By: Nghiinomenwa Erastus
The latest update for fuel prices from the Ministry of Mines and Energy shows that the domestic fuel price is underpriced by around N$2,50 compared to international markets.
Next month, the ministry has to jerk up the current pump price to reflect the actual cost of fuel or subsidise it to keep it constant.
This is due to the turbulent and volatile movement in international crude prices experienced for the past two weeks.
The ministry officials updated The Villager this week on the impact of crude price volatilities and its effect on the pump price next month.
The ministry indicated that it has been monitoring oil prices in the international oil market. Based on the latest figures and calculations, the under-recoveries on petrol and diesel are somewhere above 250 cents per litre.
“It should, however, be noted that the current under-recovery figures may be higher or lower than 250 cents per litre depending on how the oil prices continue to evolve over the remaining days of March 2022,” updated the ministry.
Due to the volatility in international crude prices, affecting the prices of refined petroleum, the importers are importing at high prices compared to what the locals are buying the fuel- this is because locally, fuel prices are controlled and lag behind international prices.
Early this month, the ministry increased the pump price of both diesel and petrol by N$1,30 and N$1,20, respectively.
The ministry indicated that the National Energy Fund (NEF), funded through fuel levies, is expected to continue meeting its financial obligations to the oil importers to ensure the security of fuel supply to the country.
The Villager Business Desk asked the ministry if the energy fund will be able to stretch and cover the huge disparity in international and domestic prices to shield the consumers.
According to the ministry’s experts, the Fund usually covers the entirety of the under-recoveries recorded for any given month.
However, based on the magnitude of the under-recovery, the ministry will then decide to pass on a certain portion of the under-recovery.
Beyond the energy Fund, the energy regulator was asked if the country’s government has a strategy going forward to shield households and industries that are fuel-intensive from the current surge and crude prices volatility.
The ministry indicated that it is currently exploring several possible options involving the revision of levies and taxes imposed on the price of petroleum products.
“However, it must be noted that levies and taxes imposed on petroleum products also serve to fund other equally important activities such as the maintenance of roads via Road User Charges and the national budget via the fuel tax,” explained the ministry.
The energy team also confirmed that the discussions on this matter (exploring possible options) are already underway with all relevant stakeholders. The public will be informed of the outcomes in due course.
The ministry team has also highlighted that the oil price-driven inflation that the country is experiencing is not only a Namibian issue but is happening across the world.
According to the ministry, no country is spared, even in countries such as the USA, which has recently released oil from its strategic oil reserves and reached out to countries such as Venezuela and the Arabian oil-producing nations to try and increase global oil supply.
CAN THE OIL DISCOVERY HELP?
A joint venture consisting of Shell, Qatar Energy, and Namcor announced that they had discovered oil offshore.
Soon after that, another joint venture consisting of Total Energies, Qatar Energy, and Namcor announced that they had discovered oil.
This is after various attempts over the years to discover oil.
After the oil discovery announcements were made, several questions have been asked -on what will be the impact of the oil discovery on the economy?
The Minister of Mines and Energy, Tom Alweendo, provided clarity on the impact of oil discovery in the short term and medium-term this week.
He said, “while the discovery is good news for all of us, we need to understand that we will not have crude oil production tomorrow”.
Alweendo clarified that the nation needs to be aware that more analytical work needs to be done before constructing the platforms to extract the oil commences.
He said the country needs to exercise patience, “provided that our patients should not prevent us from doing what needs to be done in preparation for when the production commences”.
Furthermore, the public is interested in if discovering oil will lead to cheaper local fuel prices.
Alweendo explained that behind this question is the idea that if the country was to invest in an oil refinery, it should necessarily lead to cheaper local fuel prices.
This question becomes even more relevant now than before when globally, households and energy-intensive sectors grapple with the skyrocketing oil price.
At the beginning of this year, a barrel of crude oil cost US$78, and beginning of this week, it cost US$110 – an increase of 41 per cent.
The energy minister explained that the fact is that “discovery in itself will not necessarily lead to cheaper local fuel prices”.
Alweendo added that cheaper local fuel prices due to discovery would depend on several factors, such as the cost of extracting the crude oil and refining it.
Given that the discovery is offshore, it will be deepwater extraction in the Namibian case. He said that the extraction cost is likely to be much higher than in some other jurisdictions.
Dashing the hope of building a refinery further, Alweendo said the discovery is still not enough to build a refinery.
“This is, however, not a sufficient reason not to invest in a local refinery. It will all depend on the economics of such an investment, and an assessment of that will be made at an appropriate time,” said the energy minister.
According to the ministry assessments, oil extraction cost is the lowest in the Middle East.
Another question picked up by the energy ministry is the impact of the oil discovery on the socio-economic landscape.
According to Alweendo and the team, “the impact will be what we decide it to be”.
He said there are countries where the discovery of oil became a curse and countries where the discovery became a blessing.
“I would like to believe that we all want our discovery to be a blessing rather than a curse,” Alweendo said.
He explained further that for it to be a blessing, it all hinges on the country’s policy environment, especially the institutional and political aspects.
The energy minister added that it had been proven that countries with strong institutions, a stable political system, and an effective legal framework could manage their oil revenue, positively impacting the economy and their citizens’ benefit.