Rising global fuel prices constricts government’s control

Mines and Energy Deputy Minister Kornelia Shilunga says Namibia’s high exposure to international factors limits the government’s options for introducing measures to curb steep increases in fuel prices.

The global oil price has risen above US$120 a barrel as record high petrol and diesel prices in Namibia add to concerns about the inflationary pressure that families and businesses are facing.

“The government cannot absolve another fuel price decrease because fuel is sourced from international markets where prices are already set, and this is influenced by forces beyond our control thus we need to ensure that through the fuel equalisation levy, NEF can cover the entire undercover recoveries,” said Shilunga.

She added that the Ministry incurred huge undercover recoveries on petrol and diesel last month, specifically a 280 cents per litre under-recovery on petrol and a 156 cents per litre under-recovery on diesel.

“It should be noted that if the Ministry had not reduced fuel levies during the previous month’s review, the current cost of fuel would have been higher. Given the current situation, and after exhausting all options, and ultimately, for the sake of ensuring fuel supply security and enabling NEF to cover for the under-recoveries recorded,” said the deputy minister

This comes after the Ministry raised petrol prices by N$2.50 cents per litre on Monday, and diesel prices will rise by N$1.50 cents per litre on June 1st, 2022, at midnight.

The National Energy Fund (NEF) used approximately N$179 million for under-recoveries in May to cushion consumers.

Shilunga said the government’s ability to cushion consumers from the increase is heavily influenced by the exchange rate figures for the period 1-20 May 2022, which show that the Namibian dollar recorded a significant drop against the United States dollar at N$15.9606 per USD, a significant difference from N$15.0384 per USD at the end of April 2022.

“Because of the massive currency depreciation, conducting international transactions becomes more expensive. As a result, after factoring the foregoing into the fuel pricing model. These under-recoveries have been recorded despite the Ministry’s best efforts last month to assist consumers by implementing a temporary reduction in levies imposed on the price of fuel,” she elaborated.

FNB Namibia Group Economist Ruusa Nandago has warned that global oil prices are expected to be elevated for longer above the US$100/barrel mark.

“Given that Namibia is an importer of oil, this will reflect in further fuel price increases over the course of the year. This, however, depends on the evolution of Russia’s invasion of Ukraine. Should the conflict be resolved sooner rather than later, it will result in lower global oil prices,” she told The Brief.

“Fuel price movements are predominantly driven by developments in the international oil price. Many countries, including Namibia are therefore unable to fully prevent an increase in fuel prices. While one option is for the government to subsidise the fuel price, this would come at the cost of fiscal revenues. There is therefore very little the country can do to prevent these increases. The reduction in fuel levies and taxes is the best option in this environment.”