HomeBusinessPressure mounts for cheaper fuel prices

Pressure mounts for cheaper fuel prices

The Confederation of Zimbabwe Industries (CZI) says the decline in fuel prices does not match the reduction in international crude oil prices because of the high tax margins that government puts on every litre sold.

TATIRA ZWINOIRA

The price of crude oil per barrel reached an all-time low of $31,63 on Friday.

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Despite the steady decline in international oil prices, in Zimbabwe fuel prices have only gone down to $1,27 and $1,05 per litre for petrol and diesel respectively.

Before the international price reduction, local prices were $1,33 and $1,15 per litre respectively.

While lauding the price reduction, CZI president Busisa Moyo said local prices were still high considering that the landed price was $0,45 per litre.

“The landed price is $0,45 and the rest is on margins and when you deal with that, it still remains on the high end,” he said.

“Fuel operators charge between 12% to 20% mark-up while the rest is government tax.

“The current fuel prices that have been reduced are still a far cry from where it needs to be.

“Fuel prices are factored into the cost of everything we do and there is a need to look for other sources of revenue. Government needs to move more towards lower taxes and levies.”

The profit made by fuel operators averaged between 6 cents and 10 cents, meaning that the rest, about 72 cents per litre for petrol, is on government taxes and levies.

These costs involved in the pricing model are the FOB price (the price at which fuel is charged by local traders as determined by international ones based on market forces at the port of delivery), pipeline costs, taxes and levies, administrative costs, distribution costs and profit margins.

The main cost drivers in the cost build up pricing are FOB and taxes and levies.

FOB constitutes 34,6% and 33% for diesel and petrol respectively.

Taxes and levies constitute 42,69% and 49,38% for diesel and petrol respectively.

The FOB prices on the international market have been going down.

FOB is the second highest cost in the fuel cost build-up as the country does not import crude oil but rather the refined product.

This cost is preceded by high taxes and levies put in place by government.

Energy and Power Development minister Samuel Undenge said last week that prices were now on a continual decline in tandem with the reduction of the same rate due to other factors which affect local prices.

“The maximum pump price of petrol has fallen from around $1,52 per litre in June 2015 to $1,27 per litre in February 1 this year. The price of diesel has also declined from $1,38 per litre in June 2015 to below $1,05 as of this week,” Undenge said.

He said the other factors were the ones determined through the fuel pricing model, normally referred to as a Fuel Cost Build-Up which was produced by government and stakeholders in the oil industry.

A snap survey done by Standardbusiness showed that Engen was selling petrol and diesel at $1,26 and $1,06 respectively, Total $1,29 for petrol and $1,05 for diesel, Redan Petroleum $1,30 and $1,08 respectively, Puma $1,30 and $1,08 and Trek was selling petrol and diesel at $1,26 and $1,02 respectively.

Zimbabwe Energy Regulatory Authority chief executive officer Gloria Magombo said the drop in the price of fuels was due to better sequencing of regulations put in place last year.

“The prices are going down now because we have better sequencing on how the prices are set and how they should be charged through SI 100 [Statutory Instrument] to the end user, which is governing the way we put our price structures in place,” she said.

“We expect further compliance from those in the sector going forward as well as a further reduction.”

Despite the drop in the price of crude oil per barrel, the price of fuel still remains comparatively on the high-end against other regional countries, as the drop continues to move at a snail’s pace.

But Undenge said the fuel price in Zimbabwe was directly affected by the international oil prices, specifically the price of the refined product, as the country did not import crude oil.

“Further costs are incurred in refining the crude oil and transporting the finished products from the source to the end user”.

National Transport Workers Union of Zimbabwe president Noah Gwande said commuter operators were not translating the reduction of fuel to the fares.

He said: “What operators have done is to absorb the reduction for their own benefit and have not passed it on to the consumer.

“The targets set by the owners still remain the same, meaning they are enjoying wider margins.”

Consumer Council of Zimbabwe deputy executive director Rose Mpofu said consumers were happy with the reduction thus far but more needed to be done.

“When you look at the global market and fuel elsewhere in other countries, prices have gone down lower than what our Zimbabwean prices are, so consumers do wish for further reductions as it obviously has an impact on all other prices and commodities,” she said.

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