More on fuel companies demanding change in subsidy system – AIM report

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More on fuel companies demanding change in subsidy system – AIM report

7:30 CAT | 06 Mar 2017

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The Mozambican Association of Fuel Companies (Amepetrol) has warned that the country risks running out of petrol and diesel, if the government does not change its current fuel subsidy system, reports Friday’s issue of the independent daily “O Pais”.

The companies, in a letter addressed to Prime Minister Carlos Agostinho do Rosario, said they can no longer go on shouldering the difference between the price which they pay for fuel on the international market (denominated in US dollars), and the price in meticais at Mozambican filling stations, which is fixed by the government.

The government is committed to compensating the companies for this difference, but they claim this subsidy system is not working properly because of the government’s lengthy delays in paying, which creates cash flow problems for the companies.

The letter says the companies have, since June 2016, suffered accumulated losses of around 70 million dollars – money which the state should pay, but has not yet done so.

“The current decapitalisation of the companies is largely due to failure to update the price of fuel”, the letter argues. “It is this that has originated the credit of around 70 million dollars which has to be paid by the state”.

The situation, they warn, will worsen if the current trend of rising international oil prices continues.

Unless the current subsidy system is changed, the letter adds, Mozambican fuel distribution could simply collapse. “We stress that it is absolutely imperative and urgent to change the system, doing away once and for all with the system of price compensation”, the companies say.

The last time fuel prices changed was on 1 October, when the price of petrol rose by 5.3 per cent, from 47.52 to 50.02 meticais. But if the price is expressed in foreign currency, petrol was still much cheaper than a couple of years ago, thanks to the sharp depreciation of the metical.

In 2014, when expressed in US dollars, the price was about 1.6 dollars per litre. Even with the October price rise, it was just 66 US cents per litre.

The price of diesel rose in October by 24.5 per cent, from 36.81 to 45.83 meticais a litre. The metical has staged something of a recovery over the past couple of months, so that, in dollar terms, petrol is now 73 US cents a litre, and diesel 67 cents.

Amepetrol argues that is not enough, and fuel remains cheaper in Mozambique than in some of the neighbouring countries – which is an incentive for foreign drivers to cross the border and fill their tanks at Mozambican petrol stations.

Source: AIM