Tuesday, May 21, 2019

New Fuel Prices Circular by ZERA

Zimbabwe’s Energy regulating authority, ZERA has eaised the fuel prices by 45%.
Following an earlier announcement, ZERA said it has released new fuel pump prices following the removal of subsidies by the RBZ on Monday. This resulted in there being two contradictory statements by the same body on the same day and ZERA’s PR department told ZimEye, members of the public should disregard the first one.
In a statement signed by the acting CEO, ZERA said the maximum pump price for Diesel will be set at $4.89 while that of petrol will be $4.97 to give an average growth rate of 45% from the last set prices as at January 2019.
“The ZERA advices that in terms of amendments to SI 9 and 10 of 2019 and the new measures taken by the RBZ on fuel procurement based the interbank applicable rate as at 21 May 2019, the pump prices will be adjusted as follows” reads part of the ZERA statement.
To arrive at the price, ZERA adjusted for what it assumed as the average interbank market exchange rate of 4.6 which is however at variance to the closing interbank rate of 3.5 on Monday.
Adoption of a weaker rate would therefore imply a lower pump price for the fuel. The challenge however remains that the interbank has been low on the supply side, due to what players allege to be government’s manipulation of the rate.
The market has only managed to cross an average of $2.1 million in value of trades per session since its promulgation in February 2019. This figure is however grossly low when compared to the average daily forex demand for Zimbabwe.
Using 2018 trade statistics, on average Zimbabwe demand about $20 million in daily forex demands for purposes of imports. It however has to be noted that aggregate demand levels for 2018 were an outlier given the high levels of money supply.
A tightening fiscus, high taxation and inflation levels, has eroded incomes and impacted spend consequently reducing consumption levels.
Fuel imports however stand out as the largest gobblers of forex, accounting for an estimate 20% of Zimbabwe’s imports by value. This implies an escalated demand for forex on the interbank, which could result in a run on the exchange rate, as the USD firms.
The challenge going forward will be how to constantly adjust fuel market prices given the volatile rate. Market players behavior has shown that there is serious tendency towards risk aversion in the economy. Players are referring to the higher rate between the interbank and the parallel market for purposes of pricing their products.
In the fuel market it will increasingly become difficult for ZERA to dictate prices going forward, due to exchange rate fluctuations on the interbank. Sooner players will begin to price their fuel at random prices and these market distortions may exert more pressure on prices