Undenge says fuel prices are not influenced by cartels

Energy Minister Samuel Undenge yesterday said fuel prices were not influenced by cartels in the oil industry but were agreed between oil companies and the Zimbabwe Energy Regulatory Agency.

Responding to a question by Binga North Member of Parliament Prince Sibanda who said there was a cartel of three or four oil companies that operated most of the fuel stations and therefore influenced prices, Undenge said: “It is not determined by any cartels.”

The price was agreed between the oil companies and ZERA but the problem was that when international prices rose, oil companies immediately increased their prices, but they did not adjust them immediately when they dropped.

“We set a period of two weeks whereby if the price of fuel goes up, companies should not immediately raise prices. They should wait for two weeks. I agree with you that in the past the moment when prices went up, oil companies increased prices at the same time. Whereas when prices go down they maintain the high price. They do not immediately lower that, hence this directive which I gave that we need a period of two weeks to ensure that there is a change in price upwards or downwards depending on the price movement on the global market.”

Q &A:

REDUCTION OF FUEL PRICES

MR. CROSS asked the Minister of Energy and Power Development to explain steps being taken by his Ministry to ensure that fuel wholesalers and retailers immediately reduce their fuel prices in line with the 30% decline in global crude oil prices?

THE MINISTER OF ENERGY AND POWER DEVELOPMENT (DR. UNDENGE): Fuel prices are determined through a fuel pricing model agreed to between oil companies and the Zimbabwe Energy Regulatory Authority (ZERA). The model sets the permissible maximum pump prices after taking into account the cost of doing business in the fuel sub sector. Fuel retailers engage in price competition but this must be below the price cap applicable at any point in time.

The first cost element in the fuel pricing model is the price at which oil companies procure the fuel. As this price changes, the model captures the movements and adjusts the maximum pump price accordingly. The same applies when the other cost elements in the model change.

The Zimbabwe Energy Regulatory Authority constantly monitors pump prices and following our recent experience, they can now penalise retailers found selling above the price cap in terms of Statutory Instrument 20 of 2015. Hon. members may be aware that during the same period that fuel prices have been falling on the international market, Government increased duty on petrol and diesel by 5c per litre on petrol and another 10c per litre for both products. This resulted in duty on petrol increasing from 30c to 45c per litre and that of diesel increasing from 25c to 40c per litre.

Madam Speaker, the increase in duty had the effect of increasing fuel prices at the pump during the months of August to September 2014 and took away a significant portion of the price gains that had been achieved. It is important to note that since then local fuel prices have been reducing in line with the fall in the price of crude oil on the international market.

At the beginning of November 2014, the price of petrol was as high as $1.56 per litre. By mid December, the prices were between $1.49 and $1.53 per litre. The price of diesel had also fallen from around $1.44 to between $1.38 and $1.41 per litre. On 8th January 2015, I gave a press conference at which I called upon the local oil companies to reduce further fuel prices in line with the falling price of crude oil. This resulted in prices falling to around $1.29 per litre for diesel and $1.44 per litre of petrol.

It is important to note the following; the fluctuations of the crude oil prices do not immediately reflect on domestic pump prices because it takes time to get the cheaper product onto the local market. I have directed that price reviews be done every two weeks because our estimation is that this is time enough for old stock to have been sold and new stock received.

Although price comparisons with other countries are useful, other important factors also come into play. Countries with ports and refineries tend to be at an advantage compared to land locked countries. Some countries subsidise fuel and others impose minimal taxes on fuel.

In Zimbabwe, taxes and levies on petrol amount to 63c per litre and on diesel the amount is 46c per litre.

In conclusion Madam Speaker, fuel prices in Zimbabwe are currently within the agreed price cap as per the fuel pricing model in use. The prices are moving in tandem with the movement of crude oil prices on the international market. In addition, oil companies continue to compete ensuring the consumer gets value for money. I thank you.

MR. P. D. SIBANDA: Supplementary question. It is said that the pricing of fuel in this country is influenced by a cartel of 3 or 4 oil companies that are operating the majority of fuel stations in the country. What policy measures are you going to put in place to ensure that this cartel does not influence the pricing of fuel in the country?

DR. UNDENGE: I hope the hon. member was listening when I was explaining the pricing model which we use which determines the pricing of fuel in the country. It is not determined by any cartels. I explained here in response to a question which was asked by Hon. Cross, how we utilise the pricing model which we have and using that pricing model, it is the one which controls prices and follows the movements in international prices. We set a period of two weeks whereby if the price of fuel goes up, companies should not immediately raise prices. They should wait for two weeks.

I agree with you that in the past the moment when prices went up, oil companies increased prices at the same time. Whereas when prices go down they maintain the high price. They do not immediately lower that, hence this directive which I gave that we need a period of two weeks to ensure that there is a change in price upwards or downwards depending on the price movement on the global market. I thank you.

MR. NDUNA: Besides our fuel being a little bit dearer than that of South Africa, I believe the viscosity or quality is a bit on the lower side because for the same quarter tank of fuel, with South African fuel that you buy in there, you do a little bit more in the number of kilometers than you would do here. What is it that we are putting in place to make sure that our quality also matches the quality that is around our borders?

DR. UNDENGE: Madam Speaker, I would like to assure this House that the quality of our fuel is not less than the quality in South Africa. We always monitor its quality; it is not true that our fuel when used here has less mileage than in South Africa. I call upon the hon. member to come to my office with that empirical evidence. Thank you.

MR. BHEBHE: Madam Speaker, there has been some disparities in terms of pricing. According to the Statutory Instrument, there are three categories of pricing. There is the price for the oil company, the price for the wholesaler and the price for the dealer. That price was regulated by Statutory Instruments that were different. I remember it was changed during the shortage of fuel. What measures are you taking to try and bring back that regulation that categorises the three pricing systems as per your Statutory Instrument?

DR. UNDENGE: Our pricing model which I will avail to the hon. member, addresses every stage of trading, the margin for the wholesaler and at the retail end. That formula, is all encompassing. It is an inclusive formula, it caters for everyone in the fuel chain. So, that is addressed hon. member.

MR. MATANGAIDZE: The danger we have with the whole fuel pricing Madam Speaker is in ensuring that you get value for money, that means you get one litre when you have bought one litre…

THE DEPUTY SPEAKER: What is the question.

MR. MATANGAIDZE: The question is there is a system called a-sizing, where ZERA is supposed to be checking these meters that they are delivering the liters as required. We want to know the progress on doing that.

DR. UNDENGE: Madam Speaker, I am trying to decipher the question asked by the hon. member. Perhaps he is saying that when one goes to the pump, you are short changed in terms of the quantity of fuel you get, that it may not be up to a litre. If there is that exercise and you suspect that any garage is cheating, let ZERA know or let us know and we will immediately institute appropriate action. I thank you.

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