Economics and markets · Research article · Updated
Market or Politics? What Really Drives Fuel Prices in Mauritius
Petrol and diesel reached record highs in 2026. An audit of every pricing decision since 2011, forty years of oil shocks and a test of eight pricing rules show where politics enters, what it has cost, and how a better rule could shield households from the next spike.
Keywords: fuel pricing, price stabilisation fund, pricing rules, rules versus discretion, second-round effects, Mauritius · JEL: D72, E31, H23, Q41, Q48 · ORCID: 0009-0008-4607-7878
Summary
The question. Are Mauritian fuel prices set by the market or by politics, what have departures from the rules cost, and is there a better rule?
What I did. I built a record of all 84 pricing reviews from 2011 to 2026 (168 decisions for petrol and diesel) and checked each one against the regulation in force, using the State Trading Corporation's own calculations and price structures. I measured how long world oil shocks have lasted since 1987, tested whether Mauritian consumer prices fall back when fuel gets cheaper, and simulated eight pricing rules used around the world on the same 2011–2026 costs.
What I found. The committee followed its formula in 90 of the 94 decisions that can be checked, including 20 of 24 unpopular increases. Politics did not bend the formula quietly; it stepped outside it, in the open: four ministerial vetoes, six times the government set prices directly, and levies that twice swallowed falls in world prices. Oil spikes typically fade within about eight months. Other prices tend to rise after fuel increases more than they fall after cuts, and bus fares never fell. Actual pricing produced six-month rises of 46% while leaving up to Rs 9.7 billion of costs unrecovered, the worst of both worlds.
What should change. A modified Mauritian rule, with smaller 5% steps, a six-month trend reference and a stabilisation fund with a borrowing limit and an obligation to rebuild, would have cut the largest six-month rise to 28–34% at a fiscal exposure close to today's rule. Six recommendations below.
Record prices, one shock after another
On 29 September 2026, petrol rose to Rs 77.70 a litre and diesel to Rs 78.35, the highest prices Mauritius has ever paid. Each fuel rose three times in 2026, each time by close to the 10% maximum, leaving both about a third dearer than in January (State Trading Corporation, 2026a). The chart replays every official price decision since 2010 and tags each turning point by its cause.
How the price is set, in 60 seconds
The price follows a formula written into law (Consumer Protection (Control of Price of Petroleum Products) Regulations 2011). Five steps take a cargo of fuel to the pump.
Sources: AllAfrica (2024); State Trading Corporation (n.d.); Défi Media (2025).
Step 5 is where most of the surprises come from. Try it: move the slider to see what the rules do.
Simplified from Regulation 5 of the 2011 Regulations as applied by the Petroleum Pricing Committee. Examples: AllAfrica (2026b); Défi Media (2025); AllAfrica (2025).
The stabilisation fund works like a shock absorber: it pays the difference when world prices jump faster than the pump price is allowed to, and is repaid later. It was in deficit by about Rs 3.2 billion in April 2026 (AllAfrica, 2026a). Since January 2023, a price can only be cut if the fund has money, which is why prices cannot fall until the deficit is repaid.
Does the committee follow its own rule?
This is the question behind the title. For every one of the 168 decisions, I asked what Regulation 5, as worded on that date, required, and compared it with what was decided. Where the STC did not publish its calculation, I rebuilt it from its price structures, the official build-up of each price, which reproduce the published calculations to within 0.005 percentage points (Bhunnoo, 2026a).
Of the 94 decisions that can be fully checked, 90 followed the regulation exactly. The hard test is the unpopular one: when the formula required an increase and the fund was empty, prices rose in 20 of 24 cases. Since 2014, every increase the formula put above 10% was set at the 10% cap, never higher.
The four exceptions were all diesel increases refused by the Minister between September 2022 and June 2023, under a power (Regulation 8A) that came into force the day before it was first used. They were lawful, but the diesel deficit grew from Rs 3.5 billion to Rs 4.4 billion.
Five of the six were cuts. In June 2019, five months before an election, both fuels were cut by Rs 3 when the formula pointed to rises of 8.0% for petrol and 4.4% for diesel. In December 2024, a month after the election, both were cut by Rs 5 although the diesel account was Rs 3.6 billion in deficit.
In January 2015, the Build Mauritius Fund levy rose from Re 1 to Rs 4 a litre; without it, petrol would have fallen 7.8% and diesel 9.7%. In April 2020, a new Rs 4 COVID-19 levy absorbed falls of 9.2% and 14.4%. Pump prices did not move, but motorists did not get the savings.
All 17 checkable decisions in the six months before elections followed the formula, including the three price cuts before the 2014 election, which the STC's price structures show were exactly the cuts the rules required. Two of the five price-cutting interventions came near an election, about what chance would produce. With only three elections, a small effect cannot be ruled out.
Author's audit of STC press releases, price structures and the consolidated Regulations (Bhunnoo, 2026a, Section 5). Election dates: Electoral Commissioner’s Office (2024).
Politics did not bend the formula quietly. It stepped outside it, in the open: through vetoes, direct price-setting and levies.
How long do oil price shocks last?
A stabilisation fund can only smooth a shock that ends. Since 1987, Brent crude has had 17 spikes, months when it traded at least 25% above its average of the previous year. They typically peaked within three months and faded within about eight; the longest, in 2007–2008, lasted 15 months. Half of any deviation from the trend disappears in about six months. Six price collapses followed the same rhythm.
Two lessons follow for the rules. A fund that can carry the gap between cost and price for about eight months would cover most spikes without forcing large rises that are reversed soon after. But some shocks are not spikes: the climb from 2004 to 2008 was a lasting shift in price, and no fund can absorb that forever, so a good rule must still pass on persistent changes.
Do other prices follow fuel up, but not down?
This matters because of a common suspicion: when fuel rises, shops, restaurants and transport operators raise their prices, but they rarely cut them when fuel gets cheaper (economists call this “rockets and feathers”; Peltzman, 2000). If that is true, a pricing rule that lets pump prices jump and then fall back leaves a lasting mark on the cost of living, even if pump prices themselves average out.
The pattern is consistent with that suspicion. In the year after large fuel increases, the overall price index rose 3.0 points faster than usual; after large cuts, it rose only 1.6 points slower. Bus fares are the clearest case. Their index rose in 2008, 2010–2011, 2013, 2018 and May 2022, each time during or after a fuel rise, and never fell. Between the fare revisions of 2013 and 2022, diesel fell from Rs 43.95 to as low as Rs 29.50 a litre, but fares were not cut (National Land Transport Authority, 2013; L’Express, 2022).
The evidence is suggestive rather than conclusive. It rests on about two dozen fuel price changes, the gap narrows when one overlapping episode in 2010 is left out, and statistical tests do not confirm the difference with confidence. Fuel shocks often coincide with other shocks, such as world food prices. International studies do find that oil price rises push up inflation more than falls pull it down (Choi et al., 2018).
Which pricing rule works best?
Countries manage fuel prices in very different ways. To see which approach would have served Mauritius best, I ran eight rules on the same monthly cost of fuel from 2011 to 2026, the price that would exactly recover the cost of each litre, taxes included (Bhunnoo, 2026a, Section 8):
| Rule | Used in | How it works |
|---|---|---|
| Full pass-through | South Africa (monthly), India (daily) | The price follows cost every month. |
| Stabilisation levy | Ghana | A small levy is collected when prices are low and suspended when they are high. |
| Moving average with a cap | Recommended by the IMF (Coady et al., 2012) | The price follows the average cost of the past year, moving at most 5% a month. |
| Price band | Chile (MEPCO) | Small monthly steps within a band; a variable tax absorbs the difference. |
| Mauritius rule, as legislated | Mauritius | The price moves when the formula differs by more than 4%, by at most 10%, with a fund. |
| Proposed “Mauritius-plus” | This study | Six-month trend reference, steps of at most 5%, a fund that may borrow up to Rs 1 billion per fuel and must rebuild its reserve when prices fall. |
Sources: Coady et al. (2012); Indian Oil Corporation (2017); Ley N° 20.765 (2014); Citi Newsroom (2022). Two variants of the Mauritius rule and a second moving-average rule are in the full paper.
| Rule | Largest 6-month rise, petrol / diesel | Worst unrecovered cost, petrol / diesel |
|---|---|---|
| Actual prices | 46% / 46% | Rs 6.6bn / Rs 9.7bn |
| Full pass-through | 44% / 89% | Rs 0.7bn / Rs 1.2bn |
| Stabilisation levy (Ghana-type) | 44% / 89% | Rs 0.1bn / Rs 0.1bn |
| Moving average, 5% cap | 19% / 28% | Rs 3.1bn / Rs 4.7bn |
| Price band (Chile-type) | 16% / 16% | Rs 3.2bn / Rs 6.6bn |
| Mauritius rule, as legislated | 39% / 54% | Rs 1.2bn / Rs 2.7bn |
| Proposed Mauritius-plus | 28% / 34% | Rs 1.8bn / Rs 2.6bn |
February 2011 to August 2026, monthly reviews. Unrecovered cost is the largest running shortfall of revenue below the cost-recovery price, wherever it was recorded: in the stabilisation fund, the STC's accounts or the budget. Source: Bhunnoo (2026a), Table 5.
Three results stand out. First, no rule wins on everything. Full pass-through costs the state almost nothing but passes every swing to motorists: diesel would have risen 77% in a single month in 2026. The smoothest rules cost Rs 3 to 7 billion per fuel, carried by the budget.
Second, actual practice was the worst of both worlds. Prices still rose by 46% within six months, more than under any smoothing rule, while up to Rs 6.6 billion (petrol) and Rs 9.7 billion (diesel) of cost went unrecovered, two to four times more than the legislated rule itself would have left. The smoothness Mauritians did get was bought largely on credit, through vetoes, holds and interventions.
Third, the proposed rule sits close to the best balance. Compared with the legislated rule, it halves the largest single rise (5% instead of 10%) and cuts the largest six-month rise from 39–54% to 28–34%, for a worst-case shortfall about Rs 0.6 billion higher for petrol and about the same for diesel. Most of the gain comes from the smaller step.
Which rule would you choose?
The “best” rule depends on how much weight a government gives to stable prices against the cost to the public purse. Move the slider to set your own priorities. Each rule is scored on how jumpy prices are, how many increases are reversed within a year, and the largest cost left unrecovered (Bhunnoo, 2026a, Section 8.3).
Lower score is better: 0 would be best on every measure among the simulated rules. Actual prices can score above 1. Source: Bhunnoo (2026a), Figure 4 and Supplementary Table S13i.
For any government that gives price stability and fiscal prudence roughly comparable weight, between about 30% and 60% on the slider, the Mauritius-plus rule comes out on top. Actual practice scores worst of all seven once the public purse carries more than about a third of the weight. The ranking holds when the costs are measured in other ways, and when people buy less fuel as prices rise.
The limits of a simulation. The simulation reproduces the actual path of prices closely (a correlation of 0.96 to 0.97 after each review), but not every individual decision, mainly because the fund balance was rarely published before 2017. The proposed settings were also not fixed before the 2019–2026 period on which they look good; a version chosen on 2011–2018 data alone did no better than today's rule after 2019, which is why the recommendation rests on the smaller step rather than on fine-tuned numbers. The rules are best compared on their overall paths.
The tax inside every litre
A litre of petrol at Rs 64.25, 16 April 2026. Tap or hover a slice. Source: State Trading Corporation (2026b) price structure.
Tax is where policy shapes the price permanently. In April 2026, taxes and levies took 43% of the petrol price; at September's Rs 77.70 they take about 38%, because Rs 19.38 of every litre is fixed (excise, the Rs 7.20 contribution to subsidies on gas, rice and flour, and road and other contributions) and does not rise with the price (State Trading Corporation, 2026b; 2026c). VAT is charged on top of those levies, adding Rs 2.91 a litre of tax on tax. The April price structure also shows the price being held about Rs 6 below its full cost, through an “adjustment” of −Rs 5.27 before VAT.
Whether these taxes should flex during a shock is a genuine choice. They fund roads and the subsidies on gas, rice and flour, and general fuel tax cuts help heavy fuel users most: international evidence shows that most of the benefit of untargeted fuel relief goes to higher-income households (Coady, Flamini and Sears, 2015).
| At the September 2026 petrol price | Saving per litre | Resulting price | Revenue cost a year |
|---|---|---|---|
| Actual price, from 29 September 2026 | – | Rs 77.70 | – |
| No VAT on the other levies (VAT on cost and margins only) | Rs 2.91 | Rs 74.79 | Rs 0.85bn |
| VAT suspended (severe shocks only) | Rs 10.13 | Rs 67.57 | Rs 2.96bn |
| VAT suspended and the Rs 7.20 contribution removed | Rs 17.33 | Rs 60.37 | Rs 5.06bn |
| No taxes or levies at all (the STC's cost build-up) | Rs 24.46 | Rs 53.24 | – |
Based on the STC price structure from 29 September 2026 (State Trading Corporation, 2026c). Revenue costs are static, for about 292 million litres of petrol a year, and cover petrol only. Source: Bhunnoo (2026a), Supplementary Table S14.
Is there a hidden mark-up?
The STC does not publish what it pays for each cargo. Public data can still test whether a hidden mark-up has been growing: every month, I took the pump price before VAT and subtracted the world cost of the fuel in rupees. Once the documented tax changes are allowed for, this gap shows no significant upward trend from 2011 to 2026 for either fuel. Between 2011 and 2020 the petrol gap rose by about Rs 0.32 a litre a year, which the STC is best placed to explain. In April 2026, the STC's reported landed cost of petrol (Rs 35.82) matched the public benchmark (Rs 35.81) almost exactly. The test rules out a mark-up that keeps growing, but not a constant one; only publication of the STC's costs can settle that.
Where prices stand now
Even after September's increases, prices remain below full cost. The STC's own price structures for 28 September put the cost-based price at Rs 83.51 for petrol and Rs 84.12 for diesel, about Rs 6 above the pump prices, the gap the 10% cap would not allow to be passed on at once (State Trading Corporation, 2026c). Unless world prices ease, further increases are likely, and because cuts are only allowed when the fund has money, prices cannot fall until the deficit is repaid. I no longer publish point forecasts: oil prices are notoriously hard to forecast, and the research question is how the rules should handle whatever comes.
Is the price fair? How Mauritius compares
Fairness needs more than one yardstick, so I compare Mauritius with countries of similar income (International Monetary Fund, 2026) in three ways: the price in US dollars, how many litres a day of average income buys, and the price relative to the local cost of living. Oil producers are shown separately, because they usually sell petrol below world cost.
Against income, Mauritius pays a typical price. Against the local cost of living, it pays more than most.
Two of the three yardsticks put Mauritius in the middle of its fuel-importing peers: its petrol costs US$1.66, the same as the median, and a day of average income buys 21.4 litres against a median of 21.0. Adjusted for the local cost of living, however, Mauritius sits about 10% above the median: everyday goods and services are relatively cheap, so imported, heavily taxed fuel takes a bigger bite. This is a snapshot from a secondary source, and averages hide how the burden falls on lower-income households.
Conclusion and recommendations
Mauritius has a sound rule that is largely followed. Where decisions can be checked, the committee applied the formula in 96% of cases, including most unpopular increases. Politics entered at the edges, and in the open: through vetoes, direct price-setting and levies. Those departures, rather than the formula, account for most of the cost left unrecovered, and they bought low prices at the time at the price of faster rises later. The rule's weakness is not its structure but its settings: a 10% cap per review lets prices rise by half within six months, the fund has no borrowing limit or duty to rebuild, and since 2023 cuts depend on the fund without any target. With oil spikes typically fading in about eight months, and fuel rises appearing to leave a lasting mark on other prices, a rule that spreads rises out and rebuilds its reserve when prices fall is worth some fiscal exposure.
Six recommendations follow from the evidence:
- Amend Regulation 5 along the lines of the Mauritius-plus rule: a six-month trend reference, a ±3% band, steps of at most 5% a review, a borrowing limit for each fuel's fund with automatic catch-up when it is reached, and part of each cut retained while the fund is in deficit.
- Size the reserve to the typical eight-month spike: about Rs 2 billion for petrol and Rs 3 billion for diesel at current volumes, held as a ring-fenced reserve or a pre-approved credit line.
- Replace the ministerial veto with the automatic borrowing limit. Any override should be paid from the budget rather than the fund, and published with its reasons and estimated cost.
- Decide fuel levies in the annual budget, not at price reviews, so that falls in world prices are not quietly turned into revenue.
- Publish the STC's price structure and the fund balance at every review, which would make the formula fully checkable by anyone.
- Link administered fares, such as bus fares, to fuel costs in both directions, so that cuts in fuel prices are passed on as rises are.
None of this changes the world market that sets the cost of fuel. It makes the rules clearer, the departures visible and costed, and the next shock easier to bear.
Read the research
The full paper, data and code are free to download
- Working paper (version 8.1), with the 26-page supplement: SSRN, doi:10.2139/ssrn.7628060. Submitted for peer review; findings may be revised.
- Data and code: Zenodo, doi:10.5281/zenodo.23441803. The record of all 84 pricing reviews with sources and quotations, monthly prices, the simulation inputs and results, an Excel workbook with every table, and the code that reproduces them.
- Author: Nawshad Ali Bhunnoo, independent researcher, Mauritius. ORCID · LinkedIn · Contact
Methods in brief
The audit of decisions
The record covers 84 reviews of the Petroleum Pricing Committee from January 2011 to September 2026, each covering both fuels: 168 decisions (34 increases, 25 decreases, 109 unchanged), compiled from STC press releases, price structures and communiqués, the consolidated Regulations, parliamentary debates and the press, with a source and quotation for each entry. The change implied by the formula is observed for 122 decisions (112 published, 10 rebuilt from price structures as the retail price less 1.15 times the balancing items). A decision is verifiable when the outcome the regulation allows can be determined from the calculation and, where needed, the published fund balance. For 21 decisions with no published calculation, the formula's change is estimated by chaining from the STC's reference prices; tested against observed calculations, its median error is about 0.1 percentage points.
Oil shocks and consumer prices
A spike starts in a month in which Brent is at least 25% above its average over the previous twelve months and lasts while it stays more than 10% above it; collapses are defined symmetrically (May 1987 to September 2026). The half-life comes from an AR(1) model of the log deviation from the trailing average (coefficient 0.889, 461 months). For consumer prices, the event study compares the 12-month change in each index after fuel price changes of 5% or more with its average 12-month change; regressions with separate lags for fuel increases and cuts, exchange-rate changes and month dummies (184 months, Newey–West standard errors) test whether the effects differ.
The rule simulation and the ranking
The monthly cost-recovery price is the U.S. Gulf Coast spot price of each fuel, converted at Bank of Mauritius exchange rates and scaled to the STC's reference prices, plus the fixed costs and levies implied by the published calculations in each tax regime, plus VAT. It tracks the formula's own calculated price closely (correlation 0.985 for petrol, 0.977 for diesel). Each rule sets the price at the start of a month with information up to the previous month; the fund accumulates the gap between price and cost times monthly sales. The ranking scores each rule on the root mean square of monthly price changes, the rupees per litre of increases reversed within twelve months, and the worst unrecovered cost, each scaled from best (0) to worst (1) among the simulated rules and weighted by sales. Full definitions, validation, sensitivity tests over 108 alternative settings and a demand-response check are in the paper's supplement.
Limitations
World costs use U.S. Gulf Coast prices scaled to the STC's reference prices, not the Platts assessments the STC actually uses; individual months can differ by more than 10%, especially for diesel in 2026. The simulations take the political response to each rule and the timing of reviews as given. The consumer-price evidence rests on about two dozen fuel price changes and cannot separate fuel from shocks that often coincide with it. The review record is incomplete for 2011–2012, fund balances were rarely published before 2017, and the election tests rest on three elections.
References
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