The Sunday Mail
THE Competition and Tariffs Commission is peeved by the unbearably high fuel prices in the country and has summoned its employees, who had gone for the festive season holiday, back to work to institute an urgent inquiry into the pricing regime.
This follows stunning revelations by The Sunday Mail recently that despite a staggering 40 percent decline in international fuel prices since mid-June, local consumers have only received a cosmetic decline of between two and four US cents.
Before the “downward review”, petrol was retailing at between US$1,52 and US$1,56 while diesel was being sold at between US$1,40 and US$1,44.
On Thursday last week, Sakunda was retailing fuel at US$1,49 (petrol) and US$1,38 (diesel), while at Redan the prices were US$1,50 (petrol) and US$1,40 (diesel). At Zuva, petrol was selling at US$1,53 and diesel was pegged at US$1,43. Total sold its petrol and diesel for US$1,52 and US$1,40, respectively.
The high fuel prices have seen oil majors Puma Energy, Engen Petroleum Zimbabwe and Total Zimbabwe ramping up operations and investing heavily in their projects.
Total and Engen have this year invested a combined US$11 million in infrastructure development, with the former indicating plans to splurge another US$10 million annually.
CTC chairman Mr Dumisani Sibanda said they had initially planned to launch the inquiry early next year but “because of the urgency of the matter”, it had to be done immediately.
“We have noticed the problem (of high fuel prices). We had a board meeting last week to discuss the matter and we asked the directorate to follow it up.
“I have been in touch with the regulator and our directorate will be working in conjunction with the Zimbabwe Energy Regulatory Authority to try and establish why fuel prices are high in the country when prices are coming down on the international market.
“We had hoped to start the inquiry early next year but because of the urgency of the matter, we had to call our officials who were on leave back to work so that the inquiry can begin. So they have already started (mid last week) and we want to try to work on that as quickly as possible so that we can come up with a report,” said Mr Sibanda.
Earlier, Zera chief executive officer Engineer Gloria Magombo defended the obtaining high fuel prices saying they are “within the provisions allowed by the Statutory Instrument 80 of 2014 which provide the pricing slate”.
SI 80 of 2014 set the maximum margins realisable at wholesale and retail of fuel at seven percent.
But Mr Sibanda said the CTC would interrogate all variables such as the free-on-board (FOB) price, transportation, border taxes, pipeline costs and Environmental Management Agency charges so as to unravel the costs incurred by importers and equally their profit margins.
He, however, conceded that EMA had made life difficult for entrepreneurs because of their demands which are not in tandem with economic performance.
Eng Magombo also said that the country “experiences a lag in terms of benefiting from the international fall of fuel prices” due to the long period it takes to transport fuel from source to retail and insinuated that fuel dealers could still be holding stocks they bought before prices fell.
She said other procurers secured three to six-month fixed price contracts as a way of hedging against price increases.
Mr Sibanda said this position was untenable “because of liquidity challenges in the country, we do not expect any forward buying, but spot buying”.
His comments dovetail with allegations that players in the fuel sector are taking advantage of Zera’s inability to play its role of monitoring the petroleum industry.
Last Wednesday, Brent crude oil was selling at US$59 a barrel (about 163,6 litres), the lowest since May 2009, as major oil producers signalled they would maintain output despite a supply glut and faltering demand in Russia and Europe.
Oil prices have almost halved over the last six months as increasing volumes of light, high-quality crude from North American shale overwhelmed demand.
Closer home, South African motorists are bracing for a hefty fuel price drop in January 2015 due to a continuous fall in international oil prices.
The Automobile Association of South Africa last week indicated the fuel price drop forecast by data from the Central Energy Fund could be among the largest on record, notwithstanding a gradual weakening of the rand/US dollar exchange rate over the last two weeks.
The rand was trading at a six-year low of R11,70/US dollar last Wednesday.
“To date, the weakening exchange rate has been outstripped by the reduction in petroleum prices and if this trend continues, the price motorists pay at the pumps could drop well below R12 per litre by month-end,” the AA said.
At the moment petrol in South Africa costs R12,47 (US$1,09c) per litre.
Zera says it is “simplistic” to draw comparisons between prices in South Africa and Zimbabwe because prices in different countries are affected by “different factors” including government policy on fuel taxes, fuel supply chain structure (whether there is a refinery or not), fuel stabilisation mechanisms, whether landlocked or not (transportation); subsidies and exchange rate against the US dollar.
“It is therefore inappropriate to simplistically compare prices in Zimbabwe against other countries in the region as they have different tax regimes, statutory payments as well as different economies,” said Eng Magombo in a recent statement.
Analysts say Eng Magombo also “simplistically” chose to emphasise fuel prices obtaining in Malawi and Zambia when the two countries’ currencies are struggling against the US dollar.
Zimbabwe adopted multiple currencies in 2009 but the US dollar accounts for 80 percent of transactions, meaning the country has no exchange risk like its neighbours.
This means despite duty and transportation costs, fuel prices should have reasonably receded significantly, more so because Zimbabwe blends petrol with 15 percent ethanol (E15).
Consumer Council of Zimbabwe executive director Ms Rosemary Siyachitema expressed outrage over the fuel prices and queried why retailers always say local prices should not be compared with those in the region.
“We always never see a reduction of prices of goods and services in Zimbabwe but when there is a price increase on the international market, the prices go up immediately,” she said. “The pricing system in Zimbabwe is never to the advantage of consumers and when you ask why prices are high, they always say they had already ordered their stock but we eventually never see a reversal of prices even when they start selling the stock bought at low prices.
“When you are comparing prices with South Africa, they have many excuses for not reducing prices saying Zimbabwe is different from South Africa and you wonder what is so unique with Zimbabwe,” said Ms Siyachitema.
Contacted for comment to provide an update on the latest developments within the petroleum sector, Eng Magombo said she was in a meeting and requested emailed questions but had not replied since Tuesday last week.
Nonetheless, the CTC inquiry will also look at the possibility that major fuel importers are setting high prices and forcing the market to follow their trend.
Mr Sibanda said the CTC would not condone conspiracy and cartels, describing such manipulation “a cardinal sin”.
South Africa severely punishes service providers that conspire to rig profit margins. Last year, 15 building companies including Murray & Roberts Holdings and Aveng Ltd were fined US$141 million after a four-year probe found they colluded to drive up prices for construction of six stadiums ahead of the 2010 Fifa Soccer World Cup.
