Interbank foreign exchange rate – the Reserve Bank of Zimbabwe had been providing foreign currency for fuel procurement even after the parity between the US$ and the bond note had been removed. However, the system as Members are aware has now been changed to the interbank rate. Oil companies are now supposed to access foreign currency at the interbank rate. Even the letters of credit for fuel procurement are now priced at the interbank rate as pronounced by the Reserve Bank.
The interbank rate also applies to ethanol. The price of ethanol was last pegged in 2016 when the parity between the US$ and the bond note was still in place. After removal, the producers of ethanol obviously seek to have that revised.
Challenges in the petroleum sector – the main challenge is shortage of fuel on the market. The efforts being made to ensure fuel availability include: issuance of letters of credit to oil companies by the Reserve Bank for fuel procurement, negotiating with international oil traders for long term fuel supply arrangement, curbing malpractices in the industry compound the challenge by causing artificial shortages of the fuel and enforcing discipline in the consumers to stamp out or minimise fuel boarding.
Fuel Price Fluctuations
The other challenge is related to fuel price fluctuations. In the past, fuel price changes were caused mainly by the changes in the price of fuel on the international market. Such changes were usually minimal. Now the Interbank Rate, at least up to the time it stabilizes, will also be causing fuel price changes. Currently, the changes are upwards and more significant than the price changes caused by the international prices of fuel.
To curtail the fluctuations in the short-term, the Reserve Bank will hold the fuel exchange rate constant for two weeks. In the long term, the Ministry will be proposing a Fuel Stabilisation Fund which would act like a subsidy to cushion the consumers from acute fuel price increases.
Legacy Debt
Due to foreign currency constraints, the oil industry has accrued a huge debt for fuel supplied in the past. This resulted in the oil companies being unable to extend further credit, preferring to be paid up-front. Given the foreign currency challenges that the country faces, it is proving difficult to pay upfront for enough fuel to meet demand, hence the establishment of Letters of Credit for current consumption.
The Ministry continues to engage the Reserve Bank to come up with modalities to extinguish the debt. The oil companies also continue to raise concern over the issue. Their view is that Government is focusing only on paying for new suppliers, ignoring the legacy debt.
Promotion of New and Renewable Energy Sources
The country has abundant Renewable Energy resources that have largely remained untapped, especially for large scale power projects. These include solar, biogas, biofuels and wind energy sources. The Ministry seeks to increase the share on renewable energy sources in the supply mix. In order to accelerate the uptake of renewable energies, the Ministry has completed the drafting of two key policies.
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