In an overnight development that will surely leave many Zimbabweans scratching their heads Zimbabwe Energy Regulatory Authority issued the official fuel prices for this week. The update resulted in a reduction of the fuel price from the previous weeks levels. Diesel will be priced at ZWL$10.25 and Petrol at ZWL$9.86 maximum, down from previous weeks pricing of ZWL$10.32 and ZWL$10.01 respectively.

Rationale

The latest price movement is the result of a fall in the Free On Board (FOB) price, that is the cost of fuel at its point of origin. ZERA’s pricing model clearly indicated the FOB price and exchange rate used in arriving at the fuel price. Global oil prices have taken a downward turm recently and this will be pleasing to local consumers.

Regional Pricing Dropped

The above quoted prices for the previous week were those given for Harare, the lowest in the country. Last week ZERA produced a pricing framework that gave different pricing as per location and they based this on transportation costs from bulk storage facilities to the various centres. Victoria Falls had the highest price which was at ZWL$0.54 higher than the Harare price, the equivalent of US$0.05 at the time.

ZERA exchange rate confusion

ZERA bafflingly continues to use the exchange rate of ZWL$8.50 in their calculations at a time when the interbank rate is offering ZWL$10.71 for the US dollar. The parallel market exchange rate for cash is believed to be around ZWL$8.80. This can perhaps shed a little light on the situation with service stations preferring cash sales over electronic forms of payment. The interbank rate is based on electronic payment. It would ultimately simplify ones calculations to use the rate closest to the rate your regulatory authority uses. For a liter of fuel sold at ZWL$10.32 one would get US$0.96 while the same for cash would attract US$1.17. A small difference if US$0.21 in a liter but on 20000 liters that’s US$4200.

This latest development will bring some joy to Zimbabweans who have really suffered hit after hit on fuel prices since the now infamous price increase in January that catalyzed national protests.