The government has moved to officially scrap the fuel rebate program. The program which according to Finance ministry permanent secretary George Guvamatanga contained a sunset clause with February 22 being the closing date, was the latest in confusing legislation to devil the fuel sector.
Meanwhile, movements on both the interbank and parallel markets have reduced the effective US dollar price of petrol and diesel. Using the interbank market rate at 3 to the US dollar prices are now equivalent to US$1.10 for petrol and US$1.04 for diesel. Using the parallel market rate quoted at 4.4 to the dollar those prices are effectively US$0.75 and US$0.71 for petrol and diesel respectively. This brings back the very arbitrage opportunity that the slew of changes was meant to combat. The inflationary pressure being added by these movements will surely show up in our next inflation announcement. before that happens we can expect fuel shortages to worsen.
The fuel rebate was complicated legislation that set forth many many conditions for the ability to claim including being clear of tax arrears and being able to prove productive use of fuel. It is reported that the Energy minister Joram Gumbo professed ignorance on the scrapping of the fuel rebate. In all honesty, the scrapping of the rebate should have little impact on the general prices of goods as pricing had already been adjusted. We must also note that the practice of pegging prices in dollar terms is holding strong and the currency rate movement has a greater impact on prices than questionable rebate programs.
The January price increase was mooted as a way to control the demand for fuel and the arbitrage opportunity. The government recently announced plans to allow certain organizations and businesses to import their own fuel but that was quickly met with complaints by some sectors of the economy at the alarming US$23000 required for the import permit. Reports are that ZERA will not issue any further import licenses for fuel. Heaping all the demand back on fuel retailers who are operating at a loss in real terms.
The challenges of the fuel sector are many. Price adjustments can only work in a stable currency, the RTGS dollar has depreciated 17% in the first month of interbank market trade. Suppressing demand and complicated schemes have so far proven to be ineffective.