Windhoek — Unleaded fuel and diesel will increase by 30 cents per litre as of this Wednesday, June 5. This increase, which the Minister of Mines and Energy, Tom Alweendo, attributed to prevailing market conditions, will elevate 95 octane unleaded petrol to N$13.05 per litre and diesel 50ppm to N$13.63 per litre. Included in the 30 cents per litre adjustments is six cents per litre for the dealer margin. Escalating fuel prices usually have a knock-on effect for consumers who anticipate an increase in transport and food prices.
In the fuel increase announcement made late last week, Alweendo noted that fuel is traded using United States dollars (USDs) throughout the international market. "Therefore, there is a need for Namibian bulk importers (fuel wholesalers) to convert Namibia dollars (N$) into USDs to enable them to import fuel products (e.g. petrol and diesel). This review is based on the trading cycle between April 26th and May 24th," Alweendo noted.
The average exchange rate between the USD and the Namibia dollar for the trading cycle under review is N$14.3518 per USD.
In contrast, the average exchange rate for April 2019 as a full month was N$1 4.1400 per USD. Therefore, Alweendo stated, the latest figure of N$14.3518 per USD indicates that the Namibia dollar has depreciated against the USD and as such it has become more expensive to import fuel into Namibia. The exchange rate can be affected by a host of factors such as inflation rates, interest rates, Namibia's current account/balance of payments, government debt, terms of trade, political stability, performance, recession, and financial market speculation.
"In international markets, fuel is traded (bought/sold) in quantities of barrels. One barrel is approximately equal to 159 litres. For the trading cycle under review, one barrel of unleaded petrol 95 (ULP95) traded at an average price of US$79.101 or N$1135.24 and one barrel of diesel 50ppm traded at an average price of US$83.430 or N$1197.37.
"Barrel prices for refined fuel are determined by demand and supply factors mainly affecting the Organisation of Petroleum Exporting Countries (OPEC) such as the cost of production, competition, profits, geopolitics, etc. The local fuel market operates on a cost recovery model, i.e. the suppliers of fuel products must recover the full cost of supplying fuel to local consumers. Every month, the government sets fuel pump prices based on the latest market indicators in order to ensure that fuel suppliers recover the cost of supplying fuel to Namibia. An under-recovery indicates that the suppliers have traded below the full cost of supply while an over-recovery indicates that suppliers have traded above the cost of supply. The idea is, thus, for the government to keep the prices paid at the pumps equal to the actual cost of supply," Alweendo explained.
A Dealer Margin Survey Report recently submitted to the ministry for consideration investigates the activities of fuel service stations (dealers). The results of the report indicated that, on average, the fuel dealers are failing to run their businesses profitably due to inflation and other cost factors.
"Since the fuel dealers operate in a price-controlled market, the government is obliged to review their margin from time to time and adjust it accordingly. Guided by the results of the report and other technical considerations such as the general inflation rate, the ministry has resolved to increase the dealer margin by 6 cents per litre from 100 cents per litre to 106 cents per litre on all controlled products effective 5th of June 2019," Alweendo stated.
In line with the fuel pricing formula agreed between the government and the local oil industry, the results for the trading cycle under review indicate that fuel suppliers are still trading below the cost of supply.
Said Alweendo: "The decision taken above indicates that the ministry will not pass on the full under-recoveries to the consumers at the pumps. This means that the remaining portions of the under-recoveries will be paid to the oil companies from the coffers of the National Energy Fund (NEF) on behalf of consumers. This is in line with one of the main roles of the NEF, i.e. to stabilise fuel pump prices."
The mines and energy minister recalled that the final under-recoveries recorded at the end of April 2019 were not fully passed on to consumers and as a result, the NEF absorbed about N$112 million on behalf of consumers in under-recoveries during the last trading cycle alone.
"The government would further like to reassure the public that it is committed to maintaining a stable fuel pricing framework which reflects market realities," Alweendo added.