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Fuel Prices – “We Are in an Emergency Situation and the Market is Challenging”

Fuel Prices – “We Are in an Emergency Situation and the Market is Challenging”

So far the price of fuel has been adjusted three times, and with it has dragged down the price of all other goods and services. The Mozambican Association of Oil Companies (AMEPETROL) warns, however, that the situation may still get worse. To the Diário Económico (DE), in an exclusive interview, the secretary-general of the association, Ricardo Cumbe, presents the sector’s projections for the near future.

How is the fuel business in Mozambique facing the current world situation?


First, it is necessary to clarify that the situation that is happening around the world, specifically the war in Ukraine, which is provoked by Russia, to us, as AMEPETROL, we did not find ourselves in a tight spot, because before the war itself there were already indications of threat, both from one side and the other, that at any moment this could occur. So AMEPETROL since it became aware of this possibility, began to prepare the counterparts, including the public itself. We alerted the regulator and society, about the challenges that we would face along this path.

What is happening now is no surprise. We had foreseen it before. And now we are managing it, but in a complex way, because in the middle of this whole process there are many factors that depend to a large extent on the outside world. One of them is the cost, which we have no way to control, and we have a small bar that represents almost 49%. What is the cost, that is, the price that we pay for the purchase of fuel, in the last analyses that we did, represents about 51% of the price that is in the current structure. This is the same as saying that the other part corresponds to 49% and, of these, there is the composition that remunerates the companies that are operating, what we call ‘distributor margin’, ‘retailer margin’.

Naturally, there are other very sensitive portions, which represent what is the profit that each of the operators expects to earn in the process of importing fuels into the country, and there is a certain percentage left over that is associated with the fees and taxes related to decree 89/19.

We are talking, in this case, about the duties, the VAT, the special tax, the margin on the ocean facilities, the infrastructure fund. All of these components are part of the structure that is currently in place.

What happens is that we, as operators, demand that the regulator, in this case the Energy Regulatory Authority (ARENE), which operates under the National Directorate of Hydrocarbons and Fuels (DNHC), under the Ministry of Mineral Resources and Energy (MIREME), complies, every month, with the legal provisions, i.e., once the premises that allow the fuel price to rise or fall have been reached [unfortunately in recent months it has only been rising], this structure is published so that it becomes effective. If this doesn’t happen, the companies incur losses.

Right now we are operating in a very challenging market. The Government has, of course without 100% success, sought mitigating measures in order to have the structure at a level that is not too suffocating, but these measures have not been up to the task of creating a sufficient cushion so that the structure can be at a level where we would like it to be. It is because, besides being operators, we are also part of the consumer public. What is happening in the international market also impacts us.

Given this scenario described above, how is the issue of government subsidies for gasoline companies going on, and to what extent is AMEPETROL, as an association, involved?

The Government has been subsidizing gasoline companies since the end of last year [2021], and it subsidizes to the extent that there is room for price adjustment. That is, theoretically, this adjustment is made, but the structure is not published. In other words, the real price is not practiced at the pump where the retailer puts his car and is filled up, but in a comparison between the effective structure (the one that is in effect) and the one that should be in effect. So, there is a variation between the price that is published and the price that should have been published.

Then, the compensation consists of that amount that the gas company cannot collect through the structure that was not adjusted. As a result of this subsidy process, the government is in debt, which makes [the process] run according to the distance between the structure that is in effect and the structure that should be in effect. This is how the compensation mechanism works.

Has the compensation [subsidy] measure adopted had the expected effect on the part of the gasoline companies?

The measure compensates and it doesn’t, because, at the time the calculation is effected, if the variation, for example, is two meticais, the Government commits to the debt. But what is happening is that this debt, until today, has not been liquidated, and this value is the one that the Government does not pay interest on.

Meanwhile, because the gasoline companies have lost this value of their import circuit, they have to resort to the bank in a much larger magnitude and pay interest. This is where the loss is even greater, maybe multiple, because there are many other elements that we can mention that contribute to this loss. For example: first, they start importing less, they start paying interest on that amount that the government owes, and at maturity [development], it won’t pay interest. Second, we have to pay a much higher rate still because of what are the adjustments that the Central Bank announced two three months ago, in which we start to suffer with the commercial banks in the issuing of the new guarantees.

In practical terms, will fuel prices increase excessively in the country this year?

Yes, the prices are going to increase, because the portion that is in great ascendancy right now is the price. The price of the bills hasn’t started to go down yet, and as long as it doesn’t, we can’t start thinking that in the near future the fuel will be in a stationary situation or going down, that’s not it.

It will go down as soon as we can find the peak, where there is a reversal of the cost trend in the international market. For example, the regulator decided, on a daily basis, in coordination with some TV channels, to publish the evolution of the price of crude (the raw material that determines the cost levels in the international market). This is done with the objective of bringing visibility to all consumers about what is happening in the international market, so that all people can situate and position themselves on what are the causes, on the basis of which what is happening in the country is happening as a consequence. The idea is really to bring civic education to society and to understand, in a very clear way, what are the elements that determine the prices on which we are feeling the negative effects here.

If prices continue to increase, how will the business be managed?

The commitment of the gas stations is to serve the Country, and the challenge we are facing, at the fuel level, is, I believe, a challenge that all sectors are facing, because we are talking here about a sharp increase in the cost of living, in which everyone who is operating in the Country at this post-covid-19 moment is always challenging the companies to reinvent themselves. During the time of the pandemic, economies were operating at a fairly low level, and we are suffering what are the effects of the levers of economies, where, very particularly, diesel has had major effects.

Heavy industry, which is purely dependent on diesel, has been dormant, and now diesel is becoming more expensive than gasoline, because of the supply and demand factor that has its greatest impact on diesel. This fuel had a greater impact during the time of covid-19 and the economies are ‘aggressively trying to grow to recover all the time they could not operate, having accumulated large losses. This is the reason why this sharp rise in diesel is happening, coupled with the war factor which also has its impact. Right now the supply of diesel is low, but demand is higher, in other words, diesel is suffering the effects of the economy itself.

Is it possible to stop, or at least make less impactful, the frequent rise in fuel prices in the national market?

Unfortunately the fuel is not produced here in the country, this is a purely international situation. At this moment, the import process obeys a criteria where our procurement agent, which is the Mozambican Oil Importer (IMOPETRO), launches the tenders, and these tenders obey what are the laws of the market, because the fuel market is an open market [it is available on the stock exchanges]. Therefore, those who participate do not issue tenders to say ‘we are going to offer the product at a thousand dollars.’ They issue them to say that the day that ‘Mozambique’ places its order, and supplier ‘A’ has to bring the fuel to Mozambique, I will have to add a premium [discount] on top of that cost that the market will give, to bring the fuel to the country.

However, in light of this, and as a way out, the Government can negotiate the price, but it cannot avoid the intervention of third parties, because it will not have the means to transport the fuel here. Therefore, there will have to be a contract with companies that own ships, and these will charge the freight and the insurance for the fuel to reach the country.

See Also

The increase is an inevitable element, so if the gasoline companies continue to operate in the country it is because they have a commitment.

Can Mozambique reach the levels of fuel stock rupture? Is there this probability?

It’s a possibility that we have to take into account. If we don’t place the orders, we will get into a situation of not having fuel. As a matter of fact, we have examples, which we saw in the recent past, of what happened in Sri Lanka, of huge queues to fill up with fuel. Even here in Africa, we have seen situations of citizens standing in long lines looking for fuel, and it would take days before it was their turn to fill up.

So, the situation of not adjusting prices and not paying compensation for a situation like this can lead us to a situation like this, where the country has no more fuel. This is not the will of either the government or the gas stations.

We are in an emergency situation, a crisis situation that is not different from the covid-19 situation, because the way the covid-19 process was managed should not be very different from what should be applied in this fuel situation; we are talking about a very essential element to catalyze the economy.

The moment should be treated in a similar way to that of covid-19, so that the citizens understand and stop the signs of revolt that we are seeing about the high cost of living, so that they understand that this is a global situation, a situation that should have emergency treatment, because this is an atypical situation so it needs special treatment.

At this moment, how many gasoline companies are affiliated to AMEPETROL?

There are 30 gasoline companies affiliated to the association.

What are the concrete perspectives for the near future?

It is difficult to advance perspectives, because we are in a challenging situation, and we should prepare ourselves for situations maybe even more complicated than these and the way to prepare ourselves, is for the government to be always more flexible as it has revealed in the last months, but the biggest flexibility that we have been looking at is in the legislation itself, because if the legislation in the country is also flexible, I’m looking at the VAT, and if the government can actually verify that the VAT that is in the structure is in a way a component that determines the price levels and revise, that’s the expectation.


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