Wednesday, November 5, 2008

Zambia: The Cost of Fuel

THE announcement by Energy and Water Development Permanent Secretary, Peter Mumba, that Government has constituted a team to look into ways of reducing the cost of fuel in Zambia is welcome news.

Zambians sighed with relief when acting Republican President, Rupiah Banda, on Monday instructed the ministries of Finance and Energy to look into reducing the high cost of fuel in Zambia.

The Government should be commended for acting so promptly on the issue. The current move is one of the major initiatives undertaken in a long time, aimed at finding a solution to what has been the Achilles' heel of the Zambian economy.

For an emergent and non-oil-producing economy as Zambia, the vagaries of global fuel price changes have had far reaching consequences.

This situation has dogged Zambia from as early as 1973 when world fuel prices shot through the roof. Right now, the gains made in controlling inflation levels are being unraveled principally because of the increasing world oil prices.

There is a general price rise in the economy due to higher production costs linked to energy, of which fuel is a principal input. At nearly K10,000 per litre, the high fuel price has led to increased transportation costs.

It is true that Zambia, like most other nations, has no say in the pricing of oil at the global level .

Yet, it has also been apparent over the years that the handling of fuel in Zambia has not been without some troubling aspects.

Certainly, the tax structure has had a lot of bearing on the final price tag for fuel in Zambia, just as the permanent secretary has observed.

But there have been aspects for instance, of too many middlemen involved in the procurement of fuel in the past. This was thought to have had a bearing on the final price of the landed product in Zambia.

Whereas those responsible for retailing the product are free to adjust their mark-ups to ensure that they maintain their margins, the levels of the margins are crucial in this consideration.

In other words, any level of taxation will ensure a movement in the final price mark-up of a commodity, but such movements need to be economically justified.

It is hoped the team tasked to seek a solution to this issue will look to a careful and equitable balance in the various adjustments to be recommended.

This is why it is important that we all give the team maximum support so that they carry out their task as best as they should.