Just in case you missed it, the Energy Regulation Board reduced the price of oil over the Xmas period, by setting new maximum prices. As of the 23rd December the price of Petroleum Products were revised downwards by K1, 873 for Petrol, K1,786 for diesel and K1, 166 for kerosene, based on Lusaka pump prices. The reduction is due to falling global oil prices.
All of this is meant to signal Government's willingness to see Zambians pay lower prices for driving their cars and of course it is meant to cushion the impacts on the mines. But actually Government's aim is a little more complicated. Its desire is to ensure that Indeni continues to make profit, as we found out last week when it decided to increase increased fuel import tax to 25 percent from 5 percent to compel oil marketing companies (OMCs) to stop importing finished petroleum products. In the words of Lameck Chibombamilimo "We hope (the tax rise) will make oil marketing companies stop importing fuel because it will not be competitive to local fuel". Basically Zambians can have much cheaper oil today, but that will leave Indeni (50% owned by GRZ) with surplus oil that it can only offload at a loss, thanks to the inefficiency of Indeni. To make matters worse, Indeni cannot hold onto the oil because it has no capacity to store the refined fuel.
The bad news of course is in the long term. Increasing the taxes may prop-up Indeni and ensure that it remains viable, but it sends the wrong signals to OMCs (and Indeni). In the event that Indeni had to shut down due to an emergency, the OMCs may well be unable to resume imports in quick time as they would have no incentive currently to develop their supply chains.
Indeni of course is not the first parastatal to be proped up in face of inefficiency and it won't be the last. But its the first one where the Government appears to have successfully convinced people that they have best deal on the table.