RBZ in fuel forex abuse storm

PARLIAMENT is investigating the Reserve Bank of Zimbabwe (RBZ)’s weekly foreign currency allocations to fuel importers amid revelations that foreign companies and some retailers who do not import the commodity are benefitting from the direct fuel import facility in a development that has raised concerns about arbitrage and abuse.

The central bank has for the past three weeks been releasing foreign currency allocation schedules for fuel importers.The schedules show that some local fuel dealers who do not import the commodity are benefitting from the facility while foreign firms like Singaporean-based multinational company that trades in metals and energy, Trafigura, are getting the bulk of the allocations. Puma, which receives its own allocation, also benefits under the Trafigura allocation.

According to the schedule, some of the beneficiaries of the forex allocations are relatively unknown fuel dealers, while in some instances, Puma — linked to business tycoon Kuda Tagwirei — got double allocations in one week.

However, RBZ governor John Mangudya dismissed claims that the facility was being abused.“The fuel sector accesses foreign exchange through letters of credit (LCs). The LC facility has assisted the country to import critical requirements in the face of an acute shortage of foreign exchange. It is essentially a deferred payment instrument that allows the country to bring in fuel or any commodity with final repayment spread to about 90–180 days,” Mangudya said.

“The LC facility is managed by local banks and guaranteed by the Reserve Bank and confirmed by offshore partners. Qualification to participate in the LC facility for the OMCs (oil marketing companies) is subject to due diligence processes carried out by both the local bank and the offshore LC confirming banks. Local banks, therefore, take a credit position on each of the companies benefiting from the LCs.

“As a result, it is possible that some OMCs may be failing to meet the qualifying criteria for them to access the LCs. Further, some OMCs may access lower limits from banks depending on the size of their balance sheets.

“There is no forex that goes to the account of the OMC under the LC arrangement. The LC is structured to benefit the supplier directly, who then releases product once

the LC has been confirmed by the offshore bank,” he said.

The RBZ, for March 2020, set aside US$120 million for fuel importation. A total of US$18,7 million was distributed in the first week of the month ending March 8, 2020.

According to that week’s schedule, Trafigura got the lion’s share of the forex after it was allocated US$7,5 million, followed by Zuva, which got US$3 million.
The Trafigura allocation benefits Puma, Trek and Genesis Petroleum, yet Puma got a separate allocation amounting to US$1,5 million.

Other beneficiaries, included Total (US$2,5 million); an ethereal importer known as IMIG (US$1,52 million), Engen (US$700 000) and Raven Energy (US$500 000).
A total of US$25,24 million was distributed in the second week of March, again with Trafigura getting the biggest allocation of US$5 million, with Total getting the same amount.

A total of US$5 million was allocated to the National Oil Company of Zimbabwe (Noic), which does not import fuel, but manages on behalf of government the dry ports in Harare’s Msasa and Mabvuku. Beneficiaries of this allocation are Petrotrade and Genesis.

Zuva and Engen got US$4 million each while two new entities, namely ZX Fuels and the Indigenous Petroleum Association of Zimbabwe (Ipaz) got US$750 000 and US$990 000 respectively.

This week, Puma got a double allocation as it is listed as the sole beneficiary of the US$3,2 million under the Trafigura allocation while it received its own US$500 000 out of the weekly package totaling US$US$23,89 million.

A new entrant on the list known as Another River has been allocated US$500 000, which will benefit Heavy Fuels.Chairperson of Parliament’s Public Accounts Committee (PAC) Tendai Biti confirmed in an interview with the Zimbabwe Independent this week that they were investigating the fuel allocations.

“The key issue is that indigenous fuel importers, minus Zuva, control 45% of the fuel sector, but they are getting less than 2% of the forex allocation. The bulk is shared among Trafigura, Sakunda and Total,” Biti said.

“There is also an attempt to delink Trafigura, Puma and Sakunda. Those three entities get disproportionate forex allocations. Trafigura and Puma are foreign companies, why are they getting these allocations? This is a very incestuous and predatory relationship which is evidence of state capture.”

“The irony of it is that they are getting those allocations and yet the fuel is hardly available at their service stations. Where is all that money going?
“As PAC, we are looking into this issue because these are public funds being abused. We will definitely get to the bottom of it. We will follow the money,” he said.

Sources in the fuel sector also questioned the allocations in interviews with the Independent this week.“When one looks at these allocation schedules, they are bound to ask: Why is Petrotade getting? It is not a fuel importer. It’s a retailer, but it is being allocated forex for importers. Noic isn’t an importer as well.

“It is simply responsible for the storage infrastructure at Msasa, but it’s getting allocated forex for fuel imports. Puma is getting double allocations,” a fuel sector source said.

Another source also questioned the allocation of forex to Ipaz saying: “In principle, a trade association can’t be treated as an entity for public funds allocation as it disadvantages those who aren’t members.”

But Mangudya also dismissed the claims of favouritism. He said: “There is no favouritism under the arrangement, the allocation to Puma is guided by the OMC’s assessed credit limit by banks which is based on the company’s balance sheet. As already highlighted, banks take a credit position on the company thereby setting the credit limit. The structure of the LC facility is such that headroom is created when issued LCs mature.

“It only happens that at the time Puma had those LCs which had matured and were due for roll-over/re-issue. As you would notice going forward, the figures would vary depending on the available headroom. Further, there is need to take into consideration the distribution network of each OMC — i.e. the market share”.

He said Noic, Ipaz and foreign companies can access foreign currency allocations as long as they meet the credit criteria.“Noic is allowed to import fuel into the country. Ipaz, as a trade association, represents the smaller indigenous OMCs who have to be supported in the fuel sector. The small companies pull their resources together in order to benefit from economies of scale in procurement. As a result, we are not sure whether you do not want the small indigenous players to be supported.

“All other entities that are outside can still benefit as long as they meet the qualifying criteria for accessing the LCs. The Reserve Bank does not restrict any company from accessing the LC facility from the participating banks as long as they meet the credit criteria,” he said.

Fuel firms cumulatively require US$4,65 million daily to meet demand.The companies collectively need US$32,55 million a week, meaning they spend US$130,2 million monthly to supply adequate fuel.

Zimbabwe, gripped by an acute foreign currency crisis as well as a liquidity crunch and cash shortages, exacerbated by currency volatility and price instability, has been struggling to meet its fuel needs, culminating in shortages in the domestic market. — Staff Writer.

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