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Monday, 28 January 2013

Key Facts on Oil Prices

The Government is trying to sort out challenge of high oil prices in Zambia. Vice President Scott recently told the Energy Regulation Board (ERB) to find ways to reduce fuel prices :
"Zambia has the highest fuel prices in the region and I think ERB should find effective ways of ensuring that fuel prices are reduced..." (Source : Times of Zambia)
ERB response :
"Our pricing structure is such that retail consumers subsidise industrial and commercial consumers...the people buying petrol are subsidising those buying diesel. Now the largest diesel users are commercial and industrial consumers that are being subsidised...So the ideal solution to this situation is to mark the product because then you know what product is going to the industry and that going to the consumers...When the marking takes place, we will be able to distinguish the various consumers that are using certain products. This is one of the major ways to reduce petrol prices." (Source : The Post)
Does ERB really think that is the solution? Here are the few facts that we know about the high prices of oil in Zambia (echoed in this Parliamentary Report). 

Fact #1 Zambia’s fuel prices at the pump are high compared to our neighbours, even after accounting for the higher transportation cost due to the land-locked nature of the country.

Fact #2 The high fuel costs are built into the wholesale fuel supply system consisting of fuel imports, transportation, and processing.

Fact #3 The wholesale fuel supply system is dominated by a vertically integrated government monopoly consisting of Tazama Pipelines Limited, the Indeni Petroleum Refinery Company Ltd., and the Ndola Fuel Terminal.

Fact #4 Because there's no competition, this system suffers from operational and structural inefficiencies, therefore high costs, the burden of which is shared by ordinary Zambian consumers and taxpayers (through subsidy meant to keep fuel costs low).

Fact #5. The energy regulator (ERB) is unable to control costs effectively. Indeed, it cannot without sorting out the fuel supply system.

These facts lead us to one inevitable conclusion : Government has to sort out fuel supply system once and for all. That is the only action needed. ERB should stop misleading our people that the fundamental problems have to do with fuel markings.

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