Eric Bloch: Government’s ‘fuelish’ Policies

ON July 5 a state-controlled national newspaper, usually a governmental praise-singer, stated that a petrol shortage was looming as the fuel industry is “struggling with constrained capacity challenges coupled with a very unfavourable fuel import tax regime”.


The newspaper, surprisingly correctly, explained Zimbabwe’s frequent fuel shortages as a consequence, primarily, of excessively high governmental imposts, stating that “The current tax regime of 60% duty on fuel imports plus the Zinara road levies, Noczim debt redemption levy, carbon tax and Noczim strategic reserves tax which oil companies have been paying is eroding the oil companies’ capacity to import more fuel into the country”.

Undoubtedly correctly, the newspaper suggested that this was one of the reasons why Zimbabwe has been experiencing shortages of fuel.

The newspaper report also noted that “a number of oil companies got capital through pre-finance from customers, who paid cash in their purchase of bulk fuel in exchange for fuel coupons that they would use in the future. It was difficult for oil companies to get funding from the banks to finance fuel procurement.

The banks demand collateral for whatever money they lend yet most oil companies in the country do not even own any assets and are renting the premises from which they operate.”

Surging fuel prices, and recurrent shortages, have grievous economic and social repercussions. Fuel is a prerequisite of every entity within the economy, irrespective of the economic sector within which the entity operates.  Fuel is required for inward transportation of operating inputs and, for many, also for outward distribution of production.

Fuel is required for transportation of management and labour, and for many enterprises is also essential for energy generation, in view of erratic and unreliable supplies from the Zimbabwe Electricity Supply Authority.

As a result, increases in fuel prices are major   catalysts of inflation — which is once again a tragic characteristic of the Zimbabwean economy — and can well be the near death-knell for that economy being an intense exacerbation of the immense poverty which afflicts almost two-thirds of Zimbabwe’s population.

Moreover, the recurrence of inflation would gravely jeopardise Zimbabwean attempts to enhance export operations thereby generating much-needed foreign exchange, a prerequisite of Zimbabwe’s economic recovery.  

Correctly, although being a state-controlled newspaper, the newspaper contended that it was “time the punitive tax regime is reviewed in order to support production in our industries. Finance minister Tendai Bit certainly needs to revisit this area.”

And revisit fuel taxes was what minister Biti did when on July 16 he presented his 2009 mid-year Budget review to parliament. But, tragically, whilst much of his budgetary reviews were very commendable, that on fuel was minimal and grossly insufficient, being only a reduction of excise duty on diesel from US20 cents to US16 cents, and no reduction in excise duty on petrol, which remains 20 cents per litre.

To all intents and purposes, the minister’s concession was symbolic for in addition to the US16 cents excise duty, diesel importers remain subject to carbon tax, Noczim debt redemption levy, Zinara road levy and strategic reserve levy, which amounts to almost US22 cents per litre or nearly 17% of the average final pump price. Moreover, total duties and taxes on petrol amount to approximately US58 cents, which exceeds 40% of average final pump price. The excise duty on diesel reduction was of a token nature only, and the minister failed to effect any reduction in the gargantuan taxation upon petrol.

In addition, the minister announced that the previously determined introduction of toll fees on national roads would now be effected on August 1. Those toll fees will include US$5 on each fuel tanker, every time it passes through a toll gate (which can range from four to 10 per journey dependant upon routes travelled, and applicable irrespective of whether or not the tanker is carrying fuel, therefore impacting also on the tankers’ return journeys). Thus, to some extent, that which the minister has given with one hand he intends taking with the other.

In his statement, the minister also emphasised government’s intention to pursue vigorously Public Private-sector Partnerships (PPPs), being partial or total privatisation of parastatals. Doing so is long overdue, although oft foreshadowed by past Zimbabwean governments, and therefore the minister’s statement is deserving of approbation.

However, very regrettably, he did not include Noczim in entities upon which primary focus is to be targeted. Although Zimbabwe has numerous international, national and provincial oil companies, Noczim has a near-monopolistic stranglehold upon the fuel sector.

It is not only the chair of the National Procurement Committee, but it also has an almost absolute control over the oil supply chain, inclusive of the Beira terminal and the pipeline form Beira to Feruka and Msasa tankage, and also controls allocations and distribution to oil companies. In addition, it has a monolithic debt burden, which impairs its ability to effect timeous allocation to the oil companies.

If Zimbabwe is not to be confronted by frequent shortages of fuel supplies, and if fuel is not to be a trigger for recurrent inflationary trends hindering the much-needed economic recovery, two major courageous actions must be rapidly pursued unreservedly by government. First and foremost, and notwithstanding that minister Biti has a desperate need (created by his predecessors) for revenue inflows, he needs to review yet again the excessive, highly counterproductive governmental imposts upon fuel.

Instead of a token 20% reduction of just one of the diverse fuel taxes (and only in respect of diesel), he needs to effect reductions, or removal of some of the taxes and levies, which would bring about an aggregate reduction of not less than 15% to 20% of the total governmental charges. Concurrently, the near-foolhardy intent of tollgates on national roads needs to be rescinded. 

(How can toll fees be justified when roads are ill-maintained, when such fees are inflation-stimulating and when the manner of their intended implementation impacts not only upon long-distance users of the roads, but also upon those residents in proximity to tollgates, travelling minimal distances on the national roads?).

Although attainment of a balance between fiscal revenues and outflows is an essential element of Zimbabwean economic recovery and wellbeing, and although minister Biti’s determination to achieve this is most praiseworthy, that recovery and wellbeing cannot be achieved by levying duties and taxes which are massively inflationary, and by continuing an infrastructure which compounds fuel costs, whilst causing recurrent fuel scarcities. Doing so is a blatant pursuit of “fuelish” policies, which should be speedily replaced by economic recovery–inducing policies.

BY ERIC BLOCH

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