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Golden Sibanda
Government may scrap the fuel rebate with effect from the 22nd of this month, as this is no longer be relevant following currency reforms announced by the Reserve Bank of Zimbabwe in the monetary policy statement (MPS), a senior Government official has said.
Secretary for Finance and Economic Development George Guvamatanga, made the revelation yesterday while appearing before the Parliamentary Portfolio Committee on Energy and Power Development.
Guvamatanga said the fuel rebate was aimed at stymieing arbitrage (including smuggling fuel out), which resulted in higher demand for fuel and even more acute shortage in the market.
The parliamentary committee-which is chaired by Simbaneuta Mudarikwa who is the Member of Parliament (MP) for Uzumba Maramba Pfungwe (Mrewa), sought to understand the status of Government’s fuel rebate system.
Guvamatanga said after the currency reforms business and ordinary people should not expect Government to make subsidies to compensate for the negative effect of exchange rate movement on prices because it did not have the capacity.
This was after Prosper Mutseyami, Member of Parliament for Musikavanhu Constituency (Chipinge), had asked what Government plans were regarding reduction of excise duty to reduce fuel prices and the burden on ordinary citizens.
President Mnangagwa announced the upward review of fuel prices on January 12, 2019, which went up to $3,31/litre of petrol from an average of $1,49 and to $3,11/litre of diesel from 1,34 previously, and this was meant to make arbitrage unprofitable.
RBZ Governor John Mangudya told the same committee that after the price adjustment, consumption of fuel in the country came down from an average of 150 million litres per month to about 120 million litres.
Guvamatanga said the fuel rebate was only used to attain a particular objective at the time it was introduced until the central bank presented the monetary policy statement, which embodied some far-reaching currency reforms.
Announcing the MPS on the 22nd of last month, Governor Mangudya floated the US dollar exchange rate against all forms of electronic currency and bond notes, now called RTGS dollars and other currencies in the multi-currency basket.
The currencies are now tradable on the interbank market and the current exchange rate of the US dollar to RTGS dollars is hovering around 1USD to 2,5 RTGS dollars.
The Rebate System
From the outset, Government indicated it had come up with the rebate facility to avoid a potential price spiral after it hiked fuel prices by 150 percent to plug arbitrage opportunities, which were fueled by currency issues.
The fuel rebate is administered by Zimbabwe Revenue Authority (Zimra) and entails registered and tax compliant businesses in mining, agriculture, manufacturing and transport sectors getting refunds on fuel used for productive purposes.
A business that benefit from the system must not have increased prices relative to the increase in fuel prices to be eligible for the fuel rebate, made up of $2,05 for diesel and $2,11 for petrol. The excise duty component drove fuel prices 150 percent higher.
Guvamatanga said the transitional nature of the rebate facility was stated from the outset when the price of fuel was reviewed upwards. He said the rebate was only to be for a temporary period while awaiting currency reforms.
“As of the 30th of January 2019, we did not have a currency framework, but we were realising that the (fuel) leakages and the distortions that were there in the market were being caused by arbitrage between the various exchange rates that were prevailing in the market at that particular moment in time.
“So, the current price; including the (excise) duties is (now) a reflection of regional parity prices and any adjustment in duties will not result in any immediate relief to the consumers.
“(This is) because it (fuel prices) will then be reflected in the cost of acquiring foreign currency, given the new foreign currency framework, which is a market based framework.
Duty on fuel might fall
“Even the (fuel) rebate framework is now under review because once the fuel dealers start paying the full price of the foreign exchange, and we are in discussion with the central bank governor and ministry of energy, the duty that we are getting (as treasury) will reduce.
“We will no longer be in a position, anyway, to offer the (fuel) rebate. So the (fuel) rebate and influence (on prices through the excise) duty was transitional. It was also stated when the price was reviewed (in January this year) to say this is just a temporary measure while finalising further engagement within Government,” he said.
Guvamatanga said the objective of the fuel rebate, which resulted in the price of fuel going up, was to align the prices of local fuel with what was prevailing in the region.
Opportunists in the fuel industry were taking advantage of the currency situation in Zimbabwe, converting US dollars at huge premiums on parallel markets into local currency then buying fuel and reselling in hard currency.
“Now that we have a framework of exchange rate and if you apply the FOB price of 60 cents per litre that the Governor indicated, it now means that the oil companies will now have to pay a US$1,50 not US$0,50 so that additional US$0,90, we are simply going to knock it off from the (excise) duties.
“It will just move from one point of the pricing mechanism to another level and the impact to the consumer is neutral. The impact to Government revenue is US$0,90.
“But again, the US$0,90 is also neutral because we will no longer, as from the 22nd (of March, 2019) I think that is the consideration we are having, be offering the rebate because the Government does not have the capacity to compensate industry for foreign exchange rate movement,” Guvamatanga said.
Bongani Ndlovu