By Salome Nghoshi
Fuel prices are among the most visible economic indicators affecting households and businesses.
Each month, Namibians wait for the announcement of fuel price adjustments, often wondering why prices rise or fall and what mechanisms determine the prices at the pumps.
In a small, fuel-importing economy like Namibia, domestic fuel prices are shaped not only by local policy decisions but also by developments in global energy markets.
Understanding how Namibia’s fuel pricing system works therefore requires looking beyond international oil prices to the regulatory framework that governs how those prices are transmitted into the domestic market.
Namibia is a net importer of refined petroleum products, meaning the country relies entirely on the international oil markets to meet domestic fuel demand.
In global energy markets, prices are influenced by supply and demand dynamics, geopolitical developments, production decisions by major oil producers, and fluctuations in global economic activity.
For fuel-importing countries, these forces ultimately determine the cost of bringing petroleum products into the domestic economy.
However, Namibia does not operate a fully liberalised fuel pricing system. Instead, the country applies a regulated pricing framework designed to promote price transparency, supply stability and consumer protection.
At the centre of Namibia’s pricing framework is the Basic Fuel Price (BFP). The BFP represents the cost of importing petroleum products from international markets to Namibia’s shores, Walvis Bay. It includes the international product price, freight charges, insurance, and other related logistics costs associated with bringing fuel to Namibia.
In other words, the BFP reflects what it would cost Namibia to import fuel under international oil market conditions. It is often referred to as an import parity price, because it represents the theoretical price that local fuel importers would pay if they sourced products from international oil markets. The BFP effectively links domestic fuel prices to international oil market developments.
Once the BFP is calculated, several domestic levies, taxes and margins are added to determine the final pump price. These include levies such as the fuel levy and the road fund levy, as well as margins for fuel wholesalers and retailers, and the cost of transporting fuel from coastal oil terminals to inland depots and areas across Namibia.
One of the key challenges in fuel pricing is that international oil prices are highly volatile. Global oil markets respond quickly to geopolitical tensions, changes in production levels, exchange rate movements and economic cycles.
If these fluctuations were passed directly to consumers, fuel prices could change dramatically from one month to the next, creating uncertainty for households and businesses. To manage these challenges, Namibia employs an important price-stabilisation mechanism known as the slate account.
The slate account records the difference between the actual cost of importing fuel and the regulated pump price at which fuel is sold locally.
When international fuel prices rise faster than the regulated price, oil marketing companies experience under-recoveries, meaning they import fuel at a higher cost than the price at which fuel is sold domestically.
Conversely, when international prices fall below the regulated pump price, over-recoveries occur, meaning fuel is sold domestically at a price higher than the actual import cost.
These differences are accumulated in what is known as the cumulative slate account, which tracks the total balance of over-recoveries and under-recoveries over time.
An important but often overlooked feature of Namibia’s fuel pricing system is that the slate account effectively operates as a risk-sharing mechanism across time.
Instead of transmitting international price shocks immediately to consumers, the slate account spreads the impact over several pricing cycles and allows under-recoveries and over-recoveries differences to accumulate temporarily and be corrected gradually during future price reviews.
From an economic perspective, this means the slate account acts as a shock-absorbing buffer within the fuel pricing system. It moderates the speed at which exogenous factors affect domestic consumers and businesses, helping to avoid sudden spikes or drops in fuel prices.
However, the mechanism has limits.If international oil prices remain elevated for an extended period, accumulated under-recoveries in the slate account must eventually be corrected through adjustments in the regulated pump price.
In this sense, the slate account does not eliminate Namibia’s exposure to global oil price cycles; rather, it delays and smooths the transmission of those shocks. Understanding this dynamic helps explain why fuel price changes in Namibia sometimes appear gradual even when international oil prices move sharply.
As Namibia’s economy continues to develop, understanding the mechanics of fuel pricing will remain important for both policymakers and the public. Fuel prices influence transportation costs, food prices, industrial activity and overall inflation. The pricing model therefore plays a critical role in balancing market realities with domestic economic stability.
*Salome Nghoshi is a Namibian petroleum economist specialising in fuel markets, pricing mechanisms, and downstream petroleum policy. She works in downstream petroleum directorate at the Ministry of Industries, Mines and Energy and focuses on fuel pricing, petroleum market regulation, and energy governance. She has specialised training in oil and gas industry fundamentals, oil price risk management and trading, and energy economics and policy.
The views expressed are the author’s own and do not necessarily reflect those of the Ministry of Industries, Mines and Energy.
