Online Reporter
The conflict in the Middle East and the difficulties of exporting about 20 percent of the world’s commercial petroleum has seen the price of crude oil rise by 50 percent with further price rises likely.
Zimbabwean commercial and private fuel users are moderately padded against the full force of the rising prices of crude by a set of charges that are more fixed price rather than driven by the underlying cost of the crude.
This explains why Zimbabwe’s retail price rises when crude prices rise and falls when crude prices fall are always less than the price changes in the underlying crude price.
For a start, we import refined products, diesel, petrol and jet A1 rather than crude. This automatically helps to reduce the sweep of the swings.
Shipping charges to Beira are usually fairly constant, and the pipeline pumping charges are pure fixed charges.
Other constant prices unrelated to the cost of crude include storage and transfer costs at the main Msasa depot, the terminus of the two pipelines across Mozambique and eastern Zimbabwe.
Taxes and wholesaler and retail margins are fixed price as well, regardless of the cost of the refined fuel.
In addition, petrol prices include the cost of the ethanol in the blend, generally below the cost of the refined petrol and now significantly below, and a fixed blending charge.
Zimbabwe has to pay the standard global price for refined fuels. But that global price is a cost that is way beyond the control of Zimbabwe; we either pay it or go without.
But there is a bit of slack, especially in the tax structure and in the level of petrol blending. And it is here that the inter-ministerial committee set up by President Mnangagwa can act and if not block rises in retail prices, at least ameliorate them so they are less than they would be without intervention.
Fuel taxes have been managed by the Government in the past and when refined fuels are historically cheaper have been allowed to rise, both to increase Government revenue and to provide a cushion for tax cuts when prices rise sharply.
So one measure the committee can look at is decreasing the taxes and levies of US$0,422/litre on diesel and US$0,857 on petrol.
In fact, it should now be possible to set up a tax and levy regime that adjusts more automatically when the prices of refined fuels rise and fall, perhaps linked to longer-term trends.
The second area of price amelioration, at least for petrol, would be to increase the compulsory blend ratio from 5 percent ethanol to 20 percent ethanol, quite possible in a high-altitude country like Zimbabwe since ethanol percentages can rise as altitude rises and the partial pressure of oxygen in air falls.
The main ethanol producer has been getting ready for a higher percentage blend, building up storage and processing capacity and is now confident of meeting the E20, or 20 percent, blend without interruption.
This can reduce the cost of petrol by 18c/litre at present prices, a significant saving for petrol users.
Increasing the ethanol blend also cuts back on petrol imports, useful in times of global shortages.
Zimbabwe through the Government and the oil companies has built up reserves of three months of fuels, so we are no longer waiting for the next delivery down the pipeline to fuel vehicles and have a bit of slack to make alternative, although probably pricier, arrangements to meet our needs.
In the medium term, the supply and cost problems arising from the conflicts have shown the need for Zimbabwe to accelerate its transfer to electric vehicles, where at least we can build giant solar arrays and add other generating capacity quickly and reduce reliance on global markets for energy and fuels.
This should also see the speed up of the introduction of lithium battery production, even if we licence the latest technology.
We have the lithium, and most of the small amounts of other minerals needed, with cobalt being the only missing ingredient, and we are next door to Zambia and DRC, and can buy the odd truckload.
Electric vehicles need additional infrastructure of fast charging points and we should be working on making sure that these are available so motorists can “refuel” away from home.
But we need to do this anyway, as this is the future of vehicles, and we now can see why we need to do it a bit faster to make the switch-over possible and easier.
As with Covid-19, the conflicts can be the spark that gets Zimbabwe out of its rut of using existing supply chains and technology and start using our collective brains and investment capital, now largely going into opening new service stations everywhere, and move into the greener and more secure world.
The private sector needs to fully back the inter-ministerial committee, as it did during Covid-19, so once again we have a united approach to the range of smart solutions.
