Govt pays up K24bn fuel arrears

Malawi government through Mera, has squared the K24 billion debt it owed fuel companies, raising hopes that the price of the commodity may fall soon, The Business Times has established.

Oil Marketing Companies Association Chairperson Davies Lanjesi confirmed the settlement in an interview yesterday, saying the debt was cleared by December 31, 2012.

Capital Hill owed the companies the K24 billion in unpaid remittances out of the [previous] Price Stabilisation Fund (PSF).

“It is true that the money has been paid. It was sorted out by December 31, 2012,” said Lanjesi, who is also Managing Director of Puma Energy.

Analysts said the removal of the K24 billion burden from the fuel pricing structure could provide a fertile ground for authorities to cut pump prices.

“Obviously, what do you expect to be done after finishing that huge debt of K24 billion? There should be a relief on the consumer, otherwise the stabilisation fund will be over collecting,” argued a Blantyre-based economist.

But other industry players argued that though the debt has been offset, it would not be automatic that the benefits could be passed on to the consumer in form of reduced pump price, stressing that the current system enables Malawi to pay for the price of 90 days ago.

Principal Secretary in the Ministry of Energy Winford Masanjala referred the matter to Mera when contacted on Monday.

Mera Chief Executive Officer Allexon Chiwaya could not be reached for comment.

As per tradition, the country’s Price Monitoring Committee (PMC), which reviews the price of petroleum products every first Tuesday of each month, was meeting in Lilongwe yesterday.

In June last year, Finance Minister Ken Lipenga introduced the Automatic Pricing System to reflect full cost recovery.

This, according to Lipenga, was necessary to reduce the burden of fuel and electricity subsidies on the budget.

“Subsidies on fuel and electricity are very expensive. In the past, fuel prices did not reflect cost-recovery levels. The price build-up for fuel was based on a “deemed price” which was always significantly lower than its in-bond landed cost.

“In 2010, the cost of fuel subsidies was K6 billion. In 2011, the cost of fuel subsidies increased to K10.5 billion. If we had not increased fuel prices in May, the total cost of fuel subsidies by the end of the year would have been K36 billion.