Depressed Crude and Bullish Kwacha earns Zambia a 6.7% Fuel Pump Price Cut

PUMA Energy station in Lusaka the capital

Depressed international crude prices backed by a generally bullish Kwacha exchange rate has earned Zambian a 6.7% average pump price cut. In a statement released by the Energy Regulation Board – ERB in Lusaka today, the regulator decided to revise the prices of petrol lower by 6.64% to ZMW11.67 per liter, that of diesel by 8.611% to ZMW10.72 per liter and that of Kersone by 4.5% lower to ZMW6.5 per liter. This the regulator advised will be effect at midnight today. 

Rationale for the cut in detail.

The price of crude has been depressed for quite sometime. Oil has been a victim of increased supply by the Middle East, US and most OPEC nations. This has had the bet effect of declining the price per barrel. However efforts by OPEC countries to cap supply backed by a weak dollar have given the price temporal support to over $51.5 per barrel.

Crude price graph from FT.com
Crude price graph from FT.com

However the Energy Regulation Board Cost Plus Pricing Methodology has focused on the January to June period when crude had hit an all time low of $46.7 per barrel. This with reference to the Kwacha that traded for ZMW9/USD then yields an import effect that exceeds the 2.5% trigger  threshold  for justification of an adjustment. The last time ERB effected a price cut was in January.

USDZMW trajectory graph from Trading Economics.
USDZMW trajectory graph from Trading Economics.

The benefits of a fuel cut should translate to a lower cost plus effect on inflation in decreased production and manufacturing costs. However the net benefit to inflation will depends on which Energy facet outweighs the other; the 25% electricity tarrif hike versus 8.611% diesel price cut.

More articles on energy price cuts for Zambia.

 

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