MINISTER of Energy Peter Kapala says prices of crude oil on the international market are expected to remain high beyond March 2022.
Addressing the media, Wednesday, Kapala said the increase in prices of crude oil and finished petroleum products was caused by robust demand against strained supply following the geopolitical tension between Russia and Ukraine.
“In the first quarter of 2022, the world has experienced an unprecedented increase and volatility in international oil prices. The crude oil prices have averaged around US$97 per barrel in the first quarter of 2022, which is the highest experienced in the last seven years. By March 2022, crude oil prices were trending at over US$100 per barrel. Consequently, during the same period, there has been a notable increase in prices of finished products. Specifically, petrol rose from an average of US$95 per barrel in January 2022 to US$120 per barrel by mid-March, while diesel rose from US$97 per barrel on average to US$118 per barrel,” he said.
“The increase in the prices of both crude and finished petroleum products was caused by robust demand against strained supply following the geopolitical tension between Russia and Ukraine. Furthermore, the increase has also been reinforced by continued low production quotas from the Organisation of Petroleum Exporting Countries and its allies. Beyond March, 2022, it is anticipated that the price of crude oil would remain high, above US$100 per barrel and would be extremely volatile. This trend is expected to continue, owing to the heightened levels of uncertainty arising from the Russia-Ukraine war.”
Kapala said in order to maintain domestic prices at cost-reflective levels, it was inevitable for prices to be continuously adjusted in tandem with international oil prices and the exchange rate.
“The fore-mentioned global situation has adversely impacted Zambia and will continue to do so in the short to medium term. This is because Zambia imports all its petroleum products and therefore is directly affected by any movements and volatility on the international oil market. In order to maintain domestic prices at cost reflective levels, it is inevitable that prices are continuously adjusted in tandem with the dictates that influence domestic prices, that is international oil prices and the exchange rate. In the case of Zambia, both these factors have not been favorable in the recent past. This has justified the requirement for adjusting the fuel price review period from 60 days to 30 days. The adjustment to a shorter pricing cycle has also been necessitated by the change in the local supply structure for petroleum products,” he said.
And Kapala said INDENI refinery would no longer refine crude petroleum products as the country’s needs for petroleum products would now be met through direct importation of finished products.
He added that TAZAMA pipeline would equally be converted to transport finished products only.
“As you may be aware, previously, the country was supplied from two sources, namely crude oil (imported and refined by INDENI) and finished products supplied by contracted Oil Marketing Companies. This was the motivation to align the consumption period of imported crude oil and finished products to the pricing cycle. Hence the use of the Cost-Plus Model (CMP) to review prices every 60 days. With the energy reforms by the new dawn government that have changed the fuel supply chain, INDENI refinery will no longer refine crude petroleum products. Going forward, all the country’s needs for petroleum products will now be met through direct importation of finished products. Equally, TAZAMA pipeline will be converted to transport finished products only, starting with Low Sulphur Gas Oil (LSG) Diesel. This change in the supply structure has made it inevitable that we shorten the petroleum priced review cycle,” Kapala said.
He however said the fuel supply situation remained stable and was above minimum required threshold.
“Notwithstanding the adverse effects that the international oil prices have had on Zambia, the fuel supply situation remains stable and is above minimum required threshold. The Government through the Energy Regulation Board (ERB) has continued to engage all key stakeholders in the fuel supply chain in order to understand their operational challenges and opportunities to address these challenges. As the situation stands, the majority of stakeholders have expressed support for the 30 day review cycle. The government will continue to explore policy options that would enhance fuel price stability,” the energy minister said.
Meanwhile, Kapala said government had started paying off the debt it owed to oil marketing companies.
“The government has inherited a quite huge figure, it is in the range of about US$500-600 million which we need to dismantle so that we can pay off the people we owe this money to. Right now the subsidies are in place in terms of what we call wavers for companies to import fuel minus import duty. From June moving forward, the industry which is the OMC and other oil suppliers will be able to bring in their products without the government spending money on it,” he said.
“All what the government will be doing is to collect the tax and regulate the industry to ensure that security of supply and prices are well maintained. On the debt, yes we are paying and like next week or so we should be paying some of these oil companies. You see, the debt is huge and we have got these suppliers we owe money. So whatever money comes from the Ministry of Finance we distribute equally almost to all the suppliers.”
He said the Energy Regulation Board would announce the new pump prices next week.
“We are not an island in this situation as you may be aware. If you check Zimbabwe, the price per pump is about K31 per litre and South Africa is K28. So this somehow will affect us but the ERB will be announcing the new pump prices next week on 31st, so let’s wait and see. It is something we are trying to manage so that it does not adversely affect the country’s economy,” said Kapala.