Why relief at the pump could turn out to be only temporary

Dar es Salaam. Tanzanians should be brace themselves for a rise in fuel prices next week when caps are likely to be revised upwards in response to rising global prices.

The authorities might also be trying to work out a plan to compensate traders who are reported to have incurred huge losses after the government reversed the regulator’s decision to increase prices last month.

While prices are usually reviewed on the first Wednesday of the every month, the situation was different last month when the government intervened, and suspended new prices that were set to come into effect on September 1.

Instead, the government said it had formed a team, and tasked it with the responsibility of investigating and looking at the indicators that were causing prices to rise, and advise it accordingly.

Although it is an open secret that high fuel prices in Tanzania are predominantly the result of about 15 levies, fees and charges benefiting various government institutions, agencies and departments -- which together account for about 40 percent of pump prices -- the team’s findings have not been made public.

The Tanzania Association of Oil Marketing Companies (Taomac) executive director, Mr Raphael Mgaya, said following sharp increases in global prices, domestic prices would follow suit if the government lets market forces come into play.

He said if the government continued to freeze prices, fuel firms would suffer “tremendously”, and the country would face imminent shortages.

“Our expectation is that prices will go up with effect from next week in order to save the industry, which has been bleeding cash since September 2 when new prices were suspended,” he told The Citizen.

The suspended prices would have seen consumers in Dar es Salaam buy a litre of petrol at Sh2,511, with diesel and kerosene costing Sh2,291 and Sh2,194, respectively.

As a result of the suspension, prices that came into effect on August 4 are still in use countrywide.

Mr Mgaya said due to the cancellation of the September prices, oil marketing firms incurred an average loss of Sh85 for every litre of petroleum products passing through the ports of Dar es Salaam, Mtwara and Tanga.

As a short-term measure, he appealed to the government to compensate oil marketers by increasing fuel prices.

A long-term solution was for the government to consider the possibility of either waiving some taxes or introducing subsidies with a view to lowering operational costs, which would lead to lower prices.

“The government needs to step in because any increase in the global market has an effect on domestic retail prices,” said Mr Mgaya.

“We expect the government to compensate oil marketing firms so that they can continue doing business. As we are speaking, the survival of some of the is in jeopardy.”

Mr Mgaya was optimistic that Ewura would convey the firms’ concerns to the higher authorities so that they could act accordingly.

Ewura acting director general Godfrey Chibulunje said the government was working on ways that would ensure that fuel consumers do not bear too much burden as a result of increases in global prices.

And in what signalled that prices would rise further in the coming few months, global oil prices rallied to a three-year high on Tuesday.

Oil prices struck $80 a barrel on Tuesday after a sixth consecutive day of climbs, a market report by Reuters showed, boosted by a tighter supply and firm demand outlook although power shortages in China which hit factory output tempered the rally.

The continued rebound in oil prices signals heightened risks of imported inflationary pressure on the pricing of consumer products and services in months to come.

Rising fuel prices could also have a knock-on effect on other parameters within the Consumer Price Index.