ZAMBIA is unlikely to benefit from the current low oil prices on the international market, which have reduced to a five-year low of $26 per barrel.
As Zambia’s pump prices are determined by the cost of crude oil on the international market and the prevailing foreign exchange rate at the time the cargo is received, it is unclear if the fall in crude oil prices could have a meaningful impact on the local fuel price.
Energy Regulation Board (ERB) executive director Langiwe Banda has said it was difficult to ascertain such a possibility.
She said the board only applied pricing policies to a cargo that had already arrived in the country.
“We have always said for us, we try to tackle it once it lands. We always say yes there are two fundamentals; the international oil price and the exchange rate but we apply to a cargo that has landed and for us, there is always a time lax. It is not possible to give you a real time answer. So based on the cargo that we have at hand, we price it taking into account all the costs that have been incurred, the prevailing exchange rate then we will be able to know,” said Lungu.
And economist Yusuf Dodia said Zambia may miss out on the reduced oil prices on the international market due to the continued depreciation of the kwacha against other convertible currencies.
“I think that if the international oil prices are dropping from $30 coming down to $25, $26 per barrel, that should mean that fuel prices should fall here in Zambia. But on the other hand, we have also seen the kwacha deteriorate from around K12 to a $1 to over K17 to a dollar in the last three months. So we may have a situation even where when the international oil prices are going down, but because the kwacha is deteriorating in value, it means that we may have a situation where fuel prices will not come down in Zambia. We may just stabilize because the gains we are getting from lower oil prices will be offset by the higher cost of the dollar at the current situation,” Dodia said.
He, however, said the most desired situation was reduced fuel pump prices.
“In Zambia, we all hope that fuel prices can come down because then a lot of manufactured goods will become cheaper to produce and the consumer will benefit from lower energy prices. I think not an immediate decrease in fuel price; the fuel we are using now is the fuel which we would have bought way back at a much higher price of crude oil per barrel. So we may continue to see the same oil price for another month or two but definitely, after two months, we should be able to see the new stock that we purchased at a lower price begin to back-play to the lower fuel price in Zambia notwithstanding the fact that the kwacha is deteriorating. Otherwise, that will undermine the idea of lowering fuel prices. If the kwacha continues to deteriorate even if the fuel prices are coming down on the international market, the oil prices may come down but if the kwacha is getting weaker every day, it means it will not affect us. We will continue paying higher prices for the fuel,” said Dodia.