The government has finally increased the price of fuel but though petrol almost doubled in price while diesel went up by 80 percent, it is still much cheaper than in neighbouring countries.
The price of leaded petrol went up from $74.47 to $145.20 a litre while that of unleaded petrol went up from $77.42 to$176.53 a litre. The price of Jet A1, which is used by aircraft shot up from $57.03 to $220.75 a litre while that of paraffin increased from $50 to $59.70 a litre.
The increase in the price of fuel had generally been agreed upon by the Tripartite Negotiating Forum, a grouping of government, business and labour, which is now spearheading the economic recovery of the country. Industry sources had expected the price to go up to as much as $300 a litre but they said this too would still be uneconomic saying that an economic rate would be around $500 a litre or more.
With a new exporter price of $800 to the greenback for half of the export earnings while the official exchange rate remains at $55, this translates to a blend rate of $427.50 which means petrol is technically 33 US cents. But the new price was an amicable compromise as the government wanted to cushion vulnerable groups.
The Ministry of Energy had been baffled by the increasing fuel consumption which clearly showed that it was too cheap. What baffled the ministry was that while exports had plunged from US$3.1 billion in 1997 to US$1.4 billion last year, and the economy was reported to have shrunk by 25 percent, there had been no corresponding reduction in the consumption of fuel.
In fact there was even a joke among industry officials that Zimbabwe was the only country in the region where mineral water was cheaper than fuel yet the country imported all its fuel. The fuel import bill is over US$400 million a year, a third of the country’s total exports last year. The ministry was also disturbed by increased fuel leakages into neighbouring countries as sales of both diesel and petrol had gone up at the border towns of Victoria Falls, Chirundu, Beitbridge and Mutare.
It was also worried that though the government had opened up the procurement of fuel to oil companies, there had been no takers because this was not viable at current prices. The ministry even suggested fuel rationing but this was shot down by those who argued that they could not go back to a system that was used during the colonial era.
The TNF agreed that the ministry should introduce a trigger mechanism in the pricing formula. This is a pricing and margin setting mechanism that is responsive to both international and local market forces which would allow for a trigger system to effect pump price changes.
It also agreed that the price of unleaded fuel be deregulated because it is associated with modern vehicles which are expensive. Consumers who can afford these vehicles, the TNF and ministry argued, had a “relatively inelastic demand for fuel”, and “they are relatively insensitive to adjustments in fuel prices”.
The difference between leaded and unleaded petrol was just three dollars. It is now just over $30. The sub-committee also agreed with the ministry that the price of Jet A1 should be decontrolled but the Jet A1 which will be used by the Air Force of Zimbabwe and for downgrading to paraffin would continue to be imported by the National Oil Company of Zimbabwe and would need to have a different price.
It had also been agreed that those driving foreign registered vehicles would have to buy their fuel in foreign currency, but it appears this proposal was shot down. there had been fears that neighbouring countries could retaliate. But the TNF had argued that the system was not new as tourists were already paying their hotel bills in foreign currency.