Govt releases $20m for fuel

The Sunday Mail

News Editor

Government has released $20 million to buy 44 million litres of fuel to deal with stock-outs of the commodity and has reviewed fuel prices upwards in order to “deal a blow on pricing distortions and arbitrage opportunity”.

Fuel shortages have been disruptive on business activity and discomforting to both the motoring and commuting public.

Demand for the precious liquid has risen significantly in the past six months, as diesel consumption has jumped to 4 million litres per day from an average 2,5 million, while petrol consumption has grown by 100 percent to 3 million litres.

Local petrol consumption is notably 1 million litres more than the average daily demand in Zambia (at 52 million litres per month), whose population is more than 17 million.

Addressing a town hall meeting organised by Global Shapers Community Harare in the capital on Friday, Finance and Economic Development Minister Professor Mthuli Ncube said authorities were aware that the chaos in the sector was being worsened by the price differential for the commodity existing across borders and within the country owing to parallel market exchange rates.

“Basically, on Friday last week, we authorised the drawdown of $20 million to deal with the crisis and those funds were made available yesterday (Thursday), because it takes a few days (to reflect) . . . so that should enable us to receive about 44 million litres on the back of that release.

“That is only a blood transfusion to deal with the fuel crisis,” said Prof Ncube.

“But a lot is going on in the fuel sector. We are also quite aware of the arbitrage opportunities that have been created by the price of fuel relative to its price outside Zimbabwe and also relative to the parallel market. We are quite aware that there is round-tripping either across borders or between parallel market and the fuel market. And there is a whole parallel market for fuel in the first place, where fuel is being sold, is it for $4 or $5 per litre? Those are the figures that I keep hearing. So you have got these distortions in the market that are making the situation worse. . .

“Of course, we have a forex shortage – that is a fact – but perhaps just through currency reforms and getting the right pricing for fuel, that will deal a blow to pricing distortions and arbitrage opportunity,” he said.

Price distortions

Fuel prices before yesterday’s review ranged between $1,32 – $1,36 per litre for diesel and petrol – which presumed a 1:1 exchange rate between the US and RTGS/bond note – translated to prices of US41 cents and US43 cents on the parallel market, where the exchange rate is 1:3.

The discrepancies naturally created arbitrage opportunities in the market, as speculators hoarded the commodity for resale on the lucrative black market or to sell across borders.

Already, there have been reported cases where fuel tankers allegedly smuggling fuel have been confiscated in neighbouring Zambia.

Prices in the southern African country range between 14 kwacha and 16 kwacha ($1,22 to US$1,33 using the current 1:12 exchange rate).

However, most interestingly, the old fuel prices are comparable or even lower to those of oil-producing countries on the continent or in developed countries.

In Nigeria – the continent’s largest oil producer – average fuel prices are US35 cents per litre, while in Angola prices are pegged at US52c, USA ($1,08), Russia (US0,68c), Iraq (US63c), and Saudi Arabia – one of the world’s largest oil exporters – prices are pegged at US54 cents.

Heavy cost

It is believed that Government was essentially subsiding the local market and paying heavily through hefty foreign currently allocations to the sector.

The Reserve Bank of Zimbabwe (RBZ) recently doubled foreign currency allocations to fuel dealers from $10 million to $20 million per month.


Market watchers say Government might have been reluctant to adjust fuel prices for fear of the possible impact this might have on local prices, which are already considered steep by consumers.

However,  notwithstanding the reluctance by policymakers, commuter omnibus operators had already adjusted their fares, with a 21-kilometre journey between Harare and Chitungwiza rising to $4 during peak demand.

Overall, Government believes that currency reforms are “the silver bullet” to some of the turmoil being experienced in the market.

“Currency reform, currency reform, currency reform again is one of the solutions. I believe if we deal with that, that will go a long way in rationalising the pricing mechanism and the behaviour of agents within the fuel sector,” said Prof Ncube at last week’s town hall meeting.

The Global Shapers Community is a network led by young leaders between 20- and 30-years-old who want to develop their leadership potential towards serving society.

Local town hall meetings usually precede the World Economic Forum (WEF) meeting in Davos, Switzerland.

This year’s forum – where Zimbabwe will be represented by President Emmerson Mnangagwa after his inaugural attendance last year – will be held from January 22 to January 25.