RBZ explains fuel shortages

THE current fuel shortages in Zimbabwe are due to temporary lags in the banking system and working capital constraints faced by petroleum dealers, central bank governor John Mangudya has said.
The former CBZ Holdings chief executive told Parliament’s energy portfolio committee that the central bank had provided ample foreign currency for fuel imports since January this year.
“The amounts made available are sufficient to purchase the fuel required by this economy,” he said.
Mangudya noted that 104 million litres and 105 million litres of fuel were released into the market in January and February respectively, but added that “the mismatch between the fuel paid for and the fuel released into the market is what created the queues”.
“For January 2019, the total amount made available through letters of credit (LCs), direct allocation and facilities came to $91,9 million and that amount is enough for about 150 million litres, which is more than the 130 million litres that we know this economy is now consuming. In February, we made available $80,69 million, which gives you about 135 million litres,” he said.
He noted that the bulk of the fuel is purchased through LCs.
“Between the day when you establish an LC and the day you get the product, there are some time lags. What we are seeing in the market is a result of this mismatch,” Mangudya said.
“So the queues are a combination of the lags in the LCs and cash flows on the part of the dealers,” he noted.
“It is only a timing difference otherwise the fuel has been purchased and will bridge the gap in the numbers,” Mangudya said.
The central bank boss said the changes in working capital required by fuel dealers after the price increase had also contributed to the shortages.
“When LCs are formed, if it’s cash covered it means that the fuel company needs to deposit in that bank 100 percent cash cover for the fuel that they are going to import and the company may not have enough working capital for them to establish the letter of credit,” he said.
He said a company importing $10 million worth of fuel would need RTGS$25 million, going by the current interbank market rate.
“The question is do these companies have enough working capital or credit facilities to support the LCs. After the price increases in January, what happened was that the oil marketing companies’ working capital was based on the old prices, and now with the new prices, it means that they will need more RTGS dollars, which they do not necessarily have, so you will find that there are also delays emanating from that.”
Mangudya told the committee that fuel prices would not change even if the interbank market rate moved from the current level of 1:2,5 even though dealers now get foreign currency at the market rate.
“Prices will not change because in the price of fuel there is duty and what we believe in as advisors of government is that they will need to forgo part of the duty in the fuel to ensure that the price remains stable,” he said.
Mangudya also noted that demand had significantly declined after the price increases in January.
“After the price increase in January, the fuel being used in Zimbabwe went down.
“We were consuming about 165 million litres per month but due to price elasticity of demand, our anticipation was that demand would go down to around 120 to 130 million litres,” h