ECONOMY : Fuel Prices: We need reform and liberalisation

As Rwanda is landlocked our fuel is naturally more expensive than coastal countries. If you drive from Mombasa you see fuel increasing in price until you get to Rwanda . The distance is not the only determining factor in our pricing system, there are other more practical steps we can take in changing the way fuel is priced.

As Rwanda is landlocked our fuel is naturally more expensive than coastal countries. If you drive from Mombasa you see fuel increasing in price until you get to Rwanda.

The distance is not the only determining factor in our pricing system, there are other more practical steps we can take in changing the way fuel is priced.

Fuel prices are set monthly at a meeting of representatives of petroleum distributors and Minicom (ministry of commerce) officials.

They decide what the monthly rate is going to be, this can never respond fully to fluctuations in supply and demand. There are 18 distributors but still no true competition as it acts like a cartel.

The negative side of price liberalisation is what we often see in Uganda , where fuel prices can jump suddenly tenfold in an engineered shortage to fleece customers.

The government of Rwanda holds 80% of fuel reserves, this means supply is guaranteed even though fuel rationing can be used. This means 18 companies battle for 20% of the limited storage space there is.

It will take years to build storage facilities but we can help in another way. Fuel is not taxed at the border, as they don’t have the technology to weigh and measure loads there.

Fuel has to go via a depot where it is taxed, if only we could allow distributors to pay at the border and drive directly to unload the fuel at a petrol station. 

Another issue in taxation, VAT is taxed twice on fuel. Once at the depot, then again at the pump. This means that up to 40% is tax, but this 40% makes its way into all our prices, driving inflation. The petroleum dealers are making profits but on small margins, then they pass any costs to the customer.

We have East African Community harmonisation on fuel tax but we also allow governments to levy environmental taxes, thus negating any harmonisation.

We will have to liberalise to allow regional logistic and transport integration. The biggest factor in transport is fuel, so we cannot avoid it as a matter of course.

Competition in the energy market is crucial, the wholesale market is very competitive as suppliers battle for volumes.

However, at the pump there is no competition in fuel retail. Petrol stations have varying costs, volumes, liabilities and margins and yet they all sell at the same price. A station trying to sell lower than the agreed price is not allowed to do so, even if volumes allow for cheaper pricing.

We cannot have arbitrary pricing like Uganda , but we should have a price range of 10% limit in increment. This should allow Gas stations to subsidise their fuel to attract customers to other services like shops, engine servicing, restaurants.

Service stations need additional revenue streams apart from fuel, but fuel needs to be competitive to begin with.

A 20Rwf difference per litre can save thousands for a customer, we need fairer and more responsive pricing.  

Ends

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