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Weakening ZWL$ stalls local currency fuel roll out

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The depreciation of the local currency against the greenback  is slowing down the setting up of local currency designated fuel service stations amid indications that various operators rejected the deal in fear of getting out of business on account of the volatile environment.

The fuel dealers said by the time one would have finished selling fuel the rate would have changed even on the official exchange rate.

A fuel dealer close to the development told this publication that the pressure to deal with local currency charged  fuel is just too much and service stations do not want to get into that distress again.

“Various fuel dealers suffered when they procured fuel in ZWL$ and they can’t go the same route again as the stock may end at a time when the allotment  was yet to be cleared leading to fuel shortages. If the government owned service stations or those close to them could do that may help the situation,” a source said.

In February Zimbabwe Energy Regulatory Authority (ZERA) announced it was expecting to have more outlets selling in local currency but weakening of the local currency is slowing the programme down.

According to ZERA about 57 outlets are selling fuel in local currency countrywide.

ZERA chief executive Eddington Mazambani told Business Times the government will move forward with its plans on the rolling out of the local currency pegged fuel.

“The rolling out of service stations selling RTGS/ZWL fuel is still on-going mostly through government owned companies. The programme is set to be expanded to include some private companies and to enable them in accessing the funds.

“It is expected that once the programme gathers momentum, more sites will be taken on board,” Mazambani said.

“This programme is to let individuals who struggle to access US$ able to purchase fuel  and stand-alone fuel companies will continue selling fuel in any foreign currency.

“ZERA has set conditions in which any licensed service station to sell ZWL fuel has to oblige,”  he said.

Zimbabwe has 690 licenced service stations across the country.

Mazambani said ZERA will introduce local currency charged fuel  after consultations with the central bank that provides funds for that.

 He said Petrotrade, CMED, Zuva and Genesis are some of the service stations currently selling fuel in local currency.

The slowing in the rollout of more service stations that sell in local currency comes as there are concerns that the fuel price is higher in US$ terms amid calls for the government to reduce taxes.

Fuel is being sold at US$1.73 and US$1.74 for petrol and diesel respectively.

The fuel was around US$1.30 per litre in January.

Mazambani told Business Times that the government had done well to keep contain the fuel prices.

“We are doing all we can to keep the fuel prices affordable in Zimbabwe, had it not been for the government which removed some tax heads, the fuel prices could have been above US$2 per litre as we speak,” he said.

“There are various tax heads that were reduced by the Treasury to cushion the market from East Europe war effects, unfortunately I can’t give them offhand but there were some significant efforts to help the economy.

“The situation could have been worse than it is right now,” Mazambani said.

He said Zimbabwe  may further reduce fuel levies to stymie a sustained spike in the domestic price of petroleum products after global prices soared on market uncertainty due to the conflict between Ukraine and Russia.

Countries the world over have announced fuel subsidies to cushion consumers from the impact of rising energy prices after oil  prices skyrocketed to 14-year highs.

When fuel prices increase, a larger share of households’ budgets is likely to be spent on it, which leaves less to spend on other goods and services.

The same goes for businesses whose goods must be shipped from place to place given transportation and logistics use fuel as a major input, such as airlines, road and rail and ship cargo transport.

Higher oil prices tend to make production more expensive for businesses, just as they make it more expensive for households to do the things they normally do.

Economist Gift Mugano the government should further reduce tax heads as they are still high on fuel pricing.

“It is high time that the government should relook at their pricing model of fuel as they should relook at some tax heads, for example, they should remove Zimbabwe National Road Administration road levy since we are getting that from the tollgate.

“Also take out the strategic reserve levy for the purposes of reducing the burden on the economy but that is not happening,” Mugano said.

He said when fuel price goes up, the pass-on effect is quite massive considering the role of fuel in the economy and this is very inflationary.

“The development will only worsen the inflationary pressures which are already giving us headache. The economy is going to a point of no return in terms of the total economic meltdown as we are keeping giving poison to a sick person that is in the intensive care unit,” he said.

Confederation of Zimbabwe Industries president Kurai Matsheza said the fuel price hikes push the cost of production up, resulting in goods being more expensive.

“The authorities that be, should cut on some of the levies which are levied on the final price of fuel so that industry does not feel the pinch caused by rising inputs,” he said .

Finance and Economic Development Minister Mthuli Ncube said he started reducing levies on fuel late last year to hold local prices steady, although this was not made public.

According to ZERA, government taxes and levies make up close to 30% of the final fuel pump price and among some of the taxes and levies on fuel, while Zimbabwe National Road Authority collects US$0.02 per litre on petrol and diesel.Last year, fuel excise accounted for 83.1% of total excise collections, according to the Treasury.

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