OIL Marketing Companies Association of Zambia (OMCAZ) president Dr Kafula Mubanga says the conflict between Russia and Ukraine will not immediately result in an increase in the price of fuel.
In an interview, Dr Mubanga said the country had already procured enough fuel stock, adding that current external factors that might initiate a price increase would only be felt in April.
“The invasion by Russia into Ukraine has a ripple effect on crude oil. We have seen an over 35 percent increment on crude oil, as we speak it is almost $115 [per barrel]. That entails that with your cost plus model which takes into account various coastlines such as your product cost, fuel and other costs. So it means it will definitely be affected by that, but it means that you do anticipate between almost one to three percent increment on crude oil,” he said.
“There is a possibility that government will put in a price increase but you see the way the pricing is done, for instance, if the stock was bought for this particular month and you are using a cost plus model, for Beira they use the previous month [for] costing. Meaning that you do not cost the product based on what is happening this month, so the cost effect of this price increase might not be felt in this coming month, it might be felt in the other month. At the port, they use the previous month to price the next month because it is believed that they already have stock which they bought for this month. We expect not to see a lot of movements in terms of the pump price, we expect that this month will go thoroughly but next month these effects of price changes we anticipate will affect the pump price.”
He said there was need for government to invest in fuel pipelines and storage facilities to ensure that external factors do not extensively affect the price of fuel in the country.
“Government needs to look at the pump line, the storage facilities that should be able to stock enough. When you have a pipeline then you can stock enough product. So that when some of these changes within a month or two happen, your pricing is not affected. So there must be a policy that drives these particular permanent solutions to ensure that Zambia’s whole economy is [not] affected by any drop of change on the international market,” said Dr Mubanga.
“The other way is for the Zambian government to look at possibilities of working with Angola so that they are able to put a pipeline. The only way to deal with this issue as a landlocked country is to do with factors that you can control such as movement of product and ensuring that you have permanent solutions that do not affect to a larger extent, because the cost of transport is sometimes higher than the product or almost the same. So you are buying the product twice. It is not that the government needs to directly invest into this pipeline, it can encourage private investment. OMCAZ has already secured a partner that is willing to run a pipeline from Mozambique into Zambia at a cost $250 million, but we need government to be able to push this agenda and understand the value so that we can respond to issues that affect the sub sector on the market.”
The Energy Regulation Board is expected to review the prices of fuel on the 28th of February.