Introspection into fuel sector

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LIBERALISATION of the fuel industry did not bring joy to the energy sector as the country is still facing an acute shortage of oil.

The collapse of the economy has seen our energy sector struggling to meet its demand just like any other sectors, resulting in massive fuel and power shortages across the country with long queues being the order of the day.

These shortages have been caused by serious shortages of foreign currency, coupled with an inefficient interbank market. This is one of the effects of running a persistent current account deficit. In terms of infrastructure — namely the pipeline and storage facilities — for now it is adequate to curtail shortages.

One may question why these challenges are still haunting a country that has about 81 importers of oil and 453 retailers. Zimbabwe Energy Regulatory Authority (Zera) has done quite well since its establishment in 2011, perhaps because it was born during the Government of National Unity era.

Prior to its establishment, fuel procurement was done by the National Oil Company of Zimbabwe (Noczim) but due to massive corruption scandals at this state-owned procurer, government found it fit to change its procurement model and abandon Noczim.

The scandals at Noczim remind me of the jatropha project which suffered a stillbirth. The jatropha processing plant in Mt Hampden is still a white elephant and even the plantations have been wiped out by veld fires and humans. This is one problem haunting our government: governance. If proper research were to be done on the jatropha project, I am sure Energy minister Fortune Chasi would be exploring ways of reviving it.

The country’s daily effective demand for petrol is around two million litres and diesel three million litres. In January this year the demand was around seven million litres per day and the drop in demand was due to the persistent increase in the price of the product coupled with shrinking incomes. Suppliers are still failing to meet this demand not because they do not have the capacity but because the country does not have enough forex to meet demand.
What is more interesting is that in the midst of these shortages, the country has a dead stock of about 26,8 million litres and this can sustain our country for about five days. The unfortunate thing is even if we use whatever substance to pump out the stock in the pipeline, we will at a certain point need that dead stock once again when we want to pump new supplies. This should be the stock in the pipeline at whatever time period.

The country does have these major suppliers that include Total, Zuva Petroleum, Engen, Puma (Trafigura), Petrotrade, and the Indigenous Petroleum Association of Zimbabwe (IPAZ) which have a capacity to supply the country. However, due to take-or-pay obligation, Zimbabwe is failing to pay for its fuel and repatriating of forex to their respective countries becomes a serious challenge due to forex shortages.

But one may ask: Do we really have forex shortages when quite a substantial amount is circulating outside the formal market? What is then needed, at least, to divert the forex trading on the parallel market is to make the interbank market work and restore confidence that has been lost in the financial sector. The Reserve Bank governor John Mangudya is not doing enough in order to make the interbank market a completely liberalised market.
Early this year the government raised the blending requirement to 20% though this came with mixed feeling from transport operators. Though there were several advantages of blending, which include cutting costs, employment, etc. Should we increase our blending ratio as a way of cutting costs and easing shortages? Well that one requires stakeholders to do a cost benefit analysis and decide.

Complete liberation of the interbank rate will attract traders to openly sell their forex at a competitive rate. However, in the short term, inflation may rise because fuel prices are tracking the interbank though this is not a problem if money supply growth is kept within the limits.

The main problem is that the Reserve Bank of Zimbabwe (RBZ) does not have enough forex to support the interbank. In the short-term, Chasi should ensure that the interbank market works to make forex available to fuel suppliers. The long-run solutions are to boost our exports so as to increase foreign currency earnings, restore market confidence in the financial sector and address governance issues in all public sectors. Maybe for a country like Zimbabwe it is too early to talk of electric cars. This is the direction that the world is now taking, though oil producers may not want to support such ideas.

Although there are a lot of accusations on the cartels in this oligopolistic market. It is difficult to deny the existence of cartels that have captured the sector and are holding it to ransom. Chasi should come up with robust measures to disband these cartels and ensure that the industry works efficiently.

Hopefully, his hands are not tied as some names implicated are bigwigs. In the long-term, demand for petrol can be reduced by establishing an efficient public transport system and I can say this is long overdue. Our public transport is in a dire state and public-private partnerships are needed to revive these white elephants.

The National Railways of Zimbabwe (NRZ) never bought new and advanced trains; the same trains used in the 1990s are still in use in this era. Although the Zimbabwe United Passenger Company (Zupco) has bought many new buses over the years, poor corporate governance has resulted in the parastatal being broke. If Zupco and the NRZ were to work efficiently and reliably, motorists would park their private cars and find it economical to use public transport.

Kenneth Mareya is an economic analyst. — sirkenmar@gmail.com. This article is part of the New Perspectives weekly series co-ordinated by Lovemore Kadenge, immediate past-president of the Zimbabwe Economics Society. — kadenge.zes@gmail.com and mobile: +263 772 382 852.

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