Susuviri
JF-Expert Member
- Oct 6, 2007
- 3,713
- 888
DISCLAIMER: I am not and never have been an employee or beneficiary of any Oil Marketing company or dealer. What has pushed me to do this calculation is in trying to find the truth and in finding it more clearly in facts and figures. I am looking forward a clean debate free of political rhetoric.
After reading and hearing a lot of rhetoric about the fuel crisis in Dar I have decided to take a closer look at the pricing mechanism and formula and have reached the following conclusion based on my calculations (all data from www.ewura.go.tz ):
Since January 2009, EWURA has been publishing 2 prices, indicative and cap, for petrol, diesel and kerosene. The cap price was set at 7.5% higher than the indicative price for each fuel type. Thus, in the case of petrol, the indicative and cap prices for Dar had been:
Furthermore, the then used formula to calculate indicative prices (i.e. old formula) included TZS 101.11/liter and TZS 53.49/liter (TZS 154.6/liter combined) fixed amounts, defined as overheads and margins for wholesalers and retailers.
The old formula meant that wholesalers and retailers room to meet indirect costs and earn profits was kept within a minimum/maximum range of the fixed amount in the formula plus the difference between indicative and cap prices. Thus, in the case of petrol:
On the 3rd of August 2011, the formula changed; a single cap price was announced, thus the earlier logic of indicative and cap prices was discarded. In the new formula the 7.5% margin, instead of being applied to the retail price, was applied to the fix portion of the wholesalers and dealers overheads and margins. Thus, these fixed amounts were increased to TZS 108.69/liter (wholesale) and TZS 57.50/liter (retail) or TZS 166.19 (combined); exactly 7.50% higher than they had been earlier.
This means that the room wholesalers and retailers had to meet overheads and earn profits was curtailed significantly.
For example, the new maximum (TZS 166.19) is 46% lower than the maximum had been on 1st, July 2011 (TZS 308.60) and 33% lower than it had been on 27th, January 2009 (TZS 248.60).
Had the August 3rd, 2011 petrol price been calculated based on the old formula, indicative and cap prices would have been TZS 1,992.20/liter and TZS 2,141.62/liter respectively; thus the minimum/ maximum range would have been between TZS 154.6/liter and TZS 304.02/liter.
Instead wholesalers and retailers had to be content with a maximum of TZS 166.19/liter; thus 45% less. No wonder they are up-in-arms.
This also means that of the TZS 202.21/liter (9.2%) petrol price decrease relative to the 1[SUP]st[/SUP] July 2011 cap price, TZS 137.83 (or 68% of the total, thus the brunt of it) had been achieved at the expense of wholesalers and retailers.
My opinion:
The fuel crisis happened because the Ministry (of Energy and Minerals) and EWURA changed the rule of the game in a fundamental way from one month to the next. Private enterprise enters a business with expectations as to the potential on the market to meet costs plus earn profits. When that potential is cut from one month to the next, by government decree, by 45% in terms of meeting indirect costs and earning profits; it is not reasonable.
Admittedly, given how crude prices have shot up since January 2009, it could be argued that the 7.5% indicative to cap price margin is too high and should be lowered. But going from a 7.5% to a 0.6% margin as had been the case here is, yet again, unreasonable.
Also, the manner in which EWURA tried to change the rule of the game, by reinterpreting the 7.5% margin to apply to wholesalers and dealers fixed margins instead of the wholesale and retail price, is not only unreasonable; it is outright deceitful. Furthermore, EWURA, as an independent agency, failed in its mandate to keep undue political pressure and meddling from affecting the proper functioning of the market.
I welcome your comments and opinions...
After reading and hearing a lot of rhetoric about the fuel crisis in Dar I have decided to take a closer look at the pricing mechanism and formula and have reached the following conclusion based on my calculations (all data from www.ewura.go.tz ):
Since January 2009, EWURA has been publishing 2 prices, indicative and cap, for petrol, diesel and kerosene. The cap price was set at 7.5% higher than the indicative price for each fuel type. Thus, in the case of petrol, the indicative and cap prices for Dar had been:
TZS/Ltr | Indicative | Cap | Price Diff. | % Diff. |
27-Jan-09 | 1,250 | 1,344 | 94 | 7.5% |
22-Jul-09 | 1,421 | 1,528 | 107 | 7.5% |
06-Jan-10 | 1,426 | 1,533 | 107 | 7.5% |
07-Jul-10 | 1,563 | 1,681 | 118 | 7.5% |
05-Jan-11 | 1,722 | 1,852 | 130 | 7.5% |
01-Jul-11 | 2,052 | 2,206 | 154 | 7.5% |
Furthermore, the then used formula to calculate indicative prices (i.e. old formula) included TZS 101.11/liter and TZS 53.49/liter (TZS 154.6/liter combined) fixed amounts, defined as overheads and margins for wholesalers and retailers.
The old formula meant that wholesalers and retailers room to meet indirect costs and earn profits was kept within a minimum/maximum range of the fixed amount in the formula plus the difference between indicative and cap prices. Thus, in the case of petrol:
Margin Range | ||
TZS/Ltr | Min. | Max. |
27/Jan/09 | 154.60 | 248.60 |
22/Jul/09 | 154.60 | 261.60 |
06/Jan/10 | 154.60 | 261.60 |
07/Jul/10 | 154.60 | 272.60 |
05/Jan/11 | 154.60 | 284.60 |
01/Jul/11 | 154.60 | 308.60 |
On the 3rd of August 2011, the formula changed; a single cap price was announced, thus the earlier logic of indicative and cap prices was discarded. In the new formula the 7.5% margin, instead of being applied to the retail price, was applied to the fix portion of the wholesalers and dealers overheads and margins. Thus, these fixed amounts were increased to TZS 108.69/liter (wholesale) and TZS 57.50/liter (retail) or TZS 166.19 (combined); exactly 7.50% higher than they had been earlier.
This means that the room wholesalers and retailers had to meet overheads and earn profits was curtailed significantly.
For example, the new maximum (TZS 166.19) is 46% lower than the maximum had been on 1st, July 2011 (TZS 308.60) and 33% lower than it had been on 27th, January 2009 (TZS 248.60).
Had the August 3rd, 2011 petrol price been calculated based on the old formula, indicative and cap prices would have been TZS 1,992.20/liter and TZS 2,141.62/liter respectively; thus the minimum/ maximum range would have been between TZS 154.6/liter and TZS 304.02/liter.
Instead wholesalers and retailers had to be content with a maximum of TZS 166.19/liter; thus 45% less. No wonder they are up-in-arms.
This also means that of the TZS 202.21/liter (9.2%) petrol price decrease relative to the 1[SUP]st[/SUP] July 2011 cap price, TZS 137.83 (or 68% of the total, thus the brunt of it) had been achieved at the expense of wholesalers and retailers.
My opinion:
The fuel crisis happened because the Ministry (of Energy and Minerals) and EWURA changed the rule of the game in a fundamental way from one month to the next. Private enterprise enters a business with expectations as to the potential on the market to meet costs plus earn profits. When that potential is cut from one month to the next, by government decree, by 45% in terms of meeting indirect costs and earning profits; it is not reasonable.
Admittedly, given how crude prices have shot up since January 2009, it could be argued that the 7.5% indicative to cap price margin is too high and should be lowered. But going from a 7.5% to a 0.6% margin as had been the case here is, yet again, unreasonable.
Also, the manner in which EWURA tried to change the rule of the game, by reinterpreting the 7.5% margin to apply to wholesalers and dealers fixed margins instead of the wholesale and retail price, is not only unreasonable; it is outright deceitful. Furthermore, EWURA, as an independent agency, failed in its mandate to keep undue political pressure and meddling from affecting the proper functioning of the market.
I welcome your comments and opinions...