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The Petroleum Control Commission (PCC) said on Wednesday pump prices may soon fall if global oil prices remain stable or drop further and the kwacha maintains its present stability against the US dollar.
PCC general manager Ishmael Chioko said this may happen because a drop or stability in global prices could prompt government to remove the In-Bond Landed Cost (IBLC) recovery.
IBLC recovery is a temporary fund slotted in the fuel price structure to compensate fuel importers’s losses resulting from under recoveries.
Effected December 31 2003, the recovery fund came after government agreed with PIL to deliberately hold fuel prices despite circumstances demanding pump price increases.
Under the deal, importers were asked to project losses they would incur as a result of leaving prices constant.
Government promised to cover the losses using money collected under the price stabilisation fund which is K1.69 and IBLC recovery.
The IBLC recovery on petrol is K2.00, K3.30 on diesel and K1.00 on paraffin, according to the PCC.
Thus, despite global crude oil prices rising to record highs for a good part of last year and Petroleum Pricing Committee recommending increases, government kept blocking pump price hikes.
“We still use our automatic pricing mechanism to recommend fuel prices to government through the ministry of mines, natural resources and environment.”
“The ministry then consults with other ministries like that of finance and economic planning to look at a bigger picture particularly, the effects of our recommendations on the consumer and the economy,” said Chioko.
Chioko said the compensation was going on until importers reached a break even point last month with PIL showing positive recoveries.
This, Chioko explained, is why there have been no increases late and none are foreseen.
PIL officials, who late last year complained that they were making huge losses due to the forced stability, were not readily available to comment on their current position.
“Oil prices on the international market are now stable and if the trend continues we will recommend that government removes the IBLC recovery which could lower pump prices,” he said.
Reports this week show that oil prices were firm at above US$47—from a record high of over US$50 at one time last year—as worries about a possible cut to Opec production curbed fears of a slow down in second quarter demand.
Economists and other stakeholders recently warned that stifling prices could back fire and hurt consumers as they could pay far much more for fuel in future if government fails to provide present protection.
But Chioko yesterday dismissed the fears, saying consumers are already cushioning themselves using the stabilisation and recovery funds.
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