Zera expects fuel prices to go down

THE Zimbabwe Energy Regulatory Authority (Zera) expects fuel prices to decline further in the coming year as international oil prices continue to go down.

BY VICTORIA MTOMBA

Zera chief executive officer Gloria Magombo told journalists at a breakfast meeting on Friday that the authority was monitoring the prices of fuel on a weekly basis with a view to have them reduced.

“We are agreeing with you that the prices should go down. We should still get a reduction of fuel prices in the coming year. We are going back every week (to fuel retailers) and we ask for invoices. That is why prices are going down,” she said.

 Magombo said the price of fuel should go down to around US$1,32 per litre.

She also asked journalists to take the initiative and ask the fuel operators to reduce their prices so that everyone in the economy benefits from the decline in oil prices.

Magombo said the reason why the regulator had failed to set prices for fuel was because government no longer bought fuel as it used to do in the past. In the past National Oil Company of Zimbabwe used to import fuel on behalf of government, so it was easy for the government to set prices.

She said things had now changed as fuel operators procured their fuel from different sources. As such, it was the invoices that were now used to determine the prices.

Magombo said most of the fuel that was on sale now would have been procured before the prices went down internationally which meant the prevailing price reduction could not be felt immediately.

She said since 2009 the pricing formula had not been changed and most operators were using a 4% mark up but now it had gone up to 7% due to the fall in prices.

International oil prices have been on the decline since June this year and they are still on the decline.

7 Responses to Zera expects fuel prices to go down

  1. Guest December 21, 2014 at 9:48 am #

    It is under these circumstances that Zera, as an authority should intervene and set the prices. Right now the country is battling with uncompetitive production costs and yet these should be coming down in line with reducing international fuel prices. From the way Magombo is addressing issues, it would seem her hands are tied. How is that?

  2. makwinja December 21, 2014 at 12:11 pm #

    Magombo is either talking from a position of ignorance or lying. Local oil companies’ procurement cycles rarely exceed 14 days. Most companies buy on weekly cycles. We are talking of prices that started going down some five months (22 weeks) ago, witg no corresponding reduction on local prices, and Magombo wants to justify non reduction on stocks bought at higher prices. Does she want to tell us the oil xompanies are selling fuel bought in August?

    Invariably all oil companies buy fuel on a PLATTS +premium basis. PLATTS are the international oil prices. It therefore means that local oil companies buy at the most current international prices. Most local oil companies rely on credit facilities offered to the by local banks. Most of the facilities are in the form of overdrafts. With most international traders having fuel either at Msasa or Feruka, the supply lead time will be limited to confirmation of payment which is normally 3 days. Other traders accept a copy of tt as proof of payment. An oil company therefore has access to fuel immediately upon payment to supplier. It will therefore not prudent to hold huge fuel stocks funded by an overdraft when the supply lead time is that short.

    International oil traders will hedge against price fluctuations through options on international options markets. They will therefore lock the price upon receipt of payment from a local oil company. Before that the fuel price will reflect prevailing international prices. With all this in mind it is therefore not true that there are local oil companies selling fuel bought pre August.

    Coming to the issue of fuel importation, government through corruption by its officers created a defacto NOCZIM in the form of Sakunda Energy. The company enjoys privileges and benefits enjoyed by noczim when it was the sole fuel importer. This has made it extremely difficult for other oil companies to import their own fuel. As a consequences Sakunda accounts for over 80% fuel imported. This has had the effect of killing competition at that level that is why prices have not been going down.

    The public needs to know that Sakunda is an appandage of an oil trader called Trafigura. The former therefore sells tge latter’s fuel to local oil companies. It has embedded customers in the form of Sakunda Energy, Redan Petroleum, and Petrotrade (Pvt) Ltd which sell on average 40 million litres per month, combined. Trafigura has significant shareholding in the first two via its downstream subsidiary Puma Energy, and this makes these companies its embedded customers. As regards Petrotrade, it entered into a three year supply contract with Sakunda under controversial circumstances. The choice of Sakunda Trading as its supplir was made without going to tender as stipulated by the procurement statutes.

    With a control of over 80% of the market Trafigura through Sakunda dictates prices prevailing in the market. Right now they are making super profits in excess of usd0.20 per litre as opposed to profits of usd0.05 per litre that prevailed between 2009 and August 2014.

    • facts are stabborn December 22, 2014 at 6:42 am #

      knowledged comment. thank you makwinja

  3. mageja siziba December 21, 2014 at 3:14 pm #

    I love you Makwinja for this insightful comment. It makes the rest of us ask follow up questions such as “How did Sakunda inherit the role of NOCZIM as sole importer of our fuels in Zim?”

    “How can this diabolical arrangement be broken up?” “If Sacunda is earning profits of $0.20/lt on imported fuel instead of $0.05/lt, is there any way ZIMRA can extract the excess for the Treasury?”

    The Competition & Tariff Commission has recalled its officers from Xmas leave to investigate the pricing of our fuel as an urgent national issue. Shouldn’t these guys also be investigating the monopolistic structure of the industry besides the pricing issue? The web of cross equity sharing in such a tiny industry is quite amazing.

    Makwinja, thanks, bro!

  4. Portia King December 22, 2014 at 12:58 pm #

    the prices should have gone down already, u are profiteering

  5. Okech December 26, 2014 at 7:09 pm #

    I am still interested to know the role of ZERA in all this? Maybe Makwinja should educate our energy regulator. Now if this is happening in the petroleum sector which is by far better off than the electricity sector, can we really expect ZERA to fix problems in the electricity sector?

  6. Tawa December 29, 2014 at 7:45 am #

    We have been getting ripped off from day one. International oil prices are now down to $59 a barrel. Taking into account levies and taxes, prices should be between $1.20 and $1.25. It’s the the regulatory authority ZERA is in competent or they are being “oiled”.
    These Oil companies are ripping people off and making excessive profits.

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