ECONOMIST, Theo Klein has offered to explain why the fuel price will be going down this week. His explanation is as follows: Withstanding the global oil terrain experienced over the past few months, the Ministry of Mines and Energy (MME) incurred an over-recovery of 31 cents per litre on petrol and an under-recovery of 92 cents per litre on diesel. April’s under-recoveries amounted to N$51.5 million, which will be paid by the National Energy Fund (NEF). Due to decreased global refining capacity, diesel fuel was already in short supply globally before the war in Ukraine commenced. Coupled with the ongoing war, diesel prices remain at record levels.
MME had consultations with Ministry of Finance and other state institutions that derive revenue from levies and taxes imposed on petroleum product prices earlier this month. Cabinet has approved a reduction of levies imposed on fuel products by 50% for the next 3 months (May 2022 to July 2022).
The following levies were reduced:
- Road User Charge (from N$1.48 per litre to N$0.74 per litre).
- Fuel Levy (from N$0.90 per litre to N$0.45 per litre).
- NAMCOR Levy (from N$0.08 per litre to N$0.04 per litre).
- Motor Vehicle Accident Fund Levy (from N$0.50 per litre to N$0.37 per litre).
The above reductions amount to N$1.36 per litre in relief provided to consumers. Namibia consumes about 89 million litres of fuel per month. So, the above reductions in levies amount to about N$121 million in lost monthly levy revenue to government (N$363 million for the next 3 months).
MME has decided to allocate the over-recoveries on petrol, together with the levy relief, as follows: Allocate N$0.43 per litre towards the fuel equalization levy (from N$0.30 per litre to N$0.73 per litre) in order to financially strengthen the NEF’s capacity to absorb future under-recoveries. This increase will allocate about N$21.2 million to the NEF per month. Allocate N$1.20 per litre towards decreasing petrol prices.
MME has decided to allocate the under-recoveries on diesel, together with the levy relief, as follows: Allocate N$0.13 per litre towards increasing the fuel equalization levy (from N$0.34 per litre to N$0.47 per litre). This will provide the NEF with an additional N$28.1 million per month from the sale of diesel. Allocate N$0.30 towards decreasing diesel prices.
Petrol and diesel prices will therefore decrease to N$17.90 and N$19.93 respectively, effective 5 May. Pressure mounted on the Namibian government to provide relief to local consumers after South Africa reduced their levies/taxes on fuel prices by R1.60 per litre earlier this month. The South African levy/tax decrease will last for the next two months and is estimated to incur a revenue loss of about R6 billion for South Africa.
“We view the levy relief as a positive for households’ budgets that are under severe pressure from rising food prices, rising interest rates and elevated fuel prices. Although petrol prices have been lowered, they remain 36.1% higher than 12 months ago. The levy relief might free up additional funds that can be spent on alternative goods, which is also a positive for the economy as consumption is 70% of GDP,” economist, Theo Klein said last week.