eBusiness Weekly
Golden Sibanda
Government says it will allow prices of fuel to track developments on global markets, which dovetails into calls by sections of industry for prices of the commodity to be adjusted whenever this is economically justifiable in order to avoid shocks from inevitable but steep price increases.
Sources said some sections of business last week met and submitted to Industry and Commerce Minister Mangaliso Ndlovu that it was more prudent to always allow the market to adjust prices for the precious commodity each time the need arises in tandem with global market trends.
And Energy and Power Development Minister Joram Gumbo said this week that Government will allow dealers to increase prices in line with global market developments subject to the regular reviews and approvals by the Zimbabwe Energy Regulatory Authority (ZERA). ZERA will carry out weekly fuel pricing reviews.
“Fuel prices are determined by the movement of international FOB prices. When they change, we also adjust our prices, and that is one of the roles played by ZERA on a weekly basis. We can’t randomly increase fuel prices without a corresponding international price increase, no,” the energy minister said.
Sources told Business Weekly that sections of industry last week impressed on Minister Ndlovu on the need for Government to allow the market to quickly adjust prices if there is compelling economic reason to hike them, especially in line with global fuel market developments.
Efforts to get a comment from Minister Ndlovu on submissions made by some sections of the business community were not successful by the time of going to print yesterday, as his mobile phone continued to go unanswered.
“Going forward, the price of fuel should be allowed to go up as and when it should go up because if we suppress it for a long time and then at some stage throw a huge jump it might shock the market,” a source who was part of the meeting business held with Minister Ndlovu.
Industry contends that Government has at times been reluctant to allow prices increases of fuel motivated by desire to cushion the public from the potential ripple effects such as fuel cost driven commodity prices increases.
In fact, while Government has struggled to keep pace with demand for fuel, amid fears that not all fuel procured and paid for through Government subsidy-given dealers pay for their allocation at US dollar 1 to 1 with bond notes or real time gross settlement (RTGS) — was finding its way on to the domestic market through transparent means and at official prices.
For instance, while the prices for procurement of fuel on global markets averaged US70 cents, Zimbabwe’s retail prices for a litre of petrol averaged USD 35 cents to USD 40 cents, presenting arbitrage opportunities.
Consequently President Mnangagwa on Saturday last week announced increases in prices of fuel to $3,31 per litre of petrol from an average $1,38 and $3,11 per litre of diesel from about $1,32, to bring Zimbabwe’s fuel prices in line with regional trends, further quickly announcing measures to prevent possible cost push price hikes caused by the higher fuel prices.
This will plug arbitrage opportunities, suspected to have been causing smuggling of fuel out of Zimbabwe and its resale in hard currency on regional markets as well as hoarding and trading on the domestic parallel markets at inflated prices due to shortages resulting from leakages.
Industrialists and economists also say that the recent fuel price hike will eliminate pricing arbitrage opportunities through high excise duty (45 cents to $2,31 per litre of petrol and 40 cents to $2,05 per litre of diesel or paraffin), which constitute nearly 90 percent of the fuel price hike effected by Government midnight on Saturday last week.
Due to currency issues, the prices of fuel sold in Zimbabwe had been gross discounted relative to prices on regional markets, making it lucrative for speculators to buy using local forms of payment and offload on local or external markets at higher prices or in hard currency.
Further, the currency issues resulted in the demand for of fuel in Zimbabwe jumping over 70 percent over the 6 months to November 2018 after becoming grossly discounted relative to prices obtaining elsewhere in the region.
Confederation of Zimbabwe Retailers president Denford Mutashu, was non-committal when asked about the submission made to Government, as it emerged his constituency was one of the business groupings that met Minister Ndlovu to discuss how best business and Government should collaborate in future.
“That particular one requires the minister himself to comment,” said Mutashu before proceeding to suggest what Government should do in the short to medium term in order to cushion the public from unreasonable price hikes.
“The Government should never leave the responsibility of transportation of the general public in the hands of private sector.
“There is urgent need for recapitalisation and regeneration, as it were of the public passenger transport system.
“What we have is a scenario where private players can hold the Government to ransom in terms of pricing and not let up because they will always come up with various cost structures they justify, whether justifiable or not,” he said.
He said there was there was urgent need to revamp the rail system, which will see the Government resume a major role in proving affordable public transportation by implanting longstanding projects such as the Harare-Chitungwiza rail project.
Further, Mutashu said Government needed to ensure there is accountability in the distribution of fuel to dealers and its sale to the public, as it appears that there are significant leakages that allow diversion of fuel the country is battling to import using scarce foreign currency.
