Zera board flies into fuel storm . . . petroleum companies reject ZW$30m guarantee
THE new Zimbabwe Energy Regulatory Authority (Zera) board received a baptism of fire at its first meeting with oil firms on February 18, as indigenous operators rejected a requirement to raise a ZW$30 million (US$357 611) guarantee before getting a licence, businessdigest can reveal.
Oil firms represented by the Direct Fuel Import (DFI) group and the Indigenous Petroleum Association of Zimbabwe (Ipaz) declared that “it would be an unnecessary expense”, according to minutes of the meeting obtained by businessdigest.
The David Madzikanda-led Zera board was appointed at the beginning of this year. Its plate is already full.
So many issues remained outstanding before it came in, as operators and the authority had clashed over several licensing issues from May last year, when petroleum companies approached the courts for redress after the deadlock.
Oil companies are required to pay retail and fuel importation licence fees, in addition to meeting several other conditions.
The standoff exploded when Zera announced a new licensing regime that included production of proof that potential licence holders had previously imported at least 10 million litres.
Zera also required players to have at least 15 service stations and to pay the ZW$30 million performance bond, which the DFI group and Ipaz rejected as “outrageous”.
During the meeting, DFI opposed the performance bond.
“The board wanted to know if there is room to negotiate and put performance guarantees as a condition for a procurement license,” the minutes read.
“We told them the bond would be an unnecessary expense. If so requested, importers could just give indications and projections of their target volumes. We updated the board on the impasse we are having with Zera regarding procurement of licences. They expressed concern and advised they were working on the matter to resolve it as soon as possible.
“They further suggested doing away with fixed license fees and proposed basing fees on volumes imported. DFI suggested a percentage points-based system to be collected by Zimbabwe Revenue Authority as and when they collect duties and levies. The fees would then be passed on to Zera in a hustle free manner.”
DFI members also demanded a clear distinction between unleaded and blended petrol prices.
“We again presented the issue of pricing for unleaded petrol which is not mentioned in Zera’s periodic price guidelines. We also updated the board on the position of Zera recommended to us on December 23, 2020,” the minutes read.
“DFI group’s view is that there should be a product differentiation in prices between unleaded and blended petrol because of the difference in quality of the products. The board concurred on this and mused at the cost of ethanol as well as the fact that it was not sold in local currency while it’s a local product.
“We advised the board that the price of blend was a thorny political issue best left as it is. However we requested the board to allow the price of unleaded petrol to be at least US$0,05 above that of blended petrol and for them to show it in the next price announcement. The board promised to look into it,” the minutes further state.
Green Fuel, which is majority-owned by business mogul Billy Rautenbach, is currently selling ethanol to fuel firms at US$1,10 per litre.
The plan to introduce mandatory fuel blending was promoted by the government, but fiercely criticised by the general public as it benefitted mostly Green Fuel.
In principle, the government argued that mandatory blending would trim the country’s ballooning fuel import bill.
“The board wanted clarification on the blending of petrol when we told them our members do not blend. One board member indicated there could be legal ramifications for not blending. We explained the import of SI17 of 2013 which was clear on the issue.
“We indicated that DFI group members prefer to sell in United States dollars only because they do not get foreign currency from the RBZ’s foreign currency auction. Besides this, a liberalised rate would fuel parallel market turbulence in the foreign exchange system and a general price increase of commodities. This is still a fresh memory from the recent past in the country,” the minutes further read.
“On the issue of margins which are more or less fixed periodically by Zera, the board suggested prices based on return on equity rather than the current system of pegged margins. We indicated that while this could be good for oil companies, it would lead to a general rise in prices. Nevertheless we promised to consult members on this and revert.”