Zim moves to lower fuel prices

HARARE - Zimbabwe has commissioned a new petroleum sector pricing study aimed at coming up with mechanisms to lower fuel prices in the country, a senior government official has said.

The Energy ministry permanent secretary, Patterson Mbiriri, yesterday told delegates at a Zimbabwe Energy Regulatory Authority (Zera) workshop that the existing fuel cost build-up structure was in for an overhaul.

“The current fuel cost build-up structure was developed during the period when the country had just dollarised. None of the parties that developed the structure had any experience in United States Dollar (US$) pricing,” he said.

The present fuel cost build-up structure sets permissible maximum pump prices in respect of fuel in the country, taking into account all elements associated with supplying fuel to the end user.

The commissioning of the study to review elements of the existing model, which comes after huge price variations were unearthed in the petroleum sector — with some players charging “artificially high prices” for the end product, is expected to bring order in the petroleum industry.

“While such players know that it is feasible to lower prices of fuel by even as much as $0,07 per litre, they decide to maintain the high prices,” Mbiriri said, adding that in the commissioned study, the ministry was going to review maximum profit caps for fuel players.

Fuel pricing in the country is based on a cost-plus formula, which entails obtaining the freight on board (FOB) prices at the port of Beira from where local fuel is procured.

According to Zera chief executive Gloria Magombo, the maximum mark-up is seven percent, but players are allowed to levy prices below this stipulated maximum.

To this cost, pipeline charges, levies and taxes, administrative costs and distribution costs are added.

Mbiriri also said that government expected local fuel companies to respond quickly to international oil prices, as the general trend has been that when international oil prices tumble, the price reduction hardly ever translates to lower prices locally.

Yesterday, the price of Brent crude oil was below $45 a barrel, and has been steadily going down from $110 in June last year, resulting in most regional countries lowering fuel prices. However, local fuel retailers have not matched their pricing to the global price tumbles.

Although fuel retailers are currently reducing petrol and diesel prices to an average of $1,45 and $1,25 per litre compared to an average of $1,51 and $133 per litre a week ago, a research carried by businessdaily indicates that Zimbabwe’s fuel prices remain very high compared to other countries in the southern African region despite government’s unilateral decision in August 2013 to enforce mandatory blending of petroleum products.

The country is currently selling petrol mixed with 15 percent ethanol content (E15).

In neighbouring Botswana, South Africa, Namibia, Tanzania and Swaziland petrol prices are pegged at $1,06, $1,19, $1,08, $1,29 and $1,14 per litre respectively.

Meanwhile, the country has spent $744 million on petroleum products in the seven months to July from the import of 747 million litres of petrol and diesel, figures recently released by the Zimbabwe Statistical Agency show.

It is expected that the price of oil will remain depressed as the biggest cartel in the industry, Organisation of the Petroleum Exporting Countries, has decided not to cut production.

 

Leave a Reply

Your email address will not be published.