Impact of Fuel Price Control Policy in Mozambique from 2015 to 2019

Filipe António Mahaluça^*
*Correspondence: Filipe António Mahaluça, Higher Institute of Health Sciences (ISCISA) and Higher Institute of Accounting and Audit of Mozambi, Mozambique, Tel: +258-848407234, Email:

Keywords

Vulnerabilities • International market • Stable prices

Introduction

Since fuel prices significantly influence quality of life, decisionmakers in each state adopt policies aimed at controlling inflation, which may be liberalization (total or partial derivative prices), or price controls practiced in the market domestic market combined with the stabilization fund [1].

In the international market, the price of a barrel of oil is determined by several factors such as crude quality, refining, location, demand and supply conditions that often depend on facts, news and perspectives [2-4].

Looking at supply, it is said that there is a beneficial shock in it, if there is a surplus of oil, which causes a drop in the prices of the product and a consequent fall in the rate of inflation [5]. However, an adverse shock to supply arises from the scarcity of the product, conditioning the rise in international oil prices and ultimately the growth of inflation [5,6].

The evolution of the prices of oil products shows the upward trend and the volatility to which they are subject, as they respond to variations in world supply and demand [7]. In developed countries with low and stable inflation rates such as Canada and the United States, price liberalization appears to be more feasible [8].

However, the same may not be true in developing countries, as they tend to be more concerned with the impacts that variations in international demand and supply cause on domestic prices and, respectively, on inflation. It is in this sense that many of these countries end up opting for a policy to control the prices of derivatives [9,10].

Fluctuations in energy prices are caused by imbalances between supply and demand, which, among others, are due to wars, changes in political regimes, economic crises, and entry into force or breaches of trade agreements, unexpected weather events [11].

As can be seen in Figure 1, from 2015 to 2019 the average price of a barrel of oil was $ 62, with an average percentage rate of increase of around 80%. From 2015 to 2019, the barrel price growth rate was approximately 82%, which corresponds to an increase of $ 31 from the first to the last year.

From this time series, it can be noted that in 2018 there was an explosion in the price of Brent reaching about $80 which corresponds to an increase of 110%, when compared to 2015. However, in 2019 prices were revised downwards, with a trend of not much more than $60.

Mozambique, being a developing country, also opts for the price control policy. According to the study presented by Arndt et al. [12], in that same year, it was estimated that oil companies in Mozambique registered accumulated losses in the amount of $ 28 million, since, until September, losses were already around the margin of $ 13.4 million.

Therefore, the Government decided to increase prices gradually, in order to follow the trend in the international market, to avoid the collapse of national oil companies. This decision, in the authors' opinion, was correct and unavoidable as there were several disadvantages in maintaining fixed prices and fuel subsidies.

The same authors strongly recommended to the Ministry of Energy at the time and to the Council of Ministers that in their respective proposals and decision link the domestic prices of fuels to the prices of the International Market.

In turn, the Council of Ministers has systematically approved the readjustment of fuel prices, following the international trend of crude oil. In this path from 2015 to 2019, the WTI crude barrel price in the international market registered an average increase of $9, averaging between $52 and $61 per barrel unit.

The question that arises is, to what extent the Government, using the price control policy, managed to monitor the trends in the price of crude in the international market without, however, creating situations of high inflation in Mozambique or passing the burden on to the final consumer in the fuel sector.

Therefore, in this article, we seek to analyze the impact of the price control policy on fuels (gasoline, lighting oil, diesel and liquefied petroleum gases) in Mozambique from 2015 to 2019 in view of the increases in the price of crude oil in the international market.

Introduction

Since fuel prices significantly influence quality of life, decisionmakers in each state adopt policies aimed at controlling inflation, which may be liberalization (total or partial derivative prices), or price controls practiced in the market domestic market combined with the stabilization fund [1].

In the international market, the price of a barrel of oil is determined by several factors such as crude quality, refining, location, demand and supply conditions that often depend on facts, news and perspectives [2-4].

Looking at supply, it is said that there is a beneficial shock in it, if there is a surplus of oil, which causes a drop in the prices of the product and a consequent fall in the rate of inflation [5]. However, an adverse shock to supply arises from the scarcity of the product, conditioning the rise in international oil prices and ultimately the growth of inflation [5,6].

The evolution of the prices of oil products shows the upward trend and the volatility to which they are subject, as they respond to variations in world supply and demand [7]. In developed countries with low and stable inflation rates such as Canada and the United States, price liberalization appears to be more feasible [8].

However, the same may not be true in developing countries, as they tend to be more concerned with the impacts that variations in international demand and supply cause on domestic prices and, respectively, on inflation. It is in this sense that many of these countries end up opting for a policy to control the prices of derivatives [9,10].

Fluctuations in energy prices are caused by imbalances between supply and demand, which, among others, are due to wars, changes in political regimes, economic crises, and entry into force or breaches of trade agreements, unexpected weather events [11].

As can be seen in Figure 1, from 2015 to 2019 the average price of a barrel of oil was $ 62, with an average percentage rate of increase of around 80%. From 2015 to 2019, the barrel price growth rate was approximately 82%, which corresponds to an increase of $ 31 from the first to the last year.

From this time series, it can be noted that in 2018 there was an explosion in the price of Brent reaching about $80 which corresponds to an increase of 110%, when compared to 2015. However, in 2019 prices were revised downwards, with a trend of not much more than $60.

Mozambique, being a developing country, also opts for the price control policy. According to the study presented by Arndt et al. [12], in that same year, it was estimated that oil companies in Mozambique registered accumulated losses in the amount of $ 28 million, since, until September, losses were already around the margin of $ 13.4 million.

Therefore, the Government decided to increase prices gradually, in order to follow the trend in the international market, to avoid the collapse of national oil companies. This decision, in the authors' opinion, was correct and unavoidable as there were several disadvantages in maintaining fixed prices and fuel subsidies.

The same authors strongly recommended to the Ministry of Energy at the time and to the Council of Ministers that in their respective proposals and decision link the domestic prices of fuels to the prices of the International Market.

In turn, the Council of Ministers has systematically approved the readjustment of fuel prices, following the international trend of crude oil. In this path from 2015 to 2019, the WTI crude barrel price in the international market registered an average increase of $9, averaging between $52 and $61 per barrel unit.

The question that arises is, to what extent the Government, using the price control policy, managed to monitor the trends in the price of crude in the international market without, however, creating situations of high inflation in Mozambique or passing the burden on to the final consumer in the fuel sector.

Therefore, in this article, we seek to analyze the impact of the price control policy on fuels (gasoline, lighting oil, diesel and liquefied petroleum gases) in Mozambique from 2015 to 2019 in view of the increases in the price of crude oil in the international market.

Materials and Methods

This is a quantitative, descriptive and inductive study, with retrospective analysis of primary data existing at the Ministry of Mineral Resources and Energy from 2015 to 2019.

Population and sample

The universe set considered for this research comprises information on all fuel prices (Gasoline, Lighting Oil, Diesel and Liquefied Petroleum Gases) from January 2015 to December 2019, here considered finite.

Rate of change

To assess the difference between the prices from 2016 to 2019 taking into account the base year (year 2015), the relative price variation was determined by the following formula:

Data analysis

A seasonal analysis was performed using Figure and tables to understand the behavior of fuel prices. For verification of normality, the Kolmogorov-Smirnov (K-S) statistical tests were used. Levene's test was used to analyze the homogeneity of variances. For multiple comparisons of averages, Analysis of Variance (ANOVA) was used. When comparing two averages, supplementary tests of LSD (Least Significant Difference), HSD- Tuckey (Honnestly Significant Difference) or Scheffé were used. For all tests, a significance level of 5% was used, where any value of P-value less than 5% was considered significant. Data analysis was performed using the Statistical Package for the Social Sciences (SPSS) version 20.

Presentation of Results

Seasonal analysis of fuel prices

Domestic fuel prices in the last 4 years, in general, had a stationary trend, with a markedly more pronounced increase from October 2016. As shown in Figures 2-5, the price of fuels did not change in 2015.

In 2017, the prices of gasoline, lighting oil and diesel presented a wave-like behavior with an increasing trend. In the same year, the price of liquefied petroleum gases showed a varied behavior, having the lowest price in June and the highest in November and December in the five years under analysis (Figures 2-5).

In 2018, the prices of gasoline, lighting oil and diesel showed a slightly increasing trend, having reached the highest values in the five years under analysis. In the same year, the price of Liquefied Petroleum Gases showed a downward trend (Figure 5).

In 2019, fuel prices in general showed a stationary behavior, with a slightly decreasing trend, with the values not varying since August (Figure 5).

Price variation rate

As shown in Figure 6, based on the year 2015, the price of gasoline increased by 1.32% in 2016, 19.5% in 2017, 40.19% in 2018 and 41.5% in 2019. For lighting oil, in the year 2016 the price increase was 3.86%, 40.77% in 2017, 73.20% in 2018 and 71.53% in 2019. In 2016, the price of diesel increased by 6.13%, in 2017 by 40.65%, 69.57% in 2018 and 74.87% in 2019. In relation to liquefied petroleum gases, the price increase was 1.39% in 2016, 4.71% in 2017, 14.27% in 2018 and 12.93% in 2019.

In 2016, the average variation in fuel prices was 3.17%, with diesel (6.13%) and lighting oil (3.86%) registering higher rates. In 2017, the average variation in fuel prices was 26.41%, with lighting oil and diesel registering higher rates with 40.77% and 40.65% respectively. The average change in fuel prices in 2018 was 49.31%, with lighting oil and diesel registering higher rates with 73.20% and 69.57% respectively. In 2019, the fuel price registered an average variation of 50.21%, with diesel (74.87%) and lighting oil (71.53%) registering the highest rates this year (Figure 6).

The price of gasoline, from 2016 to 2017 increased by 18%, 17 % % from 2017 to 2018 and 1% from 2018 to 2019. The price of lighting oil increased by 36% from 2016 to 2017, 23% from 2017 to 2018 and a decrease of 1% from 2018 to 2019. The price of diesel increased by 33% from 2016 to 2017, 21% from 2017 to 2018 and 3% from 2018 to 2019. The price of liquefied petroleum gases, increased by 3% from 2016 for 2017, 9% from 2017 to 2018 and a decrease of 1% from 2018 to 2019 (Figure 7).

From 2015 to 2019, the price of fuels registered an average increase of 32.27%, with diesel 47.81% and lighting oil 47.34% presenting high average rates. Liquefied petroleum gases registered an increase of 8.32%, a much smaller value when compared to other types of fuels studied here (Figure 8).

Average fuel price comparison

As shown in Table 1, the price of gasoline increased slightly by 0.625 cents from 2015 to 2016. From 2016 to 2017 the increase was 8.64 meticais, 10.4717 meticais from 2017 to 2018 and 0.6266 cents from 2018 to 2019. The data show also that the largest monthly dispersion of gasoline prices was registered in the years 2017 (3.78352) and 2018 (2.72079). In general, the price of gasoline registered an absolute average increase of 19.7233 meticais from 2015 to 2019. In the five years under analysis the average price of gasoline was 57.2620 meticais.

In relation to lighting oil, from 2015 to 2016 the increase was only 1,105 meticals. From 2016 to 2017 the increase was 10.5725 meticais, 9.2867 meticais from 2017 to 2018 and a decrease of 0.4784 cents from 2018 to 2019. The data also show that the largest monthly dispersion of lighting oil prices was registered in the years 2017 (3,80631), 2016 (1.99902) and 2018 (1.81632). In general, the price of lighting oil registered an absolute average increase of 20.4858 meticais from 2015 to 2019. In the five years under analysis the average price of lighting oil was 39.4865 meticais (Table 1).

Table 1: Average fuel price comparison.

According to Table 1, the price of diesel increased slightly by 2,255 meticais from 2015 to 2016. From 2016 to 2017 the increase was 12,7092 meticais, 10,6458 meticais from 2017 to 2018 and 1,9492 metical from 2018 to 2019. The data also show that the largest monthly dispersion of diesel prices was recorded in the years 2016 (4,07945), 2017 (3,377297) and 2018 (3,18888). In general, the price of diesel increased by an absolute average of 27.5592 from 2015 to 2019 meticais. In the five years under analysis, the average price of diesel was 50.8877 meticais.

In relation to liquefied petroleum gases, from 2015 to 2016 the increase was only 0.77 cents. From 2016 to 2017 the increase was 1.84 meticals, 5,3025 meticais from 2017 to 2018 and a decrease of 0.7408 cents from 2018 to 2019. The data also show that the largest monthly dispersion of liquefied petroleum gas prices was registered in the year 2017 (8.31992). In general, the price of liquefied petroleum gases registered an absolute average increase of 7.1717 meticais from 2015 to 2019. In the five years under analysis the average price of liquefied petroleum gases was 59.1528 meticais (Table 1).

The data in Table 1 also show that the monthly prices of each type of fuel for the five years analyzed show a normal distribution of heterogeneous variances. Comparing the average values of the four types of fuels analyzed (Anova), it can be concluded for any level of significance that there is a significant difference in annual prices (Pvalue= 0.000).

Following an analysis of variance where it was concluded that there are significant differences between the average annual fuel prices, supplementary tests of LSD, HSD-Tuckey or Scheffé were carried out in order to identify which are the statistically different averages. Thus, these tests showed that there is no significant difference in prices for gasoline, lighting oil and diesel between the years 2015-2016 and 2018-2019. Regarding the average annual prices of liquefied petroleum gases, it is also concluded that there is no significant difference in the years 2015-2016.

Conclusion

The increase in the price of oil as an indisputable determinant in the economic literature is a consensual fact, therefore, this research did not seek to bring about this debate. From the literature review carried out, several policy options were presented in relation to the pricing of derivatives, aiming to contain the adverse effects that often arise with fluctuations in the price of crude in the international market. It was evident that for industrialized countries such as Canada and the United States of America, policies of full price liberalization are effective; however, for the vast majority of countries like Mozambique, the best ones are those for controlling the prices of oil products.

The price of a barrel of oil in the international market has shown to be increasing in the years 2015 to 2019, however, in the Mozambican domestic market the burden has not been passed on to the end customer. This is the impact of the fuel price control policy adopted by the Government, which means that the average cost of fuels in the domestic market, although increasing, its rate has been decreasing year after year.

The price of a barrel of oil in the international market has shown to be increasing in the years 2015 to 2019, however, in the Mozambican domestic market the burden has not been passed on to the end customer. This is the impact of the fuel price control policy adopted by the Government, which means that the average cost of fuels in the domestic market, although increasing, its rate has been decreasing year after year.

Conflict of Interests

The authors have not declared any conflict of interests.

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