Oil-starved Zimbabwe slashes fuel prices but worries remain

Saturday, August 19th 2006

Oil-starved Zimbabwe has slashed fuel prices for private motorists by almost half but experts said the move could lead to further shortages and fail to snuff out a flourishing black market.

“Government and the oil industry have with immediate effect fixed the price of diesel at 320 Zimbabwe dollars (1.28 US dollars) and that of petrol at 335 Zimbabwe dollars a litre for all users in the country,” the state-run Herald daily said Friday.

Petrol stations earlier this month unilaterally increased prices, selling a litre of petrol at between 600 and 800 Zimbabwean dollars a litre, resulting in a steep increase in public transport costs.

The cabinet approved the cuts on August 11, the paper cited Energy Minister Mike Nyambuya as saying.

“These are the prices my ministry, together with the oil industry had agreed on in our consultations and are applicable immediately,” Nyambuya said.

But while the latest price ceiling is a relief for private motorists, it translates into an increase for farmers and government and public transporters who were buying fuel at the heavily subsidised rate of 230 dollars per litre from the state oil firm Noczim.

“Because the price has increased significantly, it may be a substantial challenge to some farmers,” Nyambuya said.

“Any farmer who finds it difficult to buy fuel for farming activities should approach his bank to access the facility fund that has been set up by the Reserve Bank.”

Analysts meanwhile said the measure was cosmetic.

“While the price has been reviewed upwards from the previous official price of 230 dollars, the new rate is still below the parallel market price of 600-800 Zimbabwe dollars,” Prosper Chitambira, an economist with Zimbabwe Congress of Trade Unions, told AFP.

“Although the price might reduce speculative behaviour by some players, the new price is below break-even point for private importers which might lead to shortages in the long term.”

Millar Musamhi, president of the Transporters Association of Zimbabwe, said the success of the move largely depended on whether the state oil firm Noczim would be able to meet the demand of public transport operators.

“Our concern is that if Noczim fails to give our members enough supplies then they will be another wave of parallel market increases in fuel.”

Zimbabwe has been experiencing serious fuel shortages since 1999 and the government blames the woes on Western sanctions imposed on President Robert Mugabe’s government six years ago.

When the shortages are at their peak, some gas stations go for months without fuel, forcing buses and private cars off the road and leaving many with no option but to walk to or cycle to work.

The government last year removed its monopoly on fuel imports to allow those with access to foreign currency to import their own fuel.

In May, the southern African nation signed a 50-million-dollar loan deal with French bank BNP Paribas to purchase fuel and ease shortages to allow Noczim to import fuel for the private and public sectors.

Copyright © 2006 AFP. All rights reserved.