Source: Fuel stabilisation fund on cards | The Herald June 1, 2019
THE Reserve Bank of Zimbabwe (RBZ) will stabilise fuel prices by maintaining the foreign currency exchange rate for fuel for two weeks to minimise price fluctuations.
This was said by Energy and Power Development Minister Fortune Chasi on Wednesday when he addressed Parliament on challenges facing the fuel sector.
The long-term solution, he said, was to establish a Fuel Stabilisation Fund to cushion consumers.
“One of the challenges we are having in supplying fuel is related to fuel price fluctuations. In the past, fuel price changes were caused mainly by the changes in the price of fuel on the international market, but such changes were usually minimal.
“Now the interbank rate, at least up to the time it stabilises, will also be causing fuel price changes. Currently, the changes are upwards and more significant than the price changes caused by the international prices of fuel. To curtail the fluctuations in the short term, the Reserve Bank will hold the fuel exchange rate constant for two weeks,” said Minister Chasi.
He said the long-term solution was to establish a Fuel Stabilisation Fund which will act as a subsidy to cushion consumers from fuel price increases.
Minister Chasi said the RBZ has been providing foreign currency for fuel procurement even after the parity between the US$ and the bond note had been removed.
He said the system has been changed and the interbank rate is now used to buy forex.
The minister attributed fuel shortages to panic buying by consumers, which originates from speculation.
“Generally, the fuel supply situation remains constrained due to what we believe is panic buying on the part of consumers. Because of panic buying, not all service stations have fuel at any one time.
“This results in queues at service stations that may be having fuel. The market is receiving reasonable volumes of fuel to keep the country running. Panic buying originates from speculation that fuel prices may increase sharply,” said Minister Chasi.
He said some fuel retailers make unilateral increases to unreasonable levels and this happened in the past week, triggering panic buying.
On bonded fuel stocks, he said the country always has fuel stocks at the bonded storage in Msasa, Harare.
“This fuel belongs to international oil traders and does not belong to us. It is fuel that is stored there for ease of access. The country continues to blend petrol with ethanol in accordance with the law and the blending ratio varies, depending on the availability of ethanol on the market.”
Minister Chasi said the interbank rate also applies to ethanol, hence the need for producers of ethanol to revise the price, which was last pegged in 2016 when the parity between the greenback and the bond note was still in place.
Due to foreign currency constraints, Minister Chasi said, the oil industry has accrued a huge debt for fuel supplied in the past.
“This has resulted in the oil companies being unable to extend further credit, preferring to be paid upfront. Given the foreign currency challenges that the country faces, it is proving difficult to pay upfront for enough fuel to meet demand hence the establishment of letters of credit for current consumption.
“The ministry continues to engage the RBZ to come up with modalities to extinguish the debt. The oil companies also continue to raise concern over the issue.
“Their view is that Government is focusing only on paying for new suppliers, ignoring the legacy debt,” he said.
Minister Chasi said the country had abundant renewable energy resources that have largely remained untapped, especially for large-scale power projects which include solar, biogas, biofuels and wind.