ministerial statement on the removal of the fuel subsidy

7/28/2019 Ministerial Statement on the Removal of the Fuel Subsidy

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REPUBLIC OF ZAMBIA

MINISTRY OF MINES, ENERGY AND WATER DEVELOPMENT

MINISTERIAL STATEMENT TO THE NATIONALASSEMBLY ON THE REMOVAL OF THE SUBSIDY ONFUEL

JULY 2OI3


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Mr. Speaker,I would like to take this opportunity to address this August Houseon the topical issue of the fuel subsidy that was recently rernovedby Government. From the onset, it is worth noting by the Housethat Government has not entirely removed all subsidies on fuel buthas in fact retained the subsidy relating to Uniform PetroleumPricing (UPP). I will speak about the UPP and its effects later inmy address. It is also worth noting that fuel subsidies wereintroduced by the MMD Government supposedly to cushion thepoor and vulnerable in society.However. current evidence suggests the haveowever, current evrdence suggests that the poor have notbenefited much from the subsidy which was targeted at reducingnational fuel pump prices. A subsidy, is ideally intended to be shortterm, meant to save a specific period and is not supposed to be inplace in perpetuity.

You may wish to note that the key direct consumers of fuel who arethe mining industries and urban dwellers that are able to ownvehicles have benefited the most from this measure. Currentstatistics indicate that more than 50o/o of the subsidized fuel is beingconsumed by Lusaka, Central and Copperbelt Provinces, mainly by

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the mines, when most of the intended beneficiaries, "the poor"live in rural areas.

The Uniform Petroleum Pricing Programme

Government has recognised the need to ensure that the poor in therural areas are not adversely affected by the removal of subsidies.Accordingly, Government has retained the subsidy on fuel thatallows the people in the rural areas to pay for the product at thesame price as that obtaining in the urban areas. You may wish tonote that previously, the further away one moved from the mainfuel distribution point in Ndola to other remote places, the moreexpensive Fuel became. However, through the targeted subsidymechanism under the Uniform Petroleum Pricing Programme, theprice of fuel in the country including rural areas remains the same.

Mr. Speaker,This August House may further wish to know that the Governmenthas been paying huge sums of money on subsidies and this amounthas been increasing on ayearly basis. -As a demonstration, let me

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give you some figures highlighting what has been paid over the lastfive vears:

FINANCIAL YEAR SUBSIDY SPENT IN KWACHAREBASED

2009 r79,0og,688.682010 90,000,000.002011 247,600,000.0020t2 754,000,000.002013 1,195,000,000.00

TOTAL 2 465 609 6gg.6g

The payment of the subsidy on fuel is not only a drain onGovernment resources, but diverts funds from key capital andsocial development projects such as education, health and roadinfrastructure, which have a direct benefit on the poor.

As a result of maintaining the subsidy, Government's capacity tocollect the Strategic Reserve Fund (SRF) was compromised. Thisresulted in the lack of progress in the construction of petroleum


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infrastructure. As Members of the House are aware, theGovernment has a Programme to construct provincial fuel storageDepots as well as rehabilitation of the National storage facilities inNdola and the Bitumen Unit at the INDENI Refinery.

Under the first phase of the programme, the Lusaka and Mpikastorage depots as well as the rehabilitation of the Ndola FuelTerminal are almost complete, whilst for the Solwezi project, thecontractor will soon mobilize to site. The contractor will alsomobilise to site in Mongu, during the year, once the 3 km accessroad has been worked on to allow heavy trucks carrying materialsto reach the site.

Under the second phase of the programme, fuel depots will beconstructed in the remaining provinces, namely Central, Eastern,Luapula, Northern and Southern Provinces. Construction of fueldepots will reduce reliance on the Ndola Fuel Terminal andimprove efficiency in the distribution of fuel. In the long run, theprogramme is expected to reduce logistical costs in the distributionof fuel and hence lead to lower fuel prices.


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Therefore, the removal of subsidy on fuel will ensure that theStrategic Reserves Fund has adequate resources to accelerate thecompletion of the petroleum infrastructure developmentprogramme.

Mr. Speaker,In order to cushion the level of increase in the fuel price after theremoval of the subsidy, the Government removed the 5Yo importduty that was charged on petroleum feedstock. In addition to theforegoing, the Government has commenced the process ofreflecting taxes on fuel in absolute values as opposed to the currentsystem where taxes are reflected in percentage terms. This is also away of mitigating the compounding effects of the increase in theprice of fuel. This measure however requires an amendment to thelaw and will therefore be presented to this August House forconsideration


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Mr. Speaker,Members of the House may further wish to know that Cabinet hassince decided that there will now be periodic fuel price reviews inline with economic fundamentals. Given the current economicconditions, the Patriotic Front Government is committed toimprove the welfare of the Zambian worker as well as the mostvulnerable and poor in our society. In order to achieve our desiredgoal, it is unavoidable for the Government to implement someausterity measures which in the beginning are very painful indeedbut in the long run will yield positive results for the good of thewhole country.

Mr. SpeakerLet us not forget the saying that the hour before dawn is thedarkest. I therefore implore all Zambians to be patient and supportthis measure which is aimed at contributing to accelerateddevelopment of our country as well as improving the welfare of ourpeople in a much more sustainable manner.

I thank vou.

ministerial statement on the removal of the fuel subsidy

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