East Africans face harsh reality after Opec+ cuts oil production

Dar es Salaam. Residents and businesses across the East African region are grappling with the harsh reality of skyrocketing fuel prices as regulators revise the rates upward in response to the global situation.

Late on Tuesday, Tanzania’s energy regulator revised prices for petrol, diesel, and kerosene upwards, raising a litre of diesel by Sh324 while that of petrol and kerosene rose by Sh14 and Sh275, respectively.

Under the newly announced prices, Dar es Salaam motorists will now pay Sh3,213 for a litre of petrol, while a litre of diesel will cost Sh3,259.

“Changes in prices of petroleum products in September 2023 are mainly due to the increase in world market prices by up to 21 percent, an increase in premiums for the importation of petroleum products by up to 62 percent, and geopolitics in major oil producing countries (OPEC+),” Ewura said on Tuesday.

And, in what looks like a challenge that could be there for some time, fuel rose further in the global market yesterday after key OPEC+ producers Russia and Saudi Arabia extended supply cuts to the end of the year in efforts to boost their revenues.

Brent North Sea crude had struck $90 per barrel Tuesday for the first time this year after Moscow said it would extend oil export cuts of 300,000 barrels per day and Riyadh added it would maintain its production cut of one million barrels per day (bpd), the AFP reported yesterday.

“OPEC+ is… triggering fresh and increasing concerns about rising global inflation — which was just beginning to ease — meaning central banks could possibly push higher-for-longer interest rates,” added Nigel Green, head of financial advisory firm deVere Group, as quoted by AFP.

“Restricted oil supply leads to higher oil prices, which, in turn, can contribute to higher fuel prices for consumers and businesses, putting upward pressure on overall inflation.” He said.

Across Tanzania and East Africa in general, over the past few months, the cost of fuel has surged to unprecedented levels, casting a dark shadow over the economies of the countries in question and raising concerns about the overall cost of living.

In Kenya, however, a litre of petrol costs Sh3,251 (Ksh 194.68) in Nairobi, while diesel costs Sh3,000 (Ksh 179.67). In Mombasa, motorists pay Sh3,200 (Sh191.62) for a litre of gasoline and Sh2,949 (Sh176.63) for diesel. The prices remain in force until September 14, 2023.

“The thing is, the government introduced Value Added Tax (VAT) on Super Petrol, Diesel, and Kerosene effective July 1, 2023. This made the prices go up almost double to what we were paying two years ago,” noted Mary Mbugua, a businesswoman in Kenya.

Kenya added 8 percent to 16 percent pursuant to the Finance Act, 2023, on Super Petrol, Diesel, and Kerosene, effective July 1, 2023.

But this was after the High Court, on June 30, suspended the Finance Act 2023, which houses the doubling of VAT on fuel. Kenya’s Energy and Petroleum Regulatory Authority (EPRA), however, proceeded to effect the increment.

In Uganda, pump prices read Sh3,162 (Ush 5100) for a litre of petrol and diesel at about Sh2,976 (Ush 4,800), according to Uganda’s Ministry of Energy and Mineral Development.

But surveys in the streets show a litre of petrol is trading between Sh3,162 (Ush 5100) and Sh3,366 (Ush 5,430) shillings per litre, while diesel, which had reached Sh2,852 (Ush 4600) at some stations, is now between Sh2,976 (Ush 4,800) and Sh3,224 (Ush 5200).

Uganda’s speaker, Anita Among, asked the government to outline its actions to counteract the recent spike in fuel prices that has shaken the nation.

“In the last few weeks, we have witnessed a spike in the pump price of fuel; this poses a risk of cost-push inflation, which will inevitably erode the disposable income of the population,” she said in her communication at the start of the House’s Tuesday plenary session.

Adding that, “The fuel prices have gone up; what is the government’s immediate, medium-, and long-term plan to address the escalating prices?”

She said that the reserves will also help cushion the country from imminent erratic fuel shortages.

‘’The fuel reserves in Jinja alone are not sufficient; we require regional fuel reserves given the ever-rising demand for fuel. I urge the executive to urgently address the situation and update the House on the action taken,” she added.

The Speaker was responding to a statement by the Minister of State for Energy, Mr Sidronius Okaasai, to the House on the unmitigated spike in fuel prices.

The surge, according to Minister Okaasai’s remark, is the result of external global causes, and there is little that his ministry can do about it.

Across the region in Zambia, Lusaka’s motorists also feel the pinch at the pump as petrol prices surge by an average of Sh327.25 (3 Kwacha and 85 Ngwee) per litre since September 1.

This substantial increase means that a litre of petrol, which previously cost Sh2,938 (25 Kwacha 55 Ngwee), now sets consumers back Sh3,383 (29 Kwacha 42 Ngwee).

In Rwanda, the retail price for premium motor spirit stands at Sh3,278 (Rwf 1,639) per litre, an increase of Sh244 (Rwf 122) from previous prices set in June.

The Rwanda Utilities Regulatory Authority, however, maintained the maximum retail price for diesel (automotive gas oil) at Sh2,984 (Rwf 1,492).

The exchange rates detailed here are in line with those published by the Bank of Tanzania. However, calculating the same using rates from the bureau de change would show a different picture.

“We have been experiencing an upsurge in fuel prices to the point that it has become no news. People, businesses, and associations alike complained; they are used to it now; the government said it was the result of external global causes,” said Darlington Mwendabai, a psychologist in Zambia.

Fuel prices in our region have reached historic highs, leaving motorists, businesses, and commuters in financial turmoil.

The price of gasoline and diesel has seen an alarming increase, putting pressure on household budgets and operating costs for businesses.

Authorities note that the surge in fuel prices can be attributed to a combination of global factors, including a rise in global crude oil prices due to supply disruptions, geopolitical tensions, and increased demand as economies recover from the pandemic.

One of the most immediate and visible impacts of rising fuel prices is felt in the transportation sector. Commuters are feeling the pinch as public transportation fares rise in response to increased operating costs.

For those who rely on personal vehicles, the cost of fuel is becoming a significant portion of their monthly expenses.

“The situation is very hard on our side,” commented Priscus Joseph, secretary general of the Tanzania Bus Owners Association (Taboa).

“Since the fuel price hike, we are experiencing over 10 million losses per month. This is not a profitable way to run a business. The government should reintroduce fuel subsidies and reduce taxes on gas and gas tanks; right now, switching to gas is still expensive,” added Mr. Joseph.

Local businesses, particularly those involved in transportation and logistics, are grappling with soaring fuel costs.

Many are faced with tough decisions, including whether to absorb the additional expenses or pass them on to consumers in the form of higher prices for goods and services. Either way, these businesses are caught in a challenging predicament.

Facing these formidable challenges, individuals and businesses alike are seeking ways to mitigate the impact of rising fuel prices. Some are exploring alternative transportation methods, such as carpooling, cycling, or using public transportation. Businesses are implementing energy-efficient practices and considering price adjustments cautiously.

“All we want are lower gasoline and diesel prices. Authorities have made a lot of promises for months now. We need them to start acting on those promises, whether it is to bring back the duel pimp subsidy or stabilisation fund, whatever they call it, or to actually work on the Kenya refinery limited tanks. For as long as prices go down, we are good,” noted Ms Mbugua.

The rise in fuel prices has broader economic implications. It contributes to inflationary pressures by making it more expensive for businesses to operate and reducing consumers’ purchasing power. As a result, economic growth may be stifled, and the overall health of the regional economy may be compromised.

Addressing the issue of high fuel prices in East Africa requires a multi-faceted approach involving government policies, consumer choices, and innovative technologies.

As citizens and leaders unite to explore these diverse solutions, the hope remains that relief will soon be felt at the pumps, easing the financial strain on households and driving sustainable economic growth in the region.