Friday, 26 June 2020

CONFUSION OVER NEW FUEL PRICE


As deliveries to service stations improved yesterday, there was a growing rumble from motorists misinterpreting the Zera price table and jumping to the wrong conclusion that ethanol contributes around three quarters of the petrol price.

In fact ethanol blending does not increase the price of petrol, as has been misinterpreted, and actually knocks about 49c off the price of a litre of blend.

Confusion has been reigning because the energy regulator, Zera, included a price of $54.5763 for ethanol in its pricing table. However this is the cost of a litre, delivered for blending when only 200ml is mixed with every 800ml of pure petrol.

The price of petrol ready for blending is now $56.7563 a litre. This is the landed cost plus the taxes and the storage and handling charges at Msasa. So ethanol is still very slightly cheaper than petrol. A litre of blend will combine 800ml of petrol with 200ml of ethanol for the present E20 product which is 20 percent ethanol. 

The 800ml of petrol at this blending stage costs $45.405 while the 200ml of ethanol costs just under $10.915. Adding the two together you get $56.32, which is a saving of 43c on the litre of petrol.

From the bulk storage there are additional charges, a few small ones mainly involving the tanker costs and the larger percentage mark-ups allowed to oil companies and service stations. With the slightly cheaper petrol-ethanol blend these percentage mark-ups are in turn slightly lower, knocking off around 6c in total, giving the 49c a litre saving of blend over petrol.

However, the authorities are concerned over the ethanol prices charged by the two producers in the Lowveld and are seeking more detail over the ethanol production costs, Zera’s acting chief executive officer, Mr Eddington Mazambani, told the Portfolio Committee on Energy and Power Development yesterday. Zimbabwe uses anhydrous ethanol, which requires a further process after distillation to remove all water.

The gap, in percentage terms, between pure petrol and the petrol-ethanol blend used to be greater. Part of the narrowing is explainable by the drop in the landed cost of petrol, following the crash in crude oil prices since the lockdowns and travel restrictions in most countries with the Covid-19 pandemic. 

Petrol is now landed at 48.15 USc a litre, a little over 10USc a litre less than at the beginning of the year. Crude costs are a small fraction of the landed costs, the rest being the refining and transport costs, which are generally independent of crude costs.

But the position has now been reached when a very small drop in landed costs could make petrol cheaper than ethanol.

Those concerned about the rise in price in fuels sold in US dollars, a price that should not vary with the new Zimbabwe dollar exchange rate, will find the answer in statutory instruments gazetted yesterday by Finance and Economic Development Minister Professor Mthuli Ncube. He pushed up the excise duties on petrol to 30 USc a litre and on diesel and paraffin products to 25 USc a litre.

He also applied the exchange rate changes to his excise duties on Zimbabwe dollar-denominated fuels, taking the petrol duty from Z$8.37c a litre to Z$17.207 a litre and that for diesel and paraffin from Z$7.566 a litre to Z$14.34 a litre. The excise duties, and the small taxes that add to the tax collected, are worked out in percentage terms in Zimbabwe dollars but are in fixed terms for US dollar fuel.

The Government sets the taxes on US dollar fuel imported with free funds and sold in US dollars at a far higher level than it does for Zimbabwe dollar fuel. Ethanol producers charge US$1,05 a litre for ethanol, it has been reported. Thus a US dollar-denominated litre of blend will have 21USc of ethanol in a litre, along with close on 70USc for the 800ml of petrol in that litre. The percentage mark-ups magnify the tax changes.

There has been the same confusion between the price of a litre of ethanol in the Zera pricing table and the actual 200ml used in the litre of blend, along with the 800ml of petrol. 

Mr Mazambani told the Parliamentary committee that the US dollar ethanol price had been the same since mandatory blending was introduced, but there were continual and significant variations in the Zimbabwe dollar price charged, hence the desire for more information on the costs and pricing formulas of ethanol.

He stressed again that the major driver of fuel prices was the actual delivered cost of the fuel and Zimbabwe has little say in that regard due to the small size of its economy.

Mr Mazambani said Zera had no authority to reverse the blending policy as it was set by Government in the National Energy Policy of 2012 and National Renewable Energy Policy of 2020. He noted that the two companies involved in ethanol production were employing thousands of people directly and indirectly, and supporting local communities.

Mr Mazambani also told the committee that the liberalisation of the official foreign exchange market will result in a weekly adjustment of fuel prices soon after the new ruling rates were announced late in the day every Tuesday.

The latest fuel price increases were a result of the movement of the US$ rate from the fixed US$1:$25 to the US$1:$57 that was the average rate obtained at the end of the first forex auction.

Turning to Zera’s capacity to monitor fuel supply in the country, Mr Mazambani said the present shortages had stretched their resources, but indicated that five service stations in Harare were being investigated after they were found selling fuel allocated through Government facilities in foreign currency. Fuel bought in local currency by an oil company and service station must be sold in local currency. Only fuel imported by the oil company with free funds can be sold in foreign currency.

“Under a normal environment, the way we are structured is sufficient for us to regulate the sector but in the environment that we are in now, where there is an acute shortage, there is a lot of illegalities and arbitrage happening in the sector. And it’s happening in the night when we do not have shift workers, so there we might be found wanting.

“We are actually working with other agencies and arms of Government to augment our numbers to deal with issues happening at outlets. We are also developing regulations to hold operators accountable such that when we hear these reports somebody can actually lose their licences,” he said. 

A Bill to amend the Petroleum Act is being crafted to empower Zera to deal with errant fuel companies and service stations.

Fuel queues have reduced significantly as deliveries build up with heavy traffic yesterday along Mutare Road driving west in Harare after collecting fuel from the Msasa depot. Motorists are also being more careful with purchases after the price rises, and are no longer desperate to hoard or drain tanks to sell fuel on the black market.

Engen Simon Muzenda Street had shorter queues than seen in recent days after a delivery. Mr Tendai Vhurundiya, a motorist who had just refuelled, reflected the new order when he said the days of full tanks could be over for many.

“I used to fill up my tank with about $750, today I used around $3 500 to get 55 litres. We may be going back to days where we would buy two or three litres at the pump,” he said.

Puma stations in Samora Machel Avenue and in Kwame Nkrumah Avenue had no fuel but were expecting deliveries. But the queues of waiting motorists were shorter than seen recently with an attendant noting that the new prices had probably dampened demand.

“We don’t have fuel at the moment. In normal times the queue would have been long with people waiting for a delivery but today as you can see, the cars are few,” they said.

Total in Samora Machel and Fifth Street had very few cars getting fuel.

There are, however, some stations selling exclusively in United States dollars. Some of these are legal, having gone through the required process and using fuel directly imported with free funds but others have been discovered to be selling fuel they bought in Zimbabwe dollars for foreign currency, which is a criminal offence. The majority of those charging exclusively in US dollars are small service stations. Herald

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