Comptroller of Statutory Corporations, Secretary to the Treasury removed from MERA Board

* As President appoints Reckford Kampanje as chairperson and Innocencia Chirombo as the deputy

* Ordinary members are Lameck Nchembe, Charles Kambauwa and Ulemu Kambwiri

* Ex-officios are Secretary for Energy, Director of Energy and MERA chief executive officer

* The appoints are subject to confirmation by the Public Appointments Committee of Parliament

By Duncan Mlanjira

President Lazarus Chakwera has reconstituted the composition of Malawi Energy Regulatory (MERA) Board by removing Comptroller of Statutory Corporations and Secretary to the Treasury as ex-officio directors.

Under Section 5 (1) of the Energy Regulation Act, the President has appointed Reckford Kampanje as chairperson and Innocencia Chirombo as the deputy with Lameck Nchembe, Charles Kambauwa and Ulemu Kambwiri as ordinary members while ex-officios are Secretary for Energy, Director of Energy and MERA chief executive officer (CEO).

The appoints are subject to confirmation by the Public Appointments Committee of Parliament, which also authorized the firing of the past board that was led by Times Group Managing Director, Leonnard Chikadya.

That Board also comprised Thokozani Chimkono, Pemphero Likongwe, Lameck Ntchembe and Alexandr Kalanda with ex-officios as Secretary for Energy, Director of Energy Affairs, Comptroller of Statutory Corporations, Secretary to the Treasury and MERA’s CEO.

This Board was fired following an inquiry made on February 18 by Parliamentary Public Appointments Committee to Government as regards to the “poor handling of recruitment” of MERA CEO, Henry Kachaje.

A letter from Secretary to the President and Cabinet, Zanga-Zanga Chikhosi — dated February 18, 2022 — had said the MERA Board was being “removed from office on the grounds of incompetence”.

Prior to this decision, civil society organisations had questioned the presence of government officials in the parastatal boards such as that of the Secretary to the President & Cabinet (SPC) as chairperson of various Boards of public enterprises including NOCMA, EGENCO, and Power Marketing Limited is a serious governance anomaly.

The MERA Board plays a crucial role in determining fuel prices in the country under the recommendation of MERA’s Liquid Fuels & Gas Pricing Advisory Committee after evaluating trends on the Automatic Pricing Mechanism.

The Committee meets every first Tuesday of the month to review the Automatic Pricing Mechanism before submitting its recommendations to the MERA Board and within 48 hours, the Board is supposed to make a resolution on the Committee’s recommendations, as provided in the Liquid Fuels and Gas (production and supply) Regulations, 2009.

The Law provides for a Price Stabilisation Fund (PSF) at 5% of in-bond landed cost (IBLC) in which prices are reviewed upwards if the change in IBLC is above 5% and downwards if it is below 5%.

Then when the change is below 5%, the difference is channeled into the Price Stabilisation Fund to cushion fuel prices should there be an increase within the -5% benchmark.

A fortnight ago, Consumer Association of Malawi (CAMA) criticized government for holding fuel price increase despite the law or regulations demanding MERA should adjust prices once they are above or below 5% threshold.

In a press statement issued on March 10, CAMA said prices of fuel in Malawi had been going up since last December and MERA decided to holding increases “for reasons better known by themselves despite the law or regulations demanding MERA to adjust prices of fuel once they are above or below 5% threshold”.

“The failure to adjust prices of fuel has resulted in the depletion of the Price Stabilization Fund (PSF) resulting in huge losses by the oil marketers,” said the statement signed by CAMA Executive Director John Kapito.

“Both diesel and petrol prices have gone up by an average of 25% which is huge to be effected at once. This will be one of the biggest increases that will hurt consumers who are already experiencing serious economic challenges and high cost of living.”

Kapito contended that the only reason MERA and Government were reluctant to increase prices of fuel was based on political persuasion rather than economical and the “implications of such poor judgement is retrogressive to both the economy and the consumer”.

CAMA also advised Government to remove some levies on the price buildup such as Road, Malawi Rural Electrification (MAREP) and Malawi Bureau of Standards (MBS) CESS, saying “Malawians cannot afford a negative Price Stabilization Fund [as] holding prices of fuel will hurt consumers more that implementing them”.

CAMA maintained that the removal of some of the levies that are attached on fuel would help reduce pump prices. In the same week, CAMA issued a statement advising Clerk of Parliament to consider reviewing the many levies that are added on the fuel prices — that if removed could led the price of petrol at K950.00 per litre and diesel at K931.00 per litre.

The current prices set last October are at K1,150/ltr from K899.20, diesel at K1,120/ltr from K899.00 and paraffin at K833.20/ltr from K719.60.

Kapito argued that the Road Levy was introduced some years back to assist in the construction and rehabilitation of our roads and at a time when systems and mechanisms were not established within relevant institutions.

But now that there is a full Road Regulatory Authority — specific for road construction and rehabilitation — Kapito argued that the road levy tax should be transferred to this “appropriate authority bearing in mind that the Road Authority has just introduced the Toll Gate Tax whose purpose is similar to that of the Road Levy and it is unfair to punish Consumers with double taxation for the same type of service or product.”

The other levy targeted is for MAREP, which CAMA observed that it has been part of the Petroleum Price Build up for a long time, which was intended to develop rural electricity connection infrastructure with hope to improve rural electricity access — which should be transferred to electricity distribution or generation.

CAMA also targeted the MBS CESS is “another levy loaded on fuel prices and intended to provide quality assurance of our fuel” but yet “it is common sense that the quality of Petroleum Products can only be inspected and assured before shipment and, therefore, the role of the Malawi Bureau of Standards to inspect and assure quality of fuel into the country is [redundant]”.

Thus Kapito maintained that if these levies were removed then, the current prices of the petroleum products at the fuel pump would have  approximately been at K950.00/ltr for petrol and diesel at K931.00/ltr.

In January, before the MERA Board was removed, it was announced that key economic factors, mainly due to the exchange rate of the Malawi kwacha against the United States dollar — coupled with Price Stabilization Fund balances — was affecting landed costs of petroleum products that prompts MERA to adjust pump fuel prices from February.

MERA had said since the determination of the current prices in October 2021, the Malawi kwacha has slightly depreciated against the US dollar by 0.12% — from the average of K823.49/US$ to the current average of K824.38/US$.

On the other hand, the Free on Board (FOB) prices of petrol, diesel and paraffin have increased by 7.5% (petrol); 14.87% diesel and 15.99% paraffin.

MERA said the combined effect of the performance of the key determination may result in higher landed costs of petroleum products in the month of February 2022 since the landed costs of petrol, diesel and paraffin have increased by 6.04%, 13.35% and 13.91% respectively.

As of January 25, MERA said the Price Stabilization Fund balances for petrol, diesel and paraffin averaged K0.9 billion against the recommended minimum of K5 billion.

“Under the automatic Fuel Pricing Mechanism, pump prices qualify for an adjustment when the landed costs of petroleum products move beyond the +5% or -5% trigger limit.

“In the upcoming energy price reviews, MERA will consider the following: changes in landed costs; the Price Stabilization Fund; the need to enable importing companies to recover importation costs; and the goal of promoting consumers’ interests with respect to fuel prices and continuity of supply.”

The same month, MERA Chief Executive Officer, Henry Kachaje asked the Reserve Bank of Malawi (RBM) Governor to consider prioritizing forex allocation to licensed fuel importers following fuel shortages the country was facing due to reduced imports as local commercial banks have not been able establish adequate Letters of Credit for fuel imports.

Kachaje had warned that the “resultant effects of fuel shortages can lead to long lasting and detrimental to the economy”, adding that “some commercial banks are offering different denominations from the usual US dollars, albeit in small amounts, and the cross rate is resulting in high landed costs that would eventually push pump prices higher”.

Kachaje pleaded RBM that if it will prioritize the forex allocation to licensed fuel importers, it would help in “normalizing the fuel supply situation as currently, the limited fuel imports are being consumed directly, denying the sector possibility of building stocks to normalize the situation”.

Kachaje indicated the licensed importers that need RBM’s assistance to have their applications for Letters of Credits with various local commercial banks, which include National Oil Company of Malawi (NOCMA); Petroleum Importers Limited (PIL); Mount Meru Petroleum Limited and Energem Petroleum Limited.

Kachaje contended that the forex allocation for fuel imports to the above listed will go a long way in complementing NOCMA’s efforts of building fuel stocks internally as demand for volumes by the oil marketing companies from NOCMA will reduce.

The past weeks have seen the majority of fuel stations drying up and where the commodity was available accompanied long queues— as Kachaje indicated that “the limited fuel imports are being consumed directly”.