FINANCE minister Mthuli Ncube says government is set to increase the prices of electricity and fuel because the current pricing structure was no longer sustainable.
Zimbabwe is currently battling a severe power, crisis which has seen households and industry going without electricity for up to 18 hours daily while long and winding fuel queues have become a permanent feature at service stations throughout the country.
Speaking at an Alpha Media Holdings event dubbed In Conversation with Trevor, Ncube, who has previously spoken against a power tariff hike, conceded that the situation was no longer tenable and that government had no choice, but to push the cost to the consumers.
“The power situation is very serious. In the short-term, we need to work on demand management strategies, where we categorise users and come up with a differentiated tariff system. For instance, there is no reason why the mining
sector should not pay a tariff linked to the exchange rate because they are major earners of foreign currency,” Ncube said.
“So, we have to look at the demand side, the supply and internal operations of Zesa. In the past, I was unhappy about an instant tariff increase, but having done all these things, I am more convinced now we can now increase the tariff.
If we are only having power during the night when we don’t need it, then it really doesn’t matter if the tariff goes up. In terms of how much, I can’t say, but those simulations are being done and soon, we will have a new tariff.”
Fuel, which is currently selling at ZW$5,26 per litre for petrol, is likely to jump to around ZW$9 a litre in line with the interbank market rate, where the United States dollar is trading at 1:8,5 against the local currency.
Previously, players in the petroleum sector used to access foreign currency from the central bank at a fixed rate of 1:1, but now, they have to source currency from the banks at the prevailing rate.
“The price of fuel is likely to go up, I think what will be ideal is the price of fuel is close to or equivalent to a US$1. That’s the ideal. If you look around the region, that’s the ideal. So we will also get there, but we won’t get there in a big bang, it has to be gradual, not a big bang as long as we hold the exchange rate,” Ncube said.
In June alone, a total of 75 million litres of fuel was consumed at a subsidised foreign currency cost, which, according to insiders, cost government and exporters ZW$300 million.
“The current prices mean that government, through the central bank, are paying an extra ZW$4 per every litre of fuel consumed. This is huge and cannot be sustained. They can’t hold that price for long,” a source in the petroleum sector said.
The price disparities, which make Zimbabwe’s fuel the cheapest in the region, have seen massive leakages into the black market and foreign markets.
“You will see the fuel price adjust to equilibrium one dollar. The reason of this subsidy to the economy is you are most aware that the arbitrage opportunities, that were there before, have crumbled. I wonder now if people again are starting to sell fuel to Zambia, you drive a truck here and fill up a truck … people take advantage of these arbitrage opportunities, but we want to tighten the management of fuel. We are going to launch an electronic dipstick, basically some technology which allows to monitor the fuel usage at fuel stations,” Ncube said.
The increases could trigger another wave of price hikes given that fuel and power are major cost components in production.
In January, a 150% increase in fuel prices sparked protests across the country, with human rights groups reporting that State and military agents killed 17 people and injured 200 others in a brutal put down of the demonstrations.
Ncube said he would be offering relief by widening income tax bands to increase disposable incomes in the face of rising costs.
“I will be widening the income tax bands when we announce the supplementary budget,” he said.
Ncube urged the private sector to increase salaries for their workers to protect them from rising inflation.
“For civil servants, we are going to have a cushioning allowance. Between January and March, we allocated $63 million. We have kept that… we feel the pain of the people. This government will do something about it … again, I am challenging the private sector that please, adjust salaries of your employees. Let’s make sure that it is amplified,” Ncube said.