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Fuel imports for own consumption to be banned in Zimbabwe

by Africa Moyo
03 Apr 2016 at 08:03hrs | Views
GOVERNMENT is in the process of crafting a legal instrument that will ban petroleum companies from holding both wholesaling and retailing licences as a deliberate move to loosen the stranglehold that big fuel companies have on the local market.

If successful, the new intervention will slacken the grip that multinational companies such as Puma Energy, Total and Redan have on the sector.

Fledgling companies fear that multinational fuel companies are using their leverage to rig prices and muscle out predominantly local players from the business.

There are reported cases where companies that have wholesaling licences are erecting retail sites and operating them on their own, especially in circumstances where it takes long to find a suitable franchisee.

The new legislation will not be peculiar to Zimbabwe as South Africa also prohibits procuring and wholesaling companies from retailing.

The law is specifically configured to pave the way for historically disadvantaged South Africans (HDSAs).

South Africa's Petroleum Products Amendment Act of 2003, which supports the Charter for the South African Petroleum and Liquid Fuels Industry, emphasises on the promotion of transformation, including the empowerment of HDSAs.

Also, to ring-fence against present abuses where individuals or companies import fuel under the pretext that it is for own use, a law will be put in place to ban such practices.

Under the current legislation, it is not illegal for individuals and companies to bring in fuel up to 2000 litres for own consumption.

Last week, the Zimbabwe Energy Regulatory Authority (Zera) chief executive officer, Engineer Gloria Magombo, told The Sunday Mail Business that the law will be introduced soon.

"That is being addressed by the Ministry (of Energy and Power Development). Government is actually working on that policy position, so there will be definitely some announcements soon, but that's a ministry issue.

"The Minister (Dr Samuel Undenge) is seized with the issue. He actually said there is concern and we want to adopt a situation whereby you are either a wholesaler or a retailer.

"It doesn't mean they cannot own (retail) sites but they then outsource the retailing sites to other people so that there is empowerment to other individuals," said Eng Magombo.

Small players claim that multinational companies are rocking their businesses by pegging low retail prices, which makes it difficult for them to price their product within the 6 cents profit margin stipulated by the regulator.

About 18 small fuel players closed shop last year and it is forecasted that more will follow suit this year.

Motor Industry Association of Zimbabwe (MIAZ) chairperson for the fuel sector, Dr Passmore Matupire confirmed that there is an "unusually high rate of retail business failures" in the fuel industry due to unfair practices, including dual licensing, high taxes and underground retailers.

"Claims that players in the fuel industry are making money are a myth.

"There is actually an unusually high rate of retail business failures because of low profit margins, wholesalers' practice of extending into retailing operations and many licenses (taxes) being paid by retailers such as the Zera fuel levy, Zera LP Gas, EMA (Environmental Management Agency) fuel retail, EMA's LPG license, storage and shop licenses.

"There are also too many fuel and LP (liquid petroleum) gas backyard operators in the market, thereby making the playing field uneven," said Dr Matupire while contributing during a stakeholder workshop organised by Zera in Harare last week.

According to Statutory Instrument 80 of 2014, the diesel pricing structure in Zimbabwe incorporates a number of costs such as the Free-on-Board (FOB), freight (0,0655c), Zinara road levy (0,06c for diesel), carbon tax (0,013c for diesel), debt redemption (0,013c for diesel), strategic reserve levy (0,015c), storage and handling (0,015c), clearing agency fee (0,01c) and financing cost (0,010c).

Other costs include in-land bridging cost (0,015c), storage and handling costs (0,015c), secondary transport costs (0,020c) and oil company margin (7 percent; with 0,06c being the minimum).

They all cumulatively add up to about US0,33 cents.

However, the petrol pricing structure is slightly higher than that of diesel.

Early last year, Government hiked duty on fuel by between 28 percent and 33 percent, with customs duty on leaded petrol rising from 35c per litre to 45c per litre, unleaded petrol from 35c per litre to 45c per litre while diesel was increased from 30c to 40c per litre.

The country's tax charges for petroleum products are considered to be the second highest in the region after Malawi.

There are fears that the law compelling petroleum companies to only hold one licence will open the door to profiteering local businesses.

Dr Matupire, however, opines that there is already a framework that is administered by Zera that ensures that fuel prices will not rise above the prescribed limits.

As at December 2015, just over 550 retailers had been licensed, implying that there is a huge number of players fighting for a small market, where local consumers are facing shrinking

disposable incomes and competing demands.

Interestingly, while smaller companies are complaining of viability concerns, big players such as Total, Zuva and Engen Zimbabwe are refurbishing and expanding.

In October 2014, Engen managing director Mr Cremion Mapfumba announced that the company had invested $7million in new service stations and refurbishing old ones since 2012.

By August last year, Zuva had spent $20 million in refurbishments.

Similarly, in the last three years, Total Zimbabwe has invested $20 million into its operations.

Moves to address local fuel prices, which have become contentious as consumers claim they are being ripped off, are set to be finalised next month.

Petroleum sector players argue that to operate viably at the existing margin of 6c for every litre, they would need to sell at least 250 000 litres of fuel per month, which is currently impossible as most operators are only able to push 50 000 litres.

Zera hired a South African consulting company, Genesis Analytics, to conduct a petroleum price study in September last year to establish how local companies price their petroleum products.

A final draft of the study was initially expected by mid-November 2015 but due to delays by retailers in providing Zera with the necessary financial data, the process was delayed.

Eng Magombo confirmed last week that although retailers have been complaining that the 6c margin is unviable, most players flatly declined to volunteer information pertaining to their performance until recently when about 100 players availed data which is now being used to determine a sustainable fuel price.

"We are doing a pricing study, they (retailers) have also indicated that but we said if it is not viable, give us your figures supporting that but they are not giving us those figures.

"So without information, the study has been delayed. They have been struggling to give us information, especially from the retail sector; they don't have proper books of accounts so it is difficult to know.

"For me to even comment on viability, it should be based on some information. But now we have simplified the format and we have received some information, we can address it now if we look at the figures because without the figures it is difficult to say if it is not viable," explained Eng Magombo.

MIAZ is assisting Zera in mobilising the information which is critical in establishing if fuel prices should be reviewed downwards or upwards.

Recently, local fuel prices have been refreshingly trekking southwards in tandem with retreating international oil prices, with petrol ranging between $1,21 and $1,23 per litre; while diesel was between 96c and $1,08 for the same quantity.

However, prices have been on a northward trajectory during the last two weeks, torching fears of price increases across the economy. It is expected that oil prices may hit $50 per barrel by May after gaining 50 percent between February and March due to depressed production and ballooning demand.

Zera, with the help of law enforcement agents and municipal authorities, continues to clamp down on illegal and informal businesses that are depriving licenced operators decent business.

It is claimed that Mutare and Beitbridge are affected the most by informal fuel operators.

"We do blitzes with ZRP and even if you go the next day with someone who says 'yesterday I bought fuel here', you will not find them.

"So these are informal, people who basically have no capacity to be licensed that's why they continue to play on the periphery but we will continuously fight them.

"They are also dangerous in that some of them don't even sell proper fuel, they will mix that fuel with other things and it comes so cheap and people are attracted to it. Mutare and Beitbridge are the major areas (where dealers ply their trade)," said Eng Magombo.

Most illegal petroleum dealers in Beitbridge source their product from South Africa, whose fuel is relatively cheaper owing to the weakening South African rand against the US dollar, the main unit of exchange on the local market.

Last week, petrol prices were fetching R11,95 (almost US$0,79c) in South Africa.

Source - Sunday Mail

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