STAFF WRITERS
A political war has erupted in the fuel industry over the regulation of the sector amid concerns of the emergence of an oligopoly whose political muscle is too strong to challenge.
So contentious is the issue that some high ranking Government officials say there is now need to revise the legislation to ensure that the commodity is properly regulated.
Sources familiar with developments said the emergence of cartels controlling the petroleum sector was widely debated in a high level government meeting with some ministers saying there was need for more regulation while others opposed the move.
At the centre of this fight was the extension of a contract between petroleum firm Sakunda Holdings and the Reserve Bank of Zimbabwe which was inked in 2016 to ease the then prevailing shortages. Now nearly two years after the deal, sources said Sakunda remains main buyer of fuel imports in the country saying this arrangement has effectively elbowed out new entrants. The Sakunda boss, sources said, has been given preferential treatment mainly due to his links with military chiefs who effectively control the country’s fuel pipeline.
In 2016, the central bank sealed a deal with Sakunda giving the firm adequate foreign currency to supply 160 million of fuel to ensure supplies during the festive season. This deal riled other players who felt that Sakunda would position itself to push volumes while others faced headaches in accessing foreign currency.
Special advisor to President Emmerson Mnangagwa, Christopher Mutsvangwa who strongly opposes the current arrangement is now pushing for South Africa-based energy firm Mining, Oil and Gas Service (MOGS) and an Abu Dhabi firm to join the list of suppliers.
MOGS past efforts to service the country’s oil pipeline were frustrated by former President Robert Mugabe.
Mutsvangwa this week told Business Times that the oligopoly in the energy sector was increasingly price manipulative, a development he said should be immediately addressed before the forthcoming general elections on July 30.
An oligopoly is a state of limited competition, in which the market is shared by a small number of producers or sellers.
According to Mutsvangwa, the opening up of the fuel sector is critical as it helps curb market malpractices.
“The situation where fuel supply has been left in the hands of a few players has posed a big challenge to the market and I believe Government has enough storage capacity to supply fuel for all players. But all I would wish is before July 30 there could be sanity in the sector and that Reserve Bank of Zimbabwe stops selective prioritization of foreign currency for fuel purchases,” Mutsvangwa said.
“Because it is a big-bucks sector, there is a lot of active interest from other players and I hope that once it’s opened those traditional suppliers can spruce up their game and use the super profits which they have acquired overtime to maintain advantage in a competitive environment.”
Comment from economist Taurai Togarepi
There has been a general increase in the international price of crude oil as shown on the chart below.
“This chart shows the price of fuel from July 3, 2017 to 3 July 2018 on the international market. Over the review period, crude oil price increased by about 40 percent on the international market. Ordinarily one will be tempted to point to the price dynamics in Zimbabwe to this increase. It’s only in Zimbabwe where the international price of fuel goes down and the pump price remains more or less the same. However, when the international price goes up, the consumer price is adjusted accordingly.
“Official figures obtained from the Zimbabwe Energy Council show that the country is importing 540 million litres of petrol and 630 million litres of diesel annually. At peak, the country imported over 730 million litres petrol and over a one billion litres of diesel.
“Players in the fuel industry say that the supply situation is complex as RBZ “has been captured” by a cartel of players. A fuel dealer who requested anonymity said that only two players dominate foreign currency allocations currently. “This is an issue that needs to be addressed immediately because it has led to multiple price distortions and manipulation.”
Mutsvangwa claims fuel cartel sponsoring opponents in Norton
Mutsvangwa said lack of competition in the fuel industry has also put him on a collision course with his political foes ahead of the July 30 polls. The war veterans’ leader wants to reclaim Norton Constituency but says his efforts were being challenged by the major fuel players who are now pouring funds into the campaigns of those opposing him.
“Yes there are reports that some of the players who feel threatened by my point of view are now sponsoring my political foes in the constituency. It is also true that the companies were involved in the primaries and particularly Norton because you know it’s a matter of record that most of the revenue streams which earn foreign currency, three major ones, all have my input,” said Mutsvangwa.
The potential of Zimbabwe to become a regional fuel hub
Mutsvangwa said considering the infrastructure that the country has and some still being mooted, there is massive potential for Zimbabwe to become a regional distribution hub.
As part of the current proposed plans, Botswana has made diplomatic overtures to collect its fuel from Zimbabwe while DRC has made some moves.
“So, Zimbabwe should become a regional distribution centre for fuel. This means Democratic Republic of Congo should have sure supply and then Zambia because these are the two countries which make up the copper belt which is a major and mining center and consumer of fossil fuels,” Mutsvangwa said.
“Botswana is also interested because sometimes it feels it has not been treated fairly by the huge South Africa market. This will be made possible because we have the infrastructure, in terms of storage facility and the pipeline which is the crucible for spot market trading.”
Last month the United States government asked the Organisation of Petroleum Exporting Countries (Opec) to increase oil production by around 1 million barrels per day, following the rise of US gasoline prices to their highest level in three years. Experts say the price of fuel is however expected to further rise this month after Opec agreed to increase production.
