The Fuel Rip-Off!

07 Dec, 2014 - 00:12 0 Views

The Sunday Mail

Africa Moyo and Darlington Musarurwa

LOCAL consumers are being creamed off by profiteering oil companies that have maintained punitive fuel prices despite a 40 percent slump in international prices since June.

The inaction of statutory body the Zimbabwe Energy Regulatory Authority (Zera), which is mandated to regulate fuel prices, particularly in the wake of blatant malpractices by industry players, has become cause for concern.

Neighbouring countries such as South Africa and Zambia have significantly cut fuel prices in line with falling international prices.

Market watchers argue that local fuel prices should be relatively cheaper than those obtaining in other regional countries considering that motorists use petrol blended with ethanol (E15).

However, local consumers are still paying between US$1,51 and US$1,56 for a litre of petrol and between US$1,41c and US$1,44c for the same quantity of diesel.

In South Africa, the retail price of 95-grade petrol dropped by USc69 cents a litre on Wednesday, while wholesale diesel also dropped 4,6 percent. It now costs the ordinary South African R12,47 (US$1,11) a litre to buy petrol and R11,31 (US$1,01) for diesel.

The South African department of energy said the adjustment had been prompted by the “continual drop in the crude oil prices, which fell to about US$80 per barrel, during the period under review (October 31, 2014 to November 27, 2014)”.

Likewise, Zambia’s Energy Regulation Board announced a “marginal” 3,66 percent fuel price reduction on November 27.

Critics say ever since Government liberalised the fuel sector in 2008, allowing individuals and private companies with free funds to source their own petrol or diesel for sale, the sector is now being run like a cartel.

And these high local fuel prices feed into unsustainable cost structures for business.

Finance Minister Patrick Chinamasa has appealed with local businesses on “the need to address the cost structures in our economy”.

Transport and logistics is one of the main cost drivers that was identified in a study done by the Ministry of Industry and Commerce.

Retail prices of basic commodities continue to be higher than those quoted in other regional economies.

Unsurprisingly, because of the margins in the petroleum business, foreign companies have been increasingly angling for sizeable stakes in local firms.

Recently, South Africa’s Puma Energy Africa Holdings snapped up an undisclosed stake in Redan Petroleum and Sakunda Energy.

The company’s head of corporate affairs Mr Andrew Gowers confirmed in July that it had acquired the “downstream” businesses of the two entities.

“We can confirm that Puma Energy has acquired a stake in the downstream activities of Redan Petroluem and of Sakunda Petroleum. But we are not commenting on the size of the stakes or the considerations paid. Both companies will continue to manage their activities independently for the foreseeable future,” said Mr Gowers.

Puma Energy operates in 33 countries. Engen Petroleum Zimbabwe and Total Zimbabwe, which also have foreign parentage, are some of the companies operating locally. Engen has 55 service stations, up from four only 28 months ago and has invested US$7 million in infrastructure, while Total has also invested over US$4 million on the newly refurbished Bulawayo depot.

Total plans to commit about US$10 million annually towards refurbishing and re-branding its 100 service stations in the country.

It is believed that the petroleum sector has made rich pickings by conveniently adjusting prices upwards when there is an increase in international oil prices, but are reluctant to make adjustments when prices fall.

Brent crude prices have dropped by 40 percent since June driven by panic over abundant supplies in the world economy due to a rise in output from shale oil and other unconventional sources and a strong US dollar.

Analysts say Zera’s “inability to monitor” the sector is because of “human resources challenges”.

In South Africa, the South African Petroleum Industry Association (Sapia) plays a strategic role in addressing a range of common issues relating to refining, distribution and marketing of petroleum products, as well as promoting the industry’s environmental and socio-economic progress.

In Zimbabwe, the Ministry of Energy and Power Development oversees the energy sector and works through Zera, a statutory body created in September 2011 following the promulgation of the Energy Regulatory Act (Chapter 13:23), which provides for regulation of the energy sector and other sections not provided for by the Electricity Act (13:19) and Petroleum Act (13:22).

Zera’s mission is “to ensure that energy supply is reliable, adequate and sustainable, whilst the prices charged are fair, the environment is protected and energy is supplied safely through effective regulation”.

Evidence on the ground suggests otherwise. Energy Permanent Secretary Mr Pattison Mbiriri declined to comment on the price mismatches, saying: “Enquire from (Zera boss Engineer Gloria) Magombo . . . because we have liberalised that sector.”

Zimbabwe Energy Council executive director Mr Panganayi Sithole said motorists would continue to be fleeced by petroleum companies because Zera “lacks skills” to police the sector.

“I do not think Zera has the capacity to run the petroleum industry the same way they do the electricity sector. When it comes to electricity, they have people who can calculate any proposed percentage increases and can shoot down proposals to increase power tariffs but they clearly do not have the skills and human resources to manage the petroleum sector.

“There should be price clarity from Zera to determine what the prices of fuel should be. The price should factor in cost drivers,” said Mr Sithole.

The Motor Industry Association of Zimbabwe says it has observed the “significant fall in international oil prices which should be passed on to the motorist”.

Association executive director Ms Sarudzai Masoka said, “The South African fuel pricing system is the envy of MIAZ and motorists. The system is efficient and transparent and we hope that Zera as the regulator will insist that oil companies adopt such a system.”

In South Africa, the petrol retail price is regulated by government and is adjusted on the first Wednesday of every month to reflect international market movements.

The calculation of the new price is done by the Central Energy Fund on behalf of the department of energy and factors a number of price elements which are divided into international and domestic elements.

The basic fuel price is based on an import parity principal; what it would cost a South African importer of petrol to buy, transport, insure and land the commodity on South African shores.

Mr Sithole also said there was need for establishment of a formal body that represents the petroleum sector and should track international market developments.

He said there is not much chaos in the mining sector because there is the Chamber of Mines of Zimbabwe which is responsible for mining issues.

“What we have (the Petrol Marketers Association of Zimbabwe) is an opaque type of organisation which is totally different from other countries such as South Africa, which has a clear and transparent operational structure and someone can go and get all the information they want on petroleum.

“At the moment, the pricing system is so opaque that when prices rise on the international market, local fuel retailers increase the price but when the price goes down, the prices are not adjusted downwards. So the industry is run like a cartel,” said Mr Sithole.

BUSINESS EDITOR’s COMMENT

There are clear structural weaknesses in the framework governing the pricing of petroleum products on the local market. Every time fuel prices rise on the international market, local motorists have to contend with punitive prices at the pump. But it is not the same when international prices drop.

What is concerning is the ineffectiveness of the Zimbabwe Energy Regulatory Authority to rein in errant petroleum companies. It seems there is no formula to determine the retail price of fuel. Consumers are left at the mercy of companies.

Last week, we tried to make Zera explain this anomaly, but for four days they have been giving one excuse after another, which is unbecoming — especially considering that the authority is a statutory body funded paid by tax-payers.

Consumers deserve an explanation; more-so, at a time when Zimbabwe is trying to review its cost structures to make local industry competitive.

Falling fuel prices have the potential to bring a Christmas cheer to the majority of Zimbabweans and, most importantly, they provide an opportunity for the country, particularly the manufacturing sector, to adjust its cost structures. This is urgent.

Reports suggest that as a result of dropping prices, the average American is going to save US$500 on an annual basis. This must also be felt by the local consumer considering that it is mandatory for locals to have a 15 percent ethanol blend.

Our fuel prices have to be cheaper. Suffice to say, Zera has been sleeping on the job.

Share This:

Survey


We value your opinion! Take a moment to complete our survey

This will close in 20 seconds