RBZ raises red flag on forex demand

Daily demand for diesel has gone up by 20 percent to 3,6 million litres over the last four months as business and domestic consumers now heavily rely on the commodity to mitigate rolling power cuts currently plaguing the economy, it has been established.

As a net fuel importer, Zimbabwe now needs more foreign currency to pay for fuel, but low export receipts mean the country does not have adequate hard currency to meet its import bill after consumption sky-rocketed due to the intermittent power outages.

The power cuts have left industries and households turning to diesel power generations for more than 20 hours daily due to load shedding. Zesa owes both Eskom and Hydro Cahora Bassa about US$73 million.

Reserve Bank of Zimbabwe governor John Mangudya told Business Times that the high diesel consumption rate is costing Zimbabwe more money. The amount of forex being used to purchase diesel is now greater than the cost of importing electricity, said Mangudya suggesting that more resources should be channelled to electricity imports. He said demand surged between March and July on the back of depressed power generation.

"Diesel consumption has gone 20 percent up to around 3,6 million litres daily from a range of between 2,5 million litres and three million litres due to massive power outages. More companies have turned to diesel generators as an alternative power sources, but the
system is not sustainable given the amount of forex diesel consumes," Mangudya said adding the money could have been used for other sectors.

"If we take that US$20 million weekly (as an example ) used for importing diesel towards settling electricity debts and do new payments we will be helping everyone in the country because electricity is used by ordinary people in town and rural areas whereas only a few use huge generators."

He said generators at companies like telecoms giant Econet or retailer OK Zimbabwe require over 500 litres daily, a figure which is more than that of an individual car owner each month.

Mangudya said fuel is consuming more forex and more needs to be done to save forex.

He said more than half of the US$740m that was traded on the interbank market between February and July was utilised in fuel consumption.

Analysts say there seems to be a discord between the central bank and treasury as the prioritisation of forex should have been discussed by two parties.

RBZ says Hwange alone needs more than 500 000 litres of fuel weekly to be functional but forex challenges in the economy has reduced the requirement by more than half to cater for other sectors while in the telecomms sector fuel consumption has risen to about 2 million litres monthly for the biggest player.

The central bank boss said electricity outages had ripple effects, especially agriculture where wheat production is severely affected by power cuts. Agriculture experts say it takes 12 hours for centre pivots to go 360 degrees but with electricity available for only seven hours, wheat is in dire situation in most farms across the country. Mangudya said over US$200 million will be used in wheat importation.

Mangudya said instead of generators being used for standby operations, Zesa power had now taken up the standby role.

Zimbabwe currently gets its weekly supplies from a number of suppliers including Trafigura (20 million litres), Independent Petroleum Group (IPG) (12 million litres), Total (7-10 million litres), ENGEN (7 million litres), and Strauss (7 million litres).

Cumulatively, the fuel firms supply an average of 34 million litres into the market weekly when the country now requires  40 million litres.