Covid-19, fuel prices: Public transport losses may reach 70% per day

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Covid-19, fuel prices: Public transport losses may reach 70% per day

1:53 CAT | 26 May 2020

Photo: O País

Since last March, the public transport sector in Mozambique has recorded daily revenue losses in the order of 57%, which Confederation of Economic Associations of Mozambique (CTA) says may worsen to more than 70 if the Covid-19 situation continues for another two months.

One way to alleviate losses would be to reduce the price of fuel to more appropriate levels. The current price reduction (from 13 May 2020) of 3.36 meticais per litre for diesel and 2.27 meticais for gasoline, leaving prices per litre at 64.22 meticais and 60.15 meticais respectively, fell well short of private sector expectations.

“The reduction enacted by the government had already been anticipated by the private sector, and was smaller than expected. Its impact on the economic fabric is limited, mainly in sectors which have fuel as the main raw material, such as the transport sector, in which fuel represents about 45% of operating costs,” the CTA indicates.

Illustrating the point with a hypothetical haulage company operating on the Maputo-Chibuto route, a distance of approximately 220 kilometres, the cost of fuel per round trip was 14,628 meticais under the previous regime. The price reduction would have reduced this by only 3.4%, that is, to 14,128 meticais, a saving of about 499 meticais.

The reduction in fuel prices was also weakened by the entry into force of the new regulation on petroleum products, approved by Decree 89/2019, of 18 November, which introduces an additional element (margin of central storage facilities) in the price structure of fuels.

This new component increases the cost of fuel by 1.22 meticais. Had this adjustment been made based on the previous price structure, the reduction [in price] would have been greater, with the price of gasoline and diesel fuel dropping to 63 meticais and 58.93 meticais, respectively.

“In this [above mentioned] scenario, the impact on the reduction of the costs of cargo and passenger carriers would be 5.2%, about two percentage points above the current scenario in which the impact is 3.4,” the private sector analysis maintains.

Business people had expected the reduction to be greater, taking into account the sharp drop in crude oil prices in the international market, associated with a not-so-significant appreciation of the US dollar, which appreciated in relation to the metical by only 5% (from US$64.5 to US$67/Mt between January and April), while the fuel price fell by 68.5%, from US$66.25 to US$20.84/barrel in the same period.

In short, despite the fact that the private sector welcomed the news of the reduction in fuel prices, it expects that reductions will, in the future, follow the trend in international markets, while also reflecting other factors such as US dollar appreciation and the reduction in fuel consumption as a result of Covid-19.

The CTA had already raised the question of the cost of fuel remaining high while the price of its main raw material, crude oil, has fallen dramatically in recent months as a result of Covid-19.

By Edson Arante

Source: O País