FORMER Energy Minister David Mabumba says the only way government can address the looming increment in fuel prices is by reintroducing subsidies.
In an interview, Thursday, Mabumba said there was nothing much Zambia could do to address the international market oil prices other than subsidising.
“There is not much that Zambia as a country can do to be very honest in terms of addressing the international market oil prices other than maybe subsidising. Because if you do not want your prices in terms of the domestic pump prices to be high, you have no choice as the government than to subsidise. And this is what has been happening in most of these African countries, the price of fuel is artificial simply because they want to cushion their economies,” he said.
And when asked how it was possible for government to re-introduce subsidies when it was complaining about inheriting empty coffers, Mabumba said it could look at the cost-plus model that was used to determine fuel prices and see which elements could be removed to ensure that the fuel pricing was reasonable.
“When you look at the fuel pricing model in this country, we use the cost-plus model where all the costs that you incur along the value chain you add them together. I’m sure you and I may recognise that not too long ago when the PF was in government, they removed the taxes on fuel. It was an opportunity cost for the country to collect that money in terms of taxes, but to provide relief to the people. It’s a subsidy in one way, anyway, where you remove maybe if there is tax on the fuel that you are selling, you remove. Even when you go to Ghana right now, because of this international pressure, that is what they have done, they have removed the tax component on the formula they use to determine the price of fuel,” he said.
“Even here, what the government can do is to look at the cost-plus model and see whether there are elements that can be removed out of that cost-plus model to ensure that the fuel pricing is reasonable, we are able to run the economy, businesses are able to sustain their operations, that can be done. The subsidy can be looked at in different forms, it is not only that you are selling the pump price of fuel at a loss, no. You can say, out of the many things, for example, most falling of INDENI, INDENI used to constitute a huge amount of money around the cost-plus model. So you can begin to say ‘okay, maybe what sort of cost are we going to remove without causing disruption around the value chain of fuel’. Those can be removed and you allow your fuel to be priced reasonably and continue running the economy. They need to look at the cost-plus model that is used to determine fuel.”
Mabumba said the government needed to look at the aspect of storing fuel in the fuel tanks that were dotted in some parts of the country.
“If you look at the time when we were in the ministry, what we had started doing ourselves were two things; number one was investing in the tanks. This country has no sufficient tanks where you can store your fuel. If you look at some of the countries in the Western world, sometimes they buy oil at the international market when it is cheaper and they have got huge storage capacity then they can sell it maybe two years down the road when the price is higher to subsidise that component. Here obviously we had started as a country investing in building tanks,” said Mabumba.
“Today if you go to Luapula you will find tanks, if you go to Chipata, Solwezi, here in Lusaka there was that capacity building in terms of tankages at INDENI. So that particular process we started. In terms of the medium to long term, that is what the government and the Minister himself are supposed to focus on. In fact at that time, even now it remains, we were supposed to build huge tanks in Kabwe so that they become the storage for this country. When the fuel price on the international market goes lower, you buy in advance and you store. We were supposed to be using the provincial fuel tanks just for normal day-to-day distribution. For now, it is very hard for the government.”