The Reserve Bank of Zimbabwe (RBZ) has instructed Zimbabwe Energy Regulatory Authority (ZERA) to register all fuel service stations that have free funds which they can use to import fuel for sale in foreign currency.
RBZ Governor Dr John Mangudya said the central bank had given exchange control approval for ZERA to receive applications from fuel companies that have free funds for direct imports to be sold in hard currency.
Charging in foreign currency was outlawed last year through statutory instrument 142 of 2019, which restored the Zimbabwe dollar after a 10-year hiatus, following the scrapping of the local unit, which had been ravaged by inflation.
Previously, only a few designated fuel service stations could sell fuel in forex in terms of Statutory Instrument 212 of 2019, which allowed only guests of State and diplomats to buy petrol, diesel or other petroleum products in foreign currency.
But Zuva Petroleum this week announced it will be accepting foreign currency for fuel payments at eight of the firm’s service stations across the country, in Harare (four) and one each in Bulawayo, Mutare, Gweru and Victoria Falls.
While direct fuel imports (DFIs) will help ameliorate fuel shortages in the country, questions have been raised on whether allowing sections of the economy to sell in forex does not send wrong signals as Government pushes for de-dollarisation.
Economist Dr Gift Mugano said the licensing of more players to sell in forex, though good for fuel supply, it sends conflicting signals by authorities on the issue of de-dollarisation, as they are reflecting right and turning left.
He also said the economy seemed to be dollarising given that the informal sector, which makes more than 60 percent of the economy is accepting without a shred of doubt, largely payments in US dollars.
In fact, Dr Mangudya said this week that the central bank was happy with progress on de-dollarisation after a total of 189 million transactions valued at $459 billion were completed using local currency, which was reintroduced last year.
“We are now waiting for ZERA to ensure that they register or designate those service stations that will be selling in foreign currency so that there will be efficiency in terms of transparency, monitoring and books,” Dr Mangudya said.
“The oil marketing companies are going to apply to ZERA so that they will be registered to sell to people with free funds. Just like the passports, if you have the money (US dollars) you can pay to get your passport,” the governor added.
Dr Mangudya said Government approved direct fuel import by entities with free funds and this has been provisioned in the laws of the country. He said authorities do not want to block people with free funds for fuel imports.
“We are saying that if people have the money, let’s bring the money and circulate it through fuel imports, there is no abuse there,” Dr Mangudya said this week.
The RBZ chief’s remarks come against acute shortage of fuel in the country. Dr Mugano said the decision to allow fuel dealers to charge in forex would help Government mobilise requisite resources among holders of free funds for the
importation of fuel into the country.
However, he said the catch though was the pricing issue, which is whether ZERA will allow those with free funds to charge prices that enable them to recover their investments and still make a healthy profit.
This is because, Dr Mugano said, the current gazetted fuel price in local currency reflects an element of subsidy, as the price equivalent to a dollar per litre, which may not be sustainable for DFI fuel.
Last week, Dr Mangudya said the central bank was working on exchange control guidelines for direct fuel imports by local companies with free funds (forex), but would not immediately provide details on exactly how this will function.
Efforts to get a comment from the energy regulator were, however, fruitless yesterday with ZERA acting chief executive officer (CEO) Eddington Mazambani failing to take calls as he was reportedly attending a conference.
Although only a few designated stations had been given dispensation to sell fuel in hard currency, the practice had become rampant among unlicensed players while inept energy regulator ZERA folded its arms and watched.
However, Secretary for Energy and Power Development Engineer Gloria Magombo said ZERA was working on a watertight framework and licensing regime to curtail abuse and potential hazards from this arrangement.
“What is happening is that a proper regulatory system will be put in place to make sure that (abuse) does not happen. We will work with management to make sure they come up with some form of I.D system for the fuel.
“There will be regulations in licensing system and ways of managing it through the banking system. That is why the RBZ is working with ZERA, in terms of how to manage the free funds for use and acquisitions,” she said.
Magombo said they will make sure they come up with foolproof measures guided by terms and conditions including limits on the number of fuel stations and geographical spread of service stations that sell in forex.
Fuel was being sold in foreign currency at various undesignated service stations for anything between US$1,25 per litre and US$1,50. A litre of petrol fetches an average of US$2 on the black market.
Zimbabwe has over the past two years struggled to meet its domestic fuel needs due to acute shortage of foreign currency. Previously, only a few fuel dealers were allowed to sell fuel in foreign currency, especially to diplomats.
Amidst crippling foreign currency shortages in the country, the Reserve bank has been issuing letters of credit, processed through local banks and guaranteed by the Afreximbank, to ensure imports of the precious commodity.
Daily consumption of both diesel and petrol in Zimbabwe rose by 342 percent and 650 percent respectively between April and October 2018, putting Government under huge pressure to provide adequate foreign currency to pay for the commodity.
Petrol consumption vaulted from 1 million litres per day to about 7,6 million litres per day, reflecting a 650 percent increase while consumption of diesel rose from 1,9 million litres per day to about 7,6 million litres daily, a weighty 342 percent jump.
But the consumption of diesel and petrol plunged by almost 1,5 million litres and 1,8 million litres per day respectively between January and February last year, compared to previous months, on the back of price adjustments to stymie arbitrage.