Pain At the Pump: Why Fuel Stabilization Fund Is a Good Idea

By having this fund in place, the government will have the discretion of adjusting the fluctuation with monies in the kitty when the price is high and stop whenever the prices go low.
Contributor23 February 20223 min

As global fuel prices approach the $100-a-barrel mark for the first time since 2014, it is about time Tanzania considers fuel stabilization fund. It must be noted that one of the major causes for a hike in fuel prices in the international market was the COVID-19.

However, the threat of a Russian invasion of Ukraine is even making the situation worse. Russia is the world’s third-largest oil producer and according to reports the conflict in Ukraine (if it happens) may lead to a substantial decrease in the flow of Russian barrels to the market following the threat of sanctions from the European Union (EU), the United States and the United Kingdom.

Currently, the demand for oil is very huge than production growth as economies are slowly recovering from the effects of the COVID-19 pandemic, something which causes an increase in fuel prices in the international market. This trend highly affects fuel importers including Tanzania which means the pump prices of fuel are set to increase without a doubt.

Previous government interventions

It is worth noting that in Tanzania much has been done to rescue the situation in the past, including the government intervention through suspension of fuel prices on September 1, 2021. Authorities even formed a team to investigate the reasons behind the rise. The suspension slightly worked but it was not without pain to fuel business owners.

The other measure was when President Samia Suluhu Hassan, on October 5, 2021, directed waiver of Sh102 billion of levies and fees charged on petroleum products. The waiver cushioned the pain that final consumers have been experiencing for a litre of fuel on pump prices. According to reports, the waiver removed the 40 per cent burden that consumers were carrying.

Furthermore, the government through the Ministry of Energy in November 2021 announced it was going to do away with intermediaries in fuel importation by mandating the national oil company Tanzania Petroleum Development Corporation (TPDC) to import fuel directly from refineries from countries that produce crude oil.

Nevertheless, in December 2021 the government through the Ministry of Energy deferred collection of petroleum fees via the Petroleum (Imposition of Petroleum Fee) (Amendment) Regulation, GN No.789 of 2021 that was intended to abstain from the imposition of the said fees for three months up to March 2022.

The move was intended to stabilize fuel prices in the country. However, final consumers would still experience pain at the pump as fuel pump prices do not seem to go down soon.

In line with what has been done in the past, stakeholders have suggested, among others, having huge depots in order to have enough fuel reserve in the country. This might be a good idea in terms of mitigating fuel supply shock but not in terms of reducing fuel prices to the final consumers.

Why price stabilization fund?

This is the reason why some stakeholders have suggested having a price stabilization fund. Normally, this fund is designated specifically to neutralize global fuel prices. Generally, the fund is intended to smoothen fluctuations in retail prices. 

By having this fund in place, the government will have the discretion of adjusting the fluctuation with monies in the kitty when the price is high and stop whenever the prices go low.

These funds would basically be collected when prices are low and in the event of an increase in the price of oil in the world market, it would be used to cushion the final consumers against the burden. 

The advantage to these funds is that the government does not need to waive or scrap all its taxes, charges, fees and levies at the expense of failing the agencies which operate on the collections of those charges.

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