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Fuel price hike a step in some direction

26 May 2019 at 08:12hrs | Views
With the unending queues and the bond crashing against the dollar, the Energy ministry has once again raised fuel prices to stem the so-called 'under-recoveries' of oil companies. According to the latest data, as on may 20th the oil marketing companies were incurring a daily losses against the sale of diesel, kerosene and domestic LPG. There is a vast of under recovery against every litre of diesel sold. This coupled with Zimbabwe's foreign currency woes the ripples have been felt far and wide.

The finance minister says the government must not increase its oil subsidy bill any more if the bond continues to depreciate further against the dollar. "Yes, the rise of petrol and diesel prices will lead to some amount of inflation. But the consequences of keeping the prices artificially low would damage the economy more. There is no choice but to increase the pump price. It is not a popular move but very necessary one.  While there is no logic slashing transport costs while fuel prices sky rockets the experiment has defied logic.  

To be sure, the under-recoveries are not losses they reflect the difference between the costs of importing diesel and petrol at the international price and the price at which it is actually sold in the domestic market. Zimbabwe doesn't actually do that - it imports already refined oil and sells it in the domestic market. So under-recoveries are a 'notional' price and don't reflect actual losses that oil companies face, which are almost certainly high. Though how much high has always been a puzzle.

"If the government artificially keeps petroleum prices low, it will impact not just the oil marketing companies as is commonly perceived, but erode the profitability of upstream companies as well as general public. After all, one third of the burden (subsidy) is shared by the upstream companies. The unpredictability of the state of economy has already turned a big challenge for the nation. It is hampering planning on fresh investments, and development.

On the other hand the government officials are becoming so corrupt and they just openly demand bribes and big stakes in any investment which will be tabled for Zimbabwe.  

Oil companies have long complained that government have been tardy in actually paying out the foreign currency due to the oil companies, leading them to face a liquidity crunch in the short term.

This forces them to raise short-term borrowings to meet immediate bills, affecting their bottom line further at a time when interest rates are high. Balanced against the weakening of the finances of the oil companies is the broader impact of any fuel price hike on the rest of the economy, at a time when growth is already fragile at best.

There has been no research which looked at the impact on growth of raising domestic oil prices in response to an effective rise in the price of Fuel. They then compared this to a scenario where such increases in the international price were not passed on to consumers.

It's long been known that while there is an element of subsidy in fuel prices faced by end-consumers, they are also taxed heavily on every purchase of fuel by the state. In fact the biggest beneficiary of any increase in fuel prices are arguably state since the tax they charge on fuel is as a percentage of the price.

That fuel prices will rise are almost a given - the effects on growth will be seen playing out in the months ahead.

Fuel plays a great role in every aspect of life. Its shortage spells doom to each and every individual. It brings out the desperation of the nation when basic things are becoming scarce.

Zimbabwe's settlement system is that people stay away from their work places. So a daily life of a person has an interaction with fuel thus fuel becomes a very important aspect of life.

Because it impacts on everyday life it becomes imperative for the government to take charge of the fuel distribution.  

Exploitation of the people by the oil tycoons must be stopped. Zimbabwe must not be allowed to drag through pains again.

Foreign currency must be made available and fuel must be accrued for the benefits of the people.

Source - Dr Masimba Mavaza
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