ZERA defends fuel prices

via ZERA defends fuel prices | The Herald 10 December 2014 by Tinashe Makichi

The Zimbabwe Energy Regulatory Authority says the prevailing fuel prices in the country are within the provisions allowed by the Statutory Instrument 80 of 2014 which provide the pricing slate.

The country experienced price increases in the months of August and September 2014 as a result of an additional 5 cents per litre duty introduced by the Government. Thereafter, the prices have started to stabilise.

ZERA chief executive Engineer Gloria Magombo said the fuel prices in the country have been falling in response to the decline in the international prices of crude oil, and ZERA currently monitors the country’s fuel prices on a weekly basis through its price surveillance mechanism.

“ZERA wishes to inform the public and stakeholders on the prevailing state of fuel prices in the country against a backdrop of falling prices of fuel on the international market. The prevailing fuel prices in the country are within the provisions allowed by the Statutory Instrument 80 of 2014 which provide the pricing slate.

“ZERA would like to advise that the pricing model has constantly and consistently been communicated and discussed with the fuel marketing companies including the Motor Industry Association of Zimbabwe,” said Engineer Magombo.

She said ZERA’s fuel price surveillance and monitoring trends reveal that blend prices were as high as $1,56 per litre and diesel was around $1,48 per litre at the beginning of November 2014. Prices as of December 4, 2014 have reduced to between $1,49 per litre and $1,53 per litre for diesel and petrol respectively. Diesel prices have reduced from around $1, 44 per litre to between $1,38 per litre and $1,41 per litre during the same period.

“It should also be noted that although the local fuel is blended, ethanol for blending is pegged at $1,00/litre including 5c/litre which is excise duty. Tax and duty on fuel are other revenue streams that fund Government programmes and operations hence statutory payments constitute a major component of the fuel cost. These are not the same in every country,” said Engineer Magombo.

She said it is important to note that fuel prices in Zimbabwe are not necessarily the highest in the region.

Engineer Magombo said it is therefore inappropriate to simplistically compare prices in Zimbabwe against other countries in the region as they have different tax regimes, statutory payments as well as different economies.

Zimbabwe experiences a lag in terms of benefiting from the international fall of fuel prices due to the long period it takes to transport fuel from source to retail. Other procurers secure about six months’ fixed price contracts as a way of hedging against price increases. She said fuel pricing in Zimbabwe is done through Section 54 of the Petroleum Act [Chapter 13:22] of 2006 and is implemented through Statutory Instrument 80 of 2014 which provides the framework for the pricing of fuel.

SI 80 of 2014 set the maximum margins realisable at wholesale and retail of fuel at seven percent. Any operator whose margins exceeded the set margins would be guilty of violating the regulations.

The implementation of SI 80 is such that the pricing slate determines the maximum prices at each time. The variable that changes most in the pricing formula is the free on board (FOB) price, i.e. the price at Beira.

The fuel pricing model provides the cost build-ups of fuel prices in the market.

Engineer Magombo said fuel returns are submitted by operators which include data on price build-ups, which is part of the licence conditions.

“ZERA has a competent and highly skilled team comprising petroleum engineers, fuel quality technologists, financial, marketing and economic analysts dedicated to monitor price movements in the market. ZERA also has an MOU with a reputable local organisation with a wide reach within the country to monitor prices and provide weekly returns reports on same,” said Engineer Magombo.

Government’s opening up of the fuel sector and empowerment programmes resulted in competition in the market for the benefit of consumers.

She said consumers are urged to exercise their their rights by shopping around for sites that offer lower prices. The difference in prices is largely due to competition in the market and consumers must benefit from such market forces.

Engineer Magombo said ZERA does not set the price but monitors the prices in the market to ensure that the cap is not exceeded. This means they is no price control but pricing guidelines.

“ZERA would also like to allay claims by some retailers that their fuel was of superior quality as over 90 percent of the fuel comes through the pipeline and stored communally,” said Engineer Magombo.