Energy Regulation Board increases the price of petroleum products

The prices of petrol, diesel and kerosene were increased by 7.2%, 8.5% and 9.45%, respectively. This means that effective April 18 2014, the new pump prices of petrol, diesel and kerosene are now K10.63, K10.01 and K7.48 per litre, respectively. The ERB cited Kwacha weakness as the main driver of the decision to increase prices. Last year's increase was due to the removal of fuel subsidies.

Zambia imports finished petroleum products through a costly and inefficient supply chain - it also does not help that Indeni Oil refinery has obsolete equipment! The ERB sets pump prices so that they cover the cost of importation - so if the cost goes up (because of Kwacha depreciation), then pump prices have to go up to compensate otherwise the ERB would lose millions of Kwacha each time petroleum products are imported.

This is a logical move but will be very unwelcome by consumers because it will force retailers to raise prices of various goods i.e. inflation will pick up - maybe above 8% over the next few months?

So will this decision be reversed should the Kwacha start regaining its strength? Zambians already pay some of the highest gas prices in southern Africa. In the meantime, perhaps it would be prudent for the ERB to hedge this currency risk on say, the Bond and Derivatives Exchange before they come up with a final solution on Zambia's fuel problem?

The Bond and Derivatives Exchange (BaDEx) went live and executed its maiden live transaction yesterday at 14:49pm – a June 2014 US Dollar/ZM Kwacha futures contract. The transaction was between Banc ABC (who is a trading member) and their client. This was an historic transaction for one of a handful of Bond and Derivative Exchanges in Africa. BaDEx was incorporated in 2009 and became a licensed exchange in 2011. It is regulated by the Securities and Exchange Commission (SEC) of Zambia.