Zambiaprice.com is an online resource designed to help Zambians (and others) keep abreast of the current prices of products and services available in the country.

Introduction

Fuel prices in Zambia have seen quite some fluctuation over the past few years. With the country importing all its petroleum products, pump prices are significantly impacted by changes in international crude oil prices and exchange rate movements between the Zambian Kwacha (ZMW) and US Dollar.

In this article, we analyze Zambia’s fuel pricing mechanism, key developments around fuel prices in recent years, and the impact of price changes on consumers and the wider economy. Read on for an in-depth look at navigating fuel costs in 2024 as a consumer or business owner in Zambia.

fuel pumps
fuel pumps

Overview of Fuel Pricing in Zambia

The Energy Regulation Board (ERB) is the body responsible for regulating fuel pump prices in Zambia. ERB utilizes a cost-plus pricing model that takes into account the costs across the entire petroleum supply chain, from procurement to transportation, storage, and retail margins. This includes:

  • Basic fuel costs: Landed costs of petroleum products based on Mean Import Parity (MIP) pricing
  • Inland freight reimbursement: Costs of transporting fuel within Zambia
  • Storage: Operating costs for fuel storage terminals
  • Marketing costs: Costs incurred by fuel marketing companies
  • Service station dealer margin: Margin for fuel station operators
  • ERB levy: ERB operational costs and maintaining strategic fuel reserves

On top of these supply chain costs, a reasonable margin is added to the pricing formula for the oil marketing companies that import and distribute fuel in Zambia.

The two key variables that impact pump prices are:

  1. International crude oil prices
  2. Exchange rate between the Zambian Kwacha and US Dollar

As Zambia is a price-taker in global oil markets, changes in these two factors feed directly into landed costs for petroleum products and retail pump prices.

Fuel Pricing Reforms

In December 2021, fuel subsidies were removed in Zambia, leading pump prices to increase by over 20% almost overnight. This was followed soon after by a shift from 60-day to 30-day fuel price reviews to allow changes in international oil prices to be passed on more frequently to consumers.

However, there have been calls by consumer groups to return to 60-day reviews to enable better predictability in fuel costs.

Key Developments in Recent Years

December 2021: Removal of fuel subsidies and shift to monthly pricing reviews

2022 to 2023: Frequent pump price adjustments, almost every month, in line with international oil price volatility and exchange rate depreciation. Transport associations repeatedly raised concerns about the lack of predictability in fuel costs.

October 2023: ERB introduces a temporary equalization mechanism to subsidize rising transport sector costs and moderate pump prices.

November 2023: ERB maintains prices steady for a month even as international oil prices decline and Kwacha depreciates. A temporary equalization mechanism was utilized to avoid a significant pump price increase.

DateFuel Price AdjustmentKey Driver
Dec 2021+21%Removal of fuel subsidies
Mar 2022+20%Rising oil prices
Oct 2023-2%equalization mechanism introduced
Nov 2023UnchangedSteady oil prices and Kwacha depreciation

Impact on Consumers and Economy

Fluctuating fuel prices have a significant economic impact in Zambia via the following channels:

  • Higher production costs: Fuel and transport costs feed into prices of most goods and services
  • Elevated inflation: Pump price adjustments transmit quickly into food and non-food inflation via transport costs
  • Poverty impact: Poorest households were severely impacted due to larger share of income spent on transport and essential goods
  • Uncertainty for businesses: Unexpected fuel price changes affect planning, especially for transporters and manufacturers

Outlook for 2024

As Zambia heads into 2024, international crude oil prices are expected to remain volatile due to global economic uncertainties and geopolitical tensions. This will continue to feed into local fuel prices.

On the currency front, the Kwacha is projected to remain under pressure but stabilize somewhat relative to 2022–2023 levels. This should provide some offset to international oil price movements in determining retail fuel pricing.

The ERB has reaffirmed its commitment to balancing consumer interests and industry viability within its fuel pricing mechanism. However, some unpredictability in pump prices is inevitable given Zambia’s import dependence.

Consumers and businesses should brace themselves for continued fluctuations in fuel costs. Keeping abreast of ERB pricing reviews and global oil price movements will be key to navigating fuel expenditure.

Conclusion

Zambia’s heavy reliance on imported petroleum products makes retail fuel prices susceptible to external shocks. As a price-taker in global markets, changes in international crude oil prices and Kwacha/Dollar exchange rates feed directly into periodic ERB pricing reviews.

More frequent fuel price adjustments since 2021 have raised predictability concerns, especially for transporters. However, some volatility is inevitable given the pricing model.

Consumers and businesses should closely track ERB pricing decisions and global oil markets to proactively manage fuel budgets amidst fluctuating costs.

At ZambiaPrice, we endeavor to provide timely updates on fuel price changes and insights into the underlying drivers. Our goal is to empower Zambians to make informed spending decisions during periods of uncertainty.

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