The Mozambican government’s current fuel subsidy policy is costing “between 300,000 and 500,000 US dollars a day”, according to a source in the Mozambican Association of Fuel Companies (AMEPETROL).

“Has anyone ever thought what the result would be if all these subsidies were invested in health, education and other priority areas?,” the source asked when speaking to AIM about the letter which AMEPETROL sent to Prime Minister Carlos Agostinho do Rosario last week calling for an end to the subsidy system.

Currently, the government fixes fuel prices, at a level lower than the world market price of petrol or diesel. The government is supposed to pay the difference to the fuel distribution companies but it does not pay the subsidy promptly, and AMEPETROL says the government currently owes the companies around 70 million USD. That sum is rising by between seven and ten million USD a month.

AMEPETROL suggests returning to the old system of monthly reviews of fuel prices, based on the world market price of refined fuels and the exchange rate of the Mozambican currency, the metical, against the US dollar.

Under that system, jettisoned several years ago, any variation in market prices or the exchange rate in excess of three per cent, in either direction, would automatically trigger adjustment of the prices paid by the public.

Fuel is cheaper in Mozambique than in all its neighbouring countries. A litre of petrol at a Mozambican filling station costs 50.02 meticais (about 74 US cents). AMEPETROL says in South Africa, the price is the equivalent of 73.6 meticais, in Tanzania 61.45 meticais, in Malawi 80.03 meticais, in Zambia 90.04 meticais, and in Zimbabwe 97.9 meticais.

This is a powerful incentive for motorists in neighbouring countries to drive over the border and fill their tanks in Mozambique. The situation is particularly blatant in Manica province, where tanker trucks from Zimbabwe buy fuel and then export it illegally to resell it, at much higher prices, in Zimbabwe.

The source noted that, even if the government were to increase the petrol price by 20 per cent, raising it to 60 meticais a litre, it would still be the cheapest petrol in the southern African region.