Fuel companies call for 2-week forex cover

Fuel firms operating in the country have said Government should supply them with two-week worth of foreign currency cover to ensure there are no gaps that "exaggerate" the fuel shortages.

Appearing before the Parliamentary Portfolio Committee on Mines and Energy, Major Oil Companies Industry Forum representative and acting CEO for Petrotrade Godfrey Ncube, said it is difficult to eradicate the long queues because of the gaps in supply.

The Major Oil Companies Industry Forum is constituted by companies including Total Zimbabwe, Engen, Petrotrade, Zuva Petroleum and Puma.

"As oil companies, we have a distribution structure designed to top up stocks in the service stations on our commercial customers. Sometimes when the service stations run dry, it takes longer to completely eradicate the queues because each drop is wiped out within a few minutes," said Mr Ncube.

"We then would require a bit of time. Each one of us currently gets fuel at different times and we try and fill the gap. We suggest the Government to try and just have a two-week period to allocate most of the foreign currency to the fuel companies so that we make all service stations wet and then work on top-up basis."

Zimbabwe has been facing fuel challenges over the past two weeks as the foreign currency situation continues to bite.

Added Ncube: "The consumption of petroleum products has increased this year, and the Zimbabwe energy Regulatory Authority would be able to give us the numbers if required.

"This coupled with the prices of fuel that had been going up until the last one month did put a huge pressure on foreign currency requirements.

"This has created a significant gap in a country that has been importing most of its products with pressure, from wheat, medicals and other key requirements."

Meanwhile, the Major Oil Companies Industry Forum have said that they want Letters of Credit (LCs) being allocated by the central bank for fuel payments to cover legacy debts owed to several fuel traders that bring fuel into the country.

In view of the prevailing foreign currency shortages, most fuel companies in the country have adopted innovative ways to circumvent the problem, namely the use of LCs. With a letter of credit a buyer's bank can guarantee payment to a seller if certain criteria are met.  

LCs help reduce the payment risks on international trade transactions. "The Reserve Bank of Zimbabwe has progressively substituted cash allocations by Letters of Credit to help us pay for the fuel.

"We cannot deny that setting up these LCs is a challenge, which creates issues when they need to be rolled over. Our suppliers have also done well by extending credit and keeping stocks in the country.

"We see an opportunity of improvement if we allow LCs to be allocated to old invoices from our suppliers so that their debt moves to avoid bad debt unlike the current situation whereby an LC is for future purchases," said Ncube.

"We can discuss with our suppliers to allow us to draw out product equivalent to the amount of the LC but pay up old invoices with the longest overdue period."

They expect that once the debt gap is covered it will become easier for the fuel traders to extend fuel to in advance of payments.