Fuel still scarce despite deregulation of industry

The recent deregulation of the fuel industry was supposed to ease acute fuel shortages in Zimbabwe but there has been little discernable benefit arising from the new policy, say industry officials. For years the procurement of fuel has been the sole preserve of the state, through the National Oil Company of Zimbabwe (Noczim) utility. However, the government's failure to access sufficient foreign currency to pay international suppliers has led to the cancellation of deals, resulting in the country experiencing serious fuel shortages over the past three years. On 27 August 2003 Energy and Power Development Minister Amos Midzi deregulated the procurement of petroleum products. In effect, registered oil companies would be expected to source their own foreign currency, import oil and sell directly to members of the public through approved outlets. Under the new arrangement a two-tier pricing system came into being. Noczim is now expected to distribute fuel to government departments, quasi-government institutions, public transport operators and the agricultural sector at the gazetted price of Zim $450 a litre for petrol and Zim $200 for diesel. The national oil utility is also required to build up national reserves of petroleum. While private companies should sell diesel at Zim $1,170 and petrol at Zim $1,060, in reality, most companies are selling both diesel and petrol at Zim $1,700. Despite these measures, the fuel crisis continues and most service station pumps remain dry. John Mauto, a service station manager, said since deregulation they were receiving fuel twice a week, at best. "The situation has remained largely the same. We are hardly getting any fuel for sale and I don't think things will improve in a long time. Recently, my company had to cancel accounts that individual motorists had with us because we are failing to perform according to their expectations," said Mauto. He said the management of his company had indicated that it was proving uneconomical to source fuel from outside the country and then sell it at the new prices stipulated by the government. Fanuel Kangondo, public relations manager at a local oil company, Comoil, echoed Mauto's sentiments. "It is economically unwise for fuel companies to stick to the prices stipulated by the government. What our policy-makers forgot is that we source the foreign currency that we use to import fuel on the black market at exorbitant prices, and the prices they marked for us are way below what we should charge if we have to remain in business," he said. "It is contradictory that the government says it has liberalised the oil industry, yet still wants to have a say in pricing. It is indeed difficult to have a uniform pricing structure for private importers, because we source the forex in different ways," Kangondo added. He said a substantial number of fuel companies had managed to source fuel, which they were holding onto because they feared making losses if they sold at the current prices. Companies selling fuel outside the stipulated prices risked prosecution and the cancellation of their licences. Several private companies have struck deals with Independent Petroleum Group (IPG) of Kuwait, while others are seeking to source their oil from South Africa. Local companies recently joined ranks in rejecting the new prices announced by the government, arguing that it cost them US $0.39 to land a litre of fuel in the country which, at the average unofficial exchange rate of Zim $5,000 to US $1, meant the companies paid a landing price of Zim $1,950 - more than the stipulated retail price for petrol and diesel. The official exchange rate is Zim $824 to US $1. Economist John Robertson said the government had not liberalised the fuel industry, it had merely managed to "liberate itself from the futility of trying to source fuel for the country". "The oil industry is, in fact, still controlled. All the government did was to free itself from the procurement of fuel - a task in which it has proven to be a dismal failure. Because of this simplistic approach, the fuel situation will remain in a mess," he told IRIN. Robertson argued that it could be considered illegal for the government to limit the operations of Noczim to supplying government departments only, as the oil utility was set up and is sustained by money contributed by taxpayers. He expressed the fear that private procurers and distributors of fuel might have no choice but to sell their products on the black market in order to remain economically viable. The Zimbabwe Congress of Trade Unions (ZCTU), which in the past organised a series of mass protests over massive fuel price hikes, says the government "should have widely consulted with other stakeholders such as oil companies, labour, and commuter operators" before instituting its new fuel policy. "That way, you create a win-win situation ... [but] there is no blueprint for the energy sector and everything is being done on an ad hoc basis," said Godfrey Kanyenze, chief economist with the ZCTU. As a way of resolving the foreign currency crisis Kanyenze suggested that the ban on bureaux de change, which came into effect late last year, should be lifted. The government outlawed bureaux de change, saying they were fuelling the foreign currency black market. However, since their closure, the scarcity of foreign currency has worsened. In a move that commentators say could worsen the foreign currency shortage, state security agencies have launched a crackdown on commercial banks buying and selling money at unofficial rates. The National Merchant Bank of Zimbabwe has already lost its licence for dealing in foreign currency. Labour economist Kanyenze noted, however, that should the pricing wrangle be resolved, private fuel companies still lack adequate fuel storage facilities. He suggested that there was an urgent need for them to negotiate with the government for use of the existing Noczim oil storage facilities.