Exchange rate will determine fuel prices, observes Mumba

Exchange rate will determine fuel prices, observes Mumba
Written by Chiwoyu Sinyangwe
Wednesday, December 03, 2008 9:23:41 AM

THE kwacha’s depreciation against major convertible currencies will prevent local consumers from feeling the impact of declining international prices of oil, UK based economist Chola Mukanga has observed.

And energy permanent secretary Peter Mumba has observed that the exchange rate would determine the extent of reduction in local pump prices of fuel in line with the global trends.

In an interview, Mukanga said the Energy Regulation Board (ERB) needs to have an expanded interaction with the exchange rate.

“There is of course the little problem of the kwacha which is depreciating significantly, and if that continues, the Zambian consumer may not see the gain in lower prices of oil prices on the international market,” Mukanga said.

The kwacha on Monday modestly depreciated to close trading at K4,490 and K4,540 per US dollar owing to mismatched dollar supply and demand.

Mukanga also said there was need to review the cost impact of Indeni Petroleum Refinery to determine its contribution to the final pump price under the cost- plus model the country was currently using.

He further supported a recent observation by the ERB that the local price of fuel lagged behind the international fuel prices due to the cost plus model currently being implemented.

“The ERB is correct with regards to the lag in oil imports and their cost-plus model which I gather is now under review because it does not make sense that we have such high costs of processing crude oil compared to all of our neighbours,” said Mukanga who is also an advisor to UK government on aviation policies.

And in a statement, Mumba stated that while the cost-plus regime ensures cost recovery, it was slow to respond to the price variations as the new prices were effected depending on the cost of each cargo brought into the country.

“The cargo that has been purchased in November was at an even lower cost of US $53 million and this will be processed as from the second week of December this year. This cargo will result in a reduction of fuel prices this month,” stated Mumba. “The extent of the price reduction will depend on the exchange rate. The actual reduction will be determined by the ERB.”