Zambia’s Fuel Price Increases Are Farce And A Sham

The upward fuel price adjustment which went into effect on October 2nd, 2018 as announced by the Energy Regulation Board (ERB) is laughable at best and criminal at worst. It should be noted that this is not the first time that the ERB has had to give a bogus explanation as to why the upward price adjustment is necessary.

The increases have less to do with the market Crude Oil Commodity prices and are entirely a governance issue. It is a desperate move by the government to fulfill their debt obligations to the IMF and China, among other things.

Crude Oil Commodity is sold on the global market through crude benchmark(s) serving as reference price for buyers and sellers of the commodity. There are three primary benchmarks; West Texas Intermediate (WTI), Brent Blend, and Dubai/Oman Crude. The spread between and among the benchmarks are known to have wider or narrower spreads as they experience volatility associated with the index. What is important is that these benchmarks track one another due to arbitrage transactions resulting from future contracts of the commodity (as an underlying commodity) and through “Put” and “Call” options.

According to the Energy Information Administration (EIA), a renowned authority in the collection, analysis, and dissemination of the global energy information aimed at promoting sound policy making, efficient markets, and public understanding of energy and its interaction with the economy and the environment, there is still an abundance of Crude Oil Commodity inventory around the world, despite the upward adjustment in Crude Oil Commodity we have seen lately. The successes of improved crude oil extraction technologies in horizontal drilling and fracturing is the reason why we have an abundance of the commodity in inventory. The new normal in the Crude Oil Commodity pricing is rapid fluctuations in the pricing and maybe an occasional upward spike resulting from geopolitical imbalances. These fluctuations are widely believed to be non-sustaining and are easily countered by the supply abundance. It is also believed that the government should be justified to make needed price adjustment in those circumstances. However, what the Zambian government has not been known to do was making those similar downward price adjustments when the Crude Oil Commodity price on the global market adjusts in the downward direction.

What is being done by the Zambian government, through the Energy Regulation Board (ERB) is not only unconscionable, but frankly an unfortunate turn of events when the majority of people of Zambia need all the help they can get from it to cushion the negative impact of the ongoing economic tornadoes resulting from massive government corruption and blatant escalation of failed policies in almost all areas of the economy. For too long, ERB has taken advantage of the unsuspecting general public with the unscrupulous pricing strategies supported by irrational and uncorroborated reasons to justify exorbitant pricing schemes. They have managed to get away with it due to the lack of knowledge and the tools on the part of the general public to navigate the complex puzzle of Global Crude Oil Commodity pricing.

For ERB to capitalize on the small and occasional Brent benchmark (or Dubai/Oman Crude, or even WTI Crude at times) fluctuations to justify increasing the fuel prices in Zambia is outright immoral. But what we did not frequently see is a similar response from ERB downward price adjustments from the crash of Crude Oil Commodity prices in the past 5 years. In the same preceding period, Brent Crude benchmark at one point crashed from a high of $140 per barrel to as low as $26 per barrel. In the United States, a corresponding price decline of an average high of $4 per gallon to as low as $0.90 per gallon of gasoline (fuel) at the pump was experienced during the same period, thereby giving the consumers the savings from the price adjustments. We did NOT see any significant downward fuel price adjustment in the Zambian pricing scheme from the ERB.

Here is what’s at play:

  1. If the Zambian government is sourcing Crude from suppliers at higher prices and are locked in such exorbitantly high contracts, it’s time to CHANGE!

  2. If we are not able to adjust our fuel prices at the pump when the rest of the world is doing it, it’s time to CHANGE!

  3. If the Zambian government does NOT have in place a strong Crude HEDGING STRATEGY in times of abundance, it’s time to CHANGE!

  4. If the Zambian government does not currently have a Crude Strategic Petroleum Reserve & Storage (Crude-SPRS) initiative in place, it’s time to CHANGE!

  5. If Zambia has not undertaken a SERIOUS Aggressive & Accelerated Oil and Natural Gas Exploration & Production, it’s time to CHANGE!

  6. If Zambia has not taken a SERIOUS Evaluation of Local Refinery Whilst Considering Other Sources of Refined Products, it’s time to CHANGE!

We urgently need a Robust Road Map to Energy Self-Sufficiency in Zambia!

About the Author:
Mr. Victor Ngoma, MBA, is an engineer with 20 years experience working for various global energy (oil and gas) giant corporations with operations around the world. He holds a Bachelor of Science, Engineering, an MBA in Finance and Accounting, and a Masters Certificate in Global Marketing. Mr. Ngoma has attended various oil and gas short courses, conferences, seminars and trade shows around the world. He has also authored and co-authored a number of papers dealing with the oil and gas industry.He is The Head of Energy and Power Development for the Movement for Economic Emancipation (#MEE).He is currently based in Houston Texas, USA.

Source: Lusaka Times

Open ZambiaComment