What new Sh100 billion fuel subsidy means to Tanzania

Dar es Salaam. Retail fuel prices could drop by around Sh300 per litre from next month after the government announced a Sh100 billion subsidy yesterday.

Petrol, diesel and kerosene prices soared to record highs of above Sh3,000 per litre earlier this month after global oil prices shot up following sanctions imposed on Russia – a major producer – for its invasion of Ukraine.

Also Read: Tanzania government announces Sh100 billion fuel subsidy

As part of efforts to reduce the cost of living, Energy minister January Makamba yesterday announced the Sh100 billion relief package aimed at pushing down prices from June, with further fiscal and long-term measures expected when the government tables its 2022/23 Budget.

“The ministry will raise the sum by cuttings costs under the current budget without affecting any of the ongoing development projects,” Mr Makamba told Parliament.

Some 3.8 billion litres of petrol, diesel and kerosene were consumed in Tanzania in 2021, according to the Energy and Water Utilities Regulatory Authority (Ewura).

Going by that figure, the monthly consumption is estimated at 317 million litres, with while daily consumption stands at about 10.5 million litres.

If the relief package will be equally applied to the three petroleum products, prices may fall by about Sh315 per litre from the anticipated July levels, according calculations done by The Citizen.

More measures

Mr Makamba said the government could not further reduce levies and charges paid to government institutions as the move would not have a significant impact on fuel prices. Last year, the government removed Sh38 in levies charged on every litre.

Mr Makamba said the government was instead seeking soft loans from the International Monetary Fund (IMF) and the World Bank to create a relief in prices of fuel and other essential commodities.

“We are in the process of securing a loan that will relieve consumers of the burden of high fuel prices in the next financial year,” he said.

Other measures in pipeline include allowing individual companies to import fuel at lower prices.

Currently, all fuels used in Tanzania is imported through the Bulk Procurement System in which a single company is awarded a tender.

Other measures include the establishment of a stabilisation fund that will help to stabilise fuel prices during crises; establishment of a national strategic petroleum reserve; setting up of a petroleum hub for supplying fuel locally and to neighbouring countries, and establishment of a single receiving terminal that will cut demurrage (ship waiting) charges.

Mr Makamba added that the government was working to enable Tanzania Petroleum Development Corporation (TPDC) to resume fuel importation.

Mixed reception

The opposition ACT-Wazalendo – which has been campaigning for the removal of Sh500 in levies and charges from every litre of fuel – commended the government, but said more needs to be done.

The party’s spokesperson for energy, Mr Isihaka Mchinjita, said in a statement the government should take further measures to push down fuel prices.

“This measure will probably reduce fuel prices by between Sh250 and Sh320 per litre, but we think that fiscal measures such as removing taxes and charges also need to be taken,” he said.

Mr Mchinjita added that the subsidy should start immediately instead of waiting until next month.

He said the importance of having a strategic fuel reserve cannot be overstated, adding that TPDC should have begun importing fuel last year.

Tanzania Association of Oil Marketing Companies (Taomac) executive director Raphael Mgaya said the government’s move would go a long way in stabilising fuel prices. “We commend the government for this bold step, and we believe the subsidy will significantly reduce the prices,” he said.

Oil accounted for 20.9 percent of goods and services worth $11.74 billion Tanzania imported in 2021, according to the Bank of Tanzania.