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Tuesday, 16 March 2010

Parliamentary Question (Petroleum Pricing)

A very interesting exchange in Parliament over the policy of uniform pricing petroleum products between rural areas and urban areas. In setting pump prices the Energy Regulation Board (ERB) tends to allow rural areas to have slightly higher prices due to "transportation costs".  The government is planning to introduce "a subsidy" to realign the prices. The big issue of course remains the need for government to create a tax regime to contribute to an enabling environment and establishing sufficient petroleum storage capacity across the country. We have touched on this issue here. Another issue touched on in the discussion is the CEEC and ERB move towards developing a framework to fund the establishment of rural service stations to lessen the persistent shortage of fuel in many rural districts. This is a great development and I know its something people are now jumping on.

Uniform Pricing of Petroleum Products Countrywide, Oral Answer (264), Edited Transcript, 24th February, 2010 :

Dr Machungwa (Luapula) asked the Minister of Energy and Water Development when plans to introduce uniform pricing of fuel and other petroleum products in the country would be implemented.

Mr Imasiku: Madam Speaker, I wish to inform the House that the Government, through the Ministry of Energy and Water Development, will commence implementation of the uniform petroleum pricing programme in June, 2010.

Dr Machungwa: Madam Speaker, while I commend the Government for giving that firm deadline, can I get assurance from the hon. Minister that, in fact, this shall be so because it is a known fact that poverty in the rural areas is higher than in the urban areas and this implementation of uniform prices will go some length towards removing this disparity.

The Minister of Energy and Water Development (Mr Konga): Madam Speaker, the Government has, indeed, recognised that the disparities in wealth levels among the citizens is tilted more towards those living in the urban areas. One of the contributing factors is, indeed, the pricing of fuel which is more in the rural areas as compared to the urban areas. It is for this reason that the Government has, indeed, embarked on addressing this challenge so that this year, the programme for achieving uniform petroleum pricing countrywide would commence.

Mr C. K. B. Banda, SC. (Chasefu): Madam Speaker, in giving us comfort that, indeed, come June, fuel will be in all the provincial centres, may the hon. Minister tell us how many provincial fuel depots are ready for use at the moment.

Mr Konga: Madam Speaker, the Government is going to achieve the uniform petroleum pricing countrywide by undertaking measures including storing in the provincial centres as was announced earlier. To this effect, the Government has worked out measures to engage various stakeholders on a public-private partnership mode to rehabilitate the various provincial or storage facilities so that they could be ready to be stored with fuel.

Mr Lumba (Solwezi Central): Madam Speaker, what measures has Government put in place to encourage the private sector to build up filling stations in rural areas, particularly in the North-Western Province?

Mr Konga: Madam Speaker, I welcome the hon. Member to the House. Last week and early this week, the Government, through the Zambia Citizens Economic Empowerment Commission, has been advertising procedures and measures to request citizens and citizens-empowered companies, especially women to apply for licences to run various fuel depots throughout the country, particularly in the rural areas.

Mr Shakafuswa (Katuba): Madam Speaker, while the determinant of the price of fuel, at the moment, is the transportation cost from the station where the fuel is taken from, is the Government going to subsidise the transportation or the uniform prices of fuel to be raised so that everyone pays at a higher price to subsidise those in far flung areas.

Mr Konga: Madam Speaker, indeed, the Government intends to subsidise the transportation cost and it is also considering the aspect of raising the price of fuel in the urban areas slightly so that the people in the rural areas can also benefit from this process.

Mr Mwamba (Kasama Central): Madam Speaker, Total Zambia Limited has been wholly purchased by this Government. I remember that, last year, I asked the hon. Minister of Energy and Water Development if at all the Government had any intentions to sell part of the shares to a consortium of Zambians in order for Indeni to operate efficiently.

Mr Chazangwe (Choma): Madam Speaker, regarding the issue of food shortage in the country, I would like to find out from the hon. Minister if his ministry has any plans to subsidise fuel that will be used by small-scale and commercial farmers so as to reduce the escalating mealie meal prices in the country.

Mr Konga: Madam Speaker, presently, the fuel that the motoring public is paying for is actually subsidised by the Government.

Mr Muntanga (Kalomo): Madam Speaker, how will the Government subsidise the price of fuel when the hon. Minister has just said that the price in town will go up to match the price in rural areas? The difference will already have been covered through the price increase in urban areas, therefore, how will the Government subsidy come in? May I, please, have a clarification.

Mr Konga: Madam Speaker, as I earlier responded, the Government is currently subsidising the pump price of fuel. This not withstanding, in order to give relief to the citizens in rural areas, the Government intends to have a slight increment on the pump price in urban areas, and at the same time, give a subsidy on the transportation of fuel to rural areas, while maintaining the price of petroleum products in the rural areas at the same level. This way, we intend to achieve parity on the pricing, both in the rural and urban areas.

Mr Simuusa: Madam Speaker, I wish to find out from the hon. Minister by what percentage the fuel price has been subsidised and where the money to pay for this subsidy is coming from?

Mr Konga: Madam Speaker, I cannot give the exact percentage of subsidy just yet. However, I can come back to the House with a figure. Nevertheless, I can confirm that the Treasury is giving a subsidy to the motoring public in Zambia at the moment.

Dr Scott (Lusaka Central): Madam Speaker, the normal understanding of the term subsidy is that you are reducing the untaxed price. Can the hon. Minister clarify that what he is actually talking about is charging enormous taxes in Zambia and then giving a small subsidy which is affected in a tax rebate? Can you clarify what you mean by a subsidy?

Mr Konga: Madam Speaker, the petroleum products that are sold on the Zambian market have got various duties except for petrol, which has a current duty of 36 per cent. The other products like diesel attract minimum duties of only 10 per cent. This is the subsidy we are talking about. The Government actually subsidises, in cash, during the purchase of these petroleum products to mitigate the impact on the consumer of paying higher prices.

Mr Kambwili: Madam Speaker, one of the reasons our fuel is expensive in Zambia is that it attracts fuel levy. Is the hon. Minister not thinking of excluding the rural areas from the fuel levy so that fuel is cheaper because, at the end of the day, very few rural roads are rehabilitated using the money collected from this levy?

Mr Konga: Madam Speaker, indeed, the Government, through the Energy Regulation Board (ERB), collects the fuel levy which goes towards maintaining some of our roads. Further, in order to sustain the maintenance of these roads, the Government, at the moment, does not envisage removing the fuel levy.

Mr Mukanga: Madam Speaker, on the pump price, there is an embedded K152 per litre which was meant for building strategic reserves for the nation. However, to date, these reserves have not been built. Why can the hon. Minister not utilise this K152 per litre to formalise the prices between the urban and the rural areas?

Mr Konga: Madam Speaker, the Government collects a levy which goes towards the Strategic Reserve Fund. Due to the volatility of petroleum products on the international market, and in order to cushion the motoring public and the Zambian public in general, through various activities such as farming, the Government has been using some of the money from the Strategic Reserve Fund to subsidise the pump price.

2 comments:

  1. Fixing a uniform country-wide price for fuel (or for maize or fertilizer) is a form of price control. And price controls, as we all know, cause problems. The purpose of charging higher prices for goods supplied to distant places is, of course, to compensate for higher transport costs.

    If fuel is now to sell at a uniform price throughout Zambia, despite higher transport costs, that is bound to act as a strong discouragement to suppliers to serve distant areas.

    That in turn will cause government to lambaste greedy suppliers, and perhaps later to take over the task from the private sector. That could lead to greater government involvement in business and consequent inefficiencies.

    It has been asked how intelligent people with high academic qualifications can make silly mistakes. That overlooks the fact that what is economically mistaken can be politically advantageous.

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  2. I’m not sure how this uniform pricing for fuel works. I suspect it is far from being flawless. I was just wondering about what mechanism has been put in place to prevent fuel traders with multiple selling points dotted all over the country to cheat. It’s possible that one can get fuel from Indeni in Ndola purporting to sell in Sesheke or any far outlaying areas yet he sells it at Kapiriposhi thereby scrupulously earning a subsidy on transportation cost. Does this govnment have the capacity to monitor traders so as to prevent theft of this nature? Do traders claim subsidy after sell just as VAT claims? I think all this circus is meant to scoop more rural votes at the expense of urban cost of production. I feel MMD is alienating itself further from the urban electorates.

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