Fuel price deregulation may have inflationary effect

The deregulation of the petroleum oil industry could see further inflationary pressure adding to the financial travails of ordinary Zimbabweans, an analyst told IRIN on Thursday. The official newspaper The Herald quoted Minister of Energy and Power Development Amos Midzi as saying that as from yesterday "all the registered oil companies will source their own foreign currency, import petroleum products and sell directly to the members of the public at economic prices through approved outlets". However, fuel imports by the parastatal National Oil Company of Zimbabwe would be distributed to government departments, institutions, public transport operators and the agricultural sector at the state controlled price of Zim $450 a litre for petrol and Zim $200 a litre for diesel. The two-tier system means that private sector motorists would pay the new pump prices for petrol of Zim $1,170 per litre and diesel at Zim $1,060 per litre announced by the oil companies yesterday. "This means diesel has gone up about 500 percent and petrol by about 160 percent," said economist Tony Hawkins. He told IRIN that "there will be an inflationary effect, but part of it has already been felt in that most people have already been paying the higher prices for fuel on the parallel market". Hawkins cautioned, however, that the fuel price may well rise further as the two-tier pricing structure was based on the government's stipulated exchange rate of Zim $3,000 to US $1. "The current parallel rate is between Zim $5,500 and Zim $6,000 for US $1. So you have to ask where the oil companies are going to find foreign currency at that [official] rate. I've spoken to banks who are saying if we have to buy US dollars at a rate of Zim $5,500, how can we then sell it to the oil companies at Zim $3,000?" Hawkins noted. This could well force the oil companies to sell their imported fuel at higher prices than those announced on Wednesday.