Not so long ago the Zimbabwean government announced that it would soon be selling fuel in Zimbabwean dollars at selected service stations. Since the announcement the government has made several announcements that seem to indicate that they are to playing. They are dead serious about the Zimdollar fuel project. In the latest announcement, the government says they will initially start with 57 service stations as part of their pilot test. The government says it will decrease or increase this number based on what they think the market needs.
The rollout of selling local currency priced fuel at specific service stations is in its preliminary stages. We are provisionally starting off with 57 service stations.
The number may, however, increase or decrease based on how this pilot stage turns out.
The availability of locally priced fuel relies solely on the allocation the service stations get during the RBZ auction of foreign currency.
As ZERA, we have compliance checks and reconciliation exercises to ensure the beneficiaries of this facility do not abuse it and ensure the availability of the locally priced fuel.ZERA CEO MR E Mazambani
The devil is in the price
Selling fuel in Zimbabwean dollars is not the real issue here. The issue lies in Statutory Instrument 19 which compels businesses to use the official rate when doing currency conversions between the US and ZWL. To avoid losses most businesses in the formal sector have simply settled on very steep ZWL prices based on black market exchange rates. These formal businesses have chosen the ZWL as their preferred currency of choice because doing otherwise would lead to losses.
On the other hand, fuel companies have simply settled on the USD dollar as their preferred currency under Direct Fuel Import (DFI) regulations they are allowed to sell fuel exclusively if they have imported it using free funds (i.e. their own foreign currency which is more often than not sourced illegally from the black market). Thanks to this provision fuel companies ended up exploiting the formal foreign currency auction. They would submit bids for foreign currency, get it at a cheap rate and then turn around and sell the fuel at black market rates. This prompted the government to put an end to fuel allocations.
The government’s plan is simple. They will allocate foreign currency to fuel companies who are then obliged to sell fuel in Zimbabwean dollars at designated service stations. These service stations will be set aside and sold exclusively in ZWL dollars making them easier to monitor unlike in the past where service stations were allowed to sell both DFI and fuel bought using government sourced foreign currency at the same station causing confusion as to which fuel was bought using government funds and which was DFI. Service stations, as already mentioned ruthlessly exploited this chaos by selling the bulk of fuel in USD even the one bought using subsided foreign currency.
So will this work? Well, the devil is in the price. The real reason why no one is selling ZWL fuel is that ZERA sets the price using the official rate which tends to be very low and uneconomical. If service stations were allowed to use a market-based exchange rate they wouldn’t mind selling fuel in ZWL so much. No one is revealing what the new price will be. Last week we erroneously reported that the price would be $57 ZWL per litre. That doesn’t appear to be right as that figure has not been corroborated. We jumped the gun and reported a figure based on rumours and named sources. It seems more probable that these sources saw the 57 service station number and wrongly assumed that this was the actual price.
Such a figure would be too low and no doubt the black market will ruthlessly exploit the arbitrage opportunity it offers. Fuel attendants will rise back into ascendancy again just like during the shortage years. They or their co-conspirators will buy the fuel at subsidised prices and then ship it to the black market where it will be sold exclusively in USD. That will only be possible if the government charges a low price and all indications are that they will stubbornly stick to the official rate. If that’s the case the project will be dead on arrival. Not only will the black market pilfer that fuel as explained above, bigwigs and those who are connected will take the opportunity to elbow genuine customers and drink their fill at these subsidised prices. That’s right only the elite will benefit at the expense of the ordinary taxpayer who be expected to foot the bill as with everything else.