Appearing before the Energy parliamentary committee, RBZ, ZERA and fuel players representing major oil companies and the Indigenous Petroleum Association of Zimbabwe all acknowledged that there were a lot of grey areas in the fuel sector, which were exacerbating inefficiencies and deepening arbitrage opportunities. According to RBZ governor Dr John Mangudya the country is generally a 100 mln-120 mln litre economy, but because of high indiscipline and inefficiencies even if it were to import 200 mln litres, there would still be shortages.
Dr Mangudya has been consistent with his message that the central bank is doing the right thing, but the existence of an invisible hand coupled with indiscipline, was creating chaos in the market.
Both RBZ and ZERA said they do not know what caused the spike in fuel consumption from 2017 where levels were at 4 mln litres of fuel daily to around 8.6 mln litres. According to Mangudya the spike had not been supported by economic activity while vehicular growth had remained stagnant. He however discredited the vehicle statistics in the country as being inaccurate as the three organisations responsible for computation had different numbers.
He said from January to March the country was importing US$20 mln worth of fuel on a weekly basis. The only hiccup occurred in April when LCs matured on April 13. But even then the bank had put in place measures which included an $80-$100 mln facility through NOIC. "Purchases of fuel were being done through Noic from April 13 in local dollars." Mangudya said Afreximbank had only approved a new three-year LC facility this week of US$250 mln. Out of that amount, US$100-US$120 mln was for the fuel industry while the remainder would be used for other essential imports.
The country had imported 543 mln litres from January to May excluding DFIs. Fuel players noted that DFI sales were still low as there was still an available cheaper option. Zuva said only 1% of sales were in forex and Petrotrade said the amount was below 0.5%. In January, the country imported 117 mln litres, February 106 mln litres, March 143 mln litres, April 74 mln litres and May 103 mln litres. "These figures do not warrant shortages. What is lacking is efficient monitoring, enforcement while Zimbabweans have a short termism approach to doing things. Even to us as the central bank... we bemoan where the fuel is going."
Mangudya said the RBZ was now working on a fuel card smart card system although it was facing resistance. The card, which will be modelled along the Indian Oil Smart Card will offer better surveillance. "We are making suggestions to Government and we think it's high time we do a fuel smart card system, as happened in India." He said the system was being developed in partnership with Harare Institute of Technology."
Mangudya said it would be easy to price all fuel in forex as that would also remove arbitrage but the reason why there was low demand on DFI fuel was because people can't afford it. He said in any case it was impossible for a country to completely trade in forex. "Since 2009, Zimbabwe was never fully dollarised. We had a 100% dollarised economy in pricing but the structure itself was not dollarised as electronic dollars were created on the RTGS platform until 2018. It's not possible to have a dollarised economy even though as long as there is an exchange rate there will always be an opportunity for arbitrage."
ZERA CE Edington Mazambani said the biggest concern was the arbitrage opportunities currently existing because of the exchange rate and the lack of a licencing framework for players within the sector who are selling fuel in foreign currency. "The worrying situation is where players who are selling in foreign currency, access fuel, which has been structured through the RBZ and payable in RTGS." He said this is not only unjust enrichment from the fuel players, but it also prejudiced the State of fuel duty in foreign currency.
Mazambani said it was difficult to keep a check on the players, particularly at present, where there was no licencing framework for the trade in foreign currency. The Ministry of Energy had initially gazetted Statutory Instrument 65 of 2020 on direct fuel imports (DFI) but it could not be enforced as there were three sections, which were against the original and umbrella Act. However, he noted that there wee three other legal instruments that make the trade of fuel in foreign currency legal, including the recent pronouncements by the RBZ, which legalised the use of free funds. The other two instruments relate to SI 161 of 2020 which stipulates duty payable in forex and SI 212 that says fuel in forex can be sold to the productive sector.
ZERA was now awaiting the amendment of the Petroleum Act where the DFI framework will be set out as the three other fx trading instruments did not contain specifics and provided challenges when pinning down offenders. This comes amid reports some fuel outlets were selling in forex but receipting in RTGS. In the meantime, the authority had started an exercise in Harare, which tracks fuel which has been bought in foreign currency. "We started an exercise where we are demanding documentary proof through the whole value chain from players who are trading in forex. We have since written to Zimra to come and assist us in this exercise."
To deal with the arbitrage, ZERA is set to re-introduce fuel marking for product, which will be sold in forex. In 2019, Government said it would start fuel marking to curtail illegal activities such as adulteration and diversion of fuel after foreign trucks were taking advantage of the exchange rate disparities.
