Fuel Price Hike – What Ramifications?

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By Wezi Tjaronda WINDHOEK Although increases in fuel prices today should not lead to an increase in commodity prices, the increases of last year have resulted in high inflation. The prices of unleaded petrol, lead replacement petrol and diesel today have gone up with eight cents per litre and 16 cents per litre respectively. This is the fifth time since March last year that fuel prices have been hiked. Bank of Namibia’s Quarterly Bulletin, released in December 2005 stated that various sectors such as manufacturing had recorded negative growths, which are mainly attributed to fuel costs. The value addition in fish processing, for instance, was low due to low fish landings and high cost of inputs caused by, amongst others, high fuel prices. It noted that although inflation in Namibia has been generally low in 2005 relative to 2004, a build up in inflationary pressure was observed during the third quarter of 2005. During the third quarter, inflation rose to 2.3 percent from 1.3 percent in the second quarter, though still lower than 4.0 percent recorded during the corresponding quarter of the previous year. Economist Rainer Ritter said yesterday the world has seen increases in prices of platinum, gold and uranium oxide due to high fuel prices, but the local fuel increase was minimal, which would not have a big effect on commodity prices. He said that in normal cases, fuel hikes are used as an excuse for raises in commodity prices. The rise in fuel prices in September last year saw the fares of buses and taxis increasing. Taxi clients, since that time, pay 50 cents more than they used to pay before the rise was affected. Although the Ministry of Mines and Energy normally raises petrol and diesel prices due to increases in oil prices on the world market, today’s increase has been effected due to the cumulative slate under recovery on the local market. Meanwhile, the Namibia Oil Industry Association has allayed fears of any more fuel shortages as happened in November and December last year. The country faced fuel supply disruptions last year due to scheduled statutory shutdowns by most South African oil refineries, which the association said took longer than anticipated. The shutdowns were in preparation for the change over from leaded to unleaded petroleum products. Yesterday, the spokesperson of the association said last year’s disruptions could not occur unless it was an act that affects all refineries simultaneously. At the moment, the country has enough reserves in stock of about 40 million litres. The most recent shipment of fuel was last Sunday when some 25 million litres of fuel docked at Walvis Bay harbour. “At the moment, we are out of the worst situation,” said Harald Schmidt, adding that the association was not aware of any factors that could create discrepancies again. The industry is also looking forward to flushing out leaded petrol as of end of June when motorists will now have to choose between Unleaded 95 and Lead Replacement Petrol (LRP 93). While leaded petrol will not be sold in Namibia any more, Schmidt also said the same was going to happen to diesel. In this regard, the industry is now getting in a more refined diesel that contains less sulphur. By June end, 3000-PPM sulphur fuel will be replaced by 500 PPN fuel, which has a smaller concentration than the one being used at the moment. “By June end, our diesel tanks will have high quality diesel (0.05 percent sulphur) as compared to the current one which contains 0.3 percent sulphur,” said Schmidt.