THE kwacha’s severe depreciation against major currency convertibles has reduced Oil Marketing Companies’ (OMCs) profits due to the increased cost of importing fuel, says Oil Marketing Companies Association of Zambia (OMCAZ) president Dr Kafula Mubanga.
In an interview, Dr Mubanga disclosed that the kwacha’s continued depreciation and high oil prices on the international market meant that the OMCs in Zambia were heading towards drastically reduced profit margins.
This is despite government’s move to zero-rate Value Added Tax (VAT) on fuel, while also having removed excise duty on the commodity to ensure it cushioned the cost burden incurred by OMCs in the procurement of fuel on the international market.
The local currency is currently trading at K22 per dollar.
“It is very clear the gesture by government in giving or granting OMC waivers on taxes has greatly benefited OMCs in the sense that yes, products have been escalating in terms of prices. But I think that the reduction in these taxes has enabled OMCs to make not so much a reasonable margin, but a good margin to sustain business. Though you realise that in the early days of the quarter, the product was reasonably low, but now as we speak, it has doubled. In pricing, that means that we are heading towards the possibility of a negative in terms of profit margin. So, this is not just a Zambian challenge, it is a global challenge, fuel has gone up. But speaking on the last quarter we fared very well in the sense that we still had products coming in and yes the margins were not very attractive and reasonable so OMCs managed to sustain that against the demand on the market, I think it was fair,” said Dr Mubanga.
“We look forward to seeing more of that. The kwacha has gone up against the US dollar; we purchase most of this product in foreign currency so the kwacha has not been faring very well. But we hope that the impact would be mitigated. When you see the dollar coming down a little bit, that would mean that even at the current price tag on the international market on spot pricing, we should be able to get a reasonable margin. So, I think that is what is basically happening. We hope to see a little bit of a drop against the US dollar in a few months so that we can procure products at a reasonable rate.”
In January, Energy Minister Matthew Nkhuwa had announced the removal of excise duty on diesel, while excise duty on petrol had been reduced to K0.64 per litre from K2.07 to maintain the fuel pump prices.
He disclosed that some OMCs had threatened to increase fuel pump prices following the kwacha’s continued depreciation against major currency convertibles, which resulted in expensive fuel importation.
Dr Mubanga, however, had hailed the zero rating of VAT and the removal of exercise duty on fuel as having benefited OMCs so far during the first quarter.