Online Reporter
The conflicts in the Gulf, with the closing of the Strait of Hormuz, put double pressure on global oil supplies and pricing, since 20 percent of the world’s petroleum supplies were shipped through that strip at the end of February when war broke out.
Zimbabwe weathered the double blow rather well, thanks to sensible policies already in place or about to be implemented, and the flexibility of the tax structure when it came to petroleum fuels, in particular diesel.
We can now build on our successes, starting with the latest reduction in prices to just under US$2 a litre.
For a start, the country had a three-month supply in reserve and stored, a position reached through active co-operation between the Government and the major oil companies.
That coverage was greater than existed in many developed countries and had been created as a result of bitter past experience in a landlocked country at the end of a long supply chain. We had learned from past emergencies and taken action.
A major priority, probably the overriding priority, of the Government was to maintain good supplies, even if new supply lines had to be found.
But the reserves meant we had a decent breathing space, while global markets adjusted in the first days or weeks of conflict. So the wheels were kept turning without serious pressure.
Pricing was a bit trickier. Zimbabwe does not set international prices and has no say in what these prices should be.
We simply have to pay the going rate for the refined fuels we use. But there was a bit of slack in the internal system.
For a start, the major investor in the Lowveld ethanol plant had, some time ago, no doubt after consultations with the authorities over what level of ethanol blending in petrol was desirable and acceptable, started expanding the ethanol distillation plant and the associated sugar-cane farming.
The greatly increased supplies of ethanol came on stream soon after the conflict started, raising the compulsory petrol blend from E5, or five percent ethanol, to E20, or twenty percent.
Zimbabwe’s higher altitude also allowed this higher percentage blend, since we need petrol with a higher octane rating than a sea-level country.
Ethanol, at least the ethanol from sugar cane, is significantly cheaper than petrol and, besides minimising petrol imports, can also help control blend prices, so we win twice.
While the extra cane supplies and extra processing plant were available at just the right time, the actual decisions to move towards a higher percentage blend, and so encourage the additional investment, had been taken long before the Gulf conflicts started.
The decisions were taken based on the fundamentals of moderating imports and keeping petrol prices down, as well as improving income for sugar farmers.
Diesel was trickier. We are still in the early stages of adding biodiesel, although the diesel blend will rise significantly in time.
But here the Government was able to step in and cut back the fuel taxes on diesel.
The upshot of the higher ethanol blend in petrol and the major tax adjustment for diesel was that desirable state where petrol and diesel prices per litre are roughly the same.
Both rose, of course, because of the huge jump in crude prices once the bombing started, but the percentage price rises at the pumps were a lot lower than the percentage jump in crude prices, thus minimising the very small and expected rise in inflation rates.
Regulator Zera made sure that the maximum prices were fairly set under the circumstances and that no one in Zimbabwe was able to profiteer, with teams now out to hammer those delaying price reductions.
Now that a ceasefire has been negotiated and the strait will reopen, crude prices are already falling.
Zera has been tracking these, and after they fell a little as Gulf suppliers found other routes for some, but not all, their exports and other suppliers increased output, Zera started lowering retail fuel prices to just over US$2 a litre. The petroleum industry is now expecting the retail price to fall below US$2 a litre within days.
The major lesson we have learned is that we need to continue looking at biofuel blending, with most of what is to come being biodiesel supplies and blends.
This will help insulate the economy from sudden disruption in global petroleum supplies, with the additional major advantage of boosting incomes of Zimbabwean farmers, since biofuels mean someone has to grow the underlying crops.
The Government’s extreme fiscal conservatism, and the small amount of slack in the national Budget, allowed a significant tax reduction.
As crude oil prices continue falling, we can no doubt expect taxes to drift up again, but that useful parity we have established between prices of ethanol-blended petrol and diesel provides a yardstick for just what the taxes need to be.
So we learned a lot, not least that we must retain manoeuvre room thanks to our fuel reserves and tax structure.
Success can breed more success.
