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Questionable Pricing Structures Affect Zim's Petrol

The Herald (Harare)
NEWS
January 31, 2006
Posted to the web January 31, 2006
Harare
WHEN in 2004 the Government deregulated the fuel industry to allow private
companies holding foreign currency to import the commodity, that certainly
looked like a brilliant idea.
The initiative still holds the brilliance, although now at a disappointingly
low rate that all but appears to have betrayed the overriding initial objective
-- that of boosting fuel shipments.
Arguably, deregulation has propped up fuel imports, but questionable have been
the pricing structures by independent dealers.
Motives (or excuses, if you want) by private players in adopting to distinct
pricing models range from import costs to labour costs and increases in
international oil prices, amongst a host of other reasons.
Whilst liberalisation of the fuel industry has undoubtedly weaved in a new
sense of hope into the economic fabric, the dispensation has also ushered in
the detestable capitalist principle of price manipulation and monopolisation.
The key aspect is on profit maximisation -- at all costs: the individual, the
economy, the country, the dogs, cats, houseflies and even cockroaches.
And this is exactly what has been happening in Zimbabwe's fuel sector.
Official fuel prices at $23 000/litre for petrol and $22 000/litre for diesel
have been set by the State, but nobody pays attention to them.
By December last year, private fuel importers were selling petrol at black
market rates (which is their pump price) of $85 000/litre and diesel in the
same region. They were openly allowed to continue trading in this mode,
although no public consent was given by the responsible ministry, Energy and
Power Development, meaning all assumed it was legitimate.
In the last two weeks, private companies, however, increased their fuel prices
again -- twice in this short space of time.
Petrol prices initially rose to $110 000/litre from $97 000/litre before rising
further to $140 000/litre by the end of last week. The official prices have not
moved.
And now, analysts say, the major question is: whether private players should
continue increasing fuel prices willy-nilly even in the absence of the need to
cover any increase in production/import costs or international fuel prices.
What is the role of Government in ensuring that independent players do not hold
the economy and public to ransom whilst at the same time ensuring constant
importation of the commodity?
"I think there is some economic sense in adjusting fuel prices to movements in
international oil prices because it increases viability of the importer," said
a Harare economic commentator, who refused to be named.
"However, prices cannot be allowed to rampantly rise as a result of the urge to
profiteer. There is need to strike a balance between input costs and revenue,
and to be aware of what unwarranted price increases could do to inflation."
Fuel -- petrol and diesel -- in Zimbabwe has over the past three years
continued to be the "unattainable elixir" on the official system although it is
readily available on the black market, but at unrealistically high prices.
An increase in the cost of fuel has a direct upward price movement impact on a
wide range of products and services. Its cost-push effects have been read well
on the inflation front, which has ballooned to 586 percent.
Another analyst said: "Government should timeously announce official fuel
prices so that importers do not take advantage of the situation by hiking
prices, which will have a ripple effect across the entire economy. I suspect
some level of control would still be necessary."
The Reserve Bank also raised concern about the fuel industry in its 2005 Fourth
Quarter Monetary Policy Review Statement.
It noted: "As part of the fiscal realignment process, it is also critical that
the relevant authorities realign the fuel sector in a manner that removes room
for retrogressive arbitrage and rent-seeking behaviour.
"As monetary authorities, we are ready to enter into some arrangements where
tailor-made interventions are put in place to cushion, on a targeted basis, the
vulnerable groups, to allow for the realignment and liberalisation of fuel
prices."

   

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