the principles of automatic pricing and opting to manage the price. The last time prices were adjusted was in January 2011, but oil prices in the international market have gone up several times ever since. A participant observed that while Government was dictating the prices based on specific objectives, it is not a sustainable approach. Malawi fuel pump prices have also been affected by various other government interventions including levies on energy commodities’ price structure to cater for specific financial obligations such as energy regulation levy to finance operational activities of MERA; road levy for roads infrastructure development and rehabilitation; and safety net levy for development projects affecting the poorest, such as fertilizer subsidy.

Others include price stabilization fund to cater for the volatility of petroleum prices from the international market; storage levy for setting up of strategic fuel reserve storage facilities, and Rural Electrification levy for electricity supply projects These levies constitute 34% of the pump price of petrol, 27% of the pump price of diesel, and 21 % of the pump price of paraffin as presented above. It was however noted that the levies were just too much on the consumer and on fuel alone. Malawi current fuel storage capacity is said to be 20 days but analyst say that storage is not Malawi’s problem since the current reservoirs are empty and even the filling stations run dry. They note that what is outstanding is that currently the country is failing to import enough and in time to meet demand. The symposium recommended that government should pursue an export diversification policy to generate much needed foreign exchange, explore alternatives ways of manufacturing petroleum, like bio-diesel and energy sources to complement oil, such as wind energy, solar farms, sugar mills and reconfiguration of factories to use cheap power during off peak, and besides connecting Malawi to the grid. Discussants suggested that government should encourage private sector participation in fuel importation, as well as give priority to improve the rail network as means to improve on the transportation of fuel across the country and reform the fuel pricing regime to reflect what is captured in the automatic price adjustment formula.

© 2011, Charles Mkula. All rights reserved. – The views expressed here are purely those of the author and not necessarily those of the publishers. – Newstime Africa content cannot be reproduced in any form – electronic or print – without prior consent of the Publishers. Copyright infringement will be pursued and perpetrators prosecuted.

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