eBusiness Weekly
Fast-rising prices of petrol and diesel in Zimbabwe, US$1,68 a litre for diesel and US$1,67 a litre for petrol are a direct result of the surging prices of crude oil in global markets and they in turn are a direct result of the Russian-Ukraine war.
The surge in crude oil prices is not so much a result of falling production.
The Russian oil fields are obviously not affected and even delivery is probably only mildly affected.
Pipelines across Ukraine are obviously not functioning and tankers might be a bit dubious about the Black Sea, but neither problem should cause a serious dent in Russian distribution.
However, a swathe of major customers of Russia oil and gas are trying to cut back on their purchases, so pushing up demand and thus prices for other sources.
And when pipeline and the like are delivering to these countries or to ports serving those countries, the flows cannot be rerouted to other customers very easily.
It is now also significantly harder to pay for Russian oil and gas, with major banks and major economies limiting the access by Russian banks to global financial systems.
The other problem is a general expectation of rougher seas and a desire by oil users to stock up from these other sources. This creates the climate for rising prices. And one person’s stocking up is another’s panic buying.
Zimbabwe is not that badly affected. We buy and import refined products. So while the crude element in the pricing formula is rising fast, the other charges for refining and transport are largely fixed, or very close to being fixed. Our taxes are based on value though, but again that is driven by the crude prices.
The effect of ethanol production and blending in Zimbabwe can be seen with lower prices for petrol than for diesel. The actual cost of refined unblended petrol is higher than for diesel and while ethanol is not a cheap fuel it is, at the moment, cheaper than petrol to mixing in the 20 percent that Zimbabwe lays down does bring down the price of the blend.
A lot of people, just looking at the pump prices, are predicting significant price rises in goods and services. This should not be so.
For most goods and most services the fuel price element in the costing formulas are tiny. For most the fuel price increases mean a one percent rise in costs.
Transport, bus and taxi operators obviously face more cost rises when fuel prices ris, but even for these services fuel is not more than around a quarter of the costs, so a 20 percent rise in fuel prices converts into a 5 percent rise in costs and charges.
There are many n business who use the excuse of fuel prices to push up prices far more than their costing formula would indicate.
This is convenient as they can blame someone else and not bother to explain or even show their costing formulas.
Fortunately we have been seeing a lot more competition within our economy as shortages vanish, and cut-throat capitalism is still the most effective dampener on pricing.
Unfortunately the competition in some sectors of the Zimbabwean economy is more managed. While people blame retailers, the numbers involved and the sheer level of competition making price fixing at this level almost impossible.
But once we move back to producers we find monopolies, duopolies and very small numbers of major producers. It is not difficult to change the pricing for an entire range of goods over a game of golf for four chief executive officers.
So we need to hope that when this is suggested, or when it happens, someone will break ranks.
This sort of arrangement is rarely formal, mind you, more often it is a nudge and wink with nothing so crass as numbers being mentioned.
However that still leaves the need for businesses and individuals to take fuel conservation seriously if they want to cope with rising fuel prices.
IT is obvious, for anyone looking at traffic on highways and in the streets that a lot of fuel is being wasted.
We see trucks and cars speeding, and that pushes up consumption sharply. Even travelling at the speed limits adds its share.
Then we have the heavy braking that some driving habits demand. When you brake you are converting fuel to heating brake pads and discs or the brake drums. And you are also using expensive fuel to grind way the surface of pads and drums. This wastes energy.
We see vehicles sitting in traffic jams with their engines on going nowhere, but burning fuel to stay in place.
And then you get those millionaires in their battered cars inching forward half a metre at a traffic light and stopping. You use a fair amount of fuel to get a vehicle from rest to any sort of movement, and you use more when you accelerate hard from a stop.
On the business side this means that logistics officers need to monitor fuel use very carefully and that includes the driving habits of their drivers.
It also means looking at ways of combining loads and combining trips. Some companies do this, but most do not unless fuel is in short supply or unless the price is high, which it is at the moment so there is an incentive once again.
Private motorists need to think hard as well, rather than complain. Most people can get their consumption down 20 percent without much effort although with a lot of thought. And doing that copes with the rise seen in fuel prices in recent weeks.
Part of the effort needs a mind-set change. We are not looking so much as kilometres per litre but at kilometres per US dollar. Once you start thinking like that then even modest gains in efficiency have a major impact on the final number.
Some of this requires careful planning to avoid congestion, and this is bad on many roads especially with our urban authorities being very indifferent about fixing traffic lights for example. But decent savings are possible for those who work out how to avoid peak traffic times, and drive when the roads are less congested.
Some individuals might not care about consumption of course, since they have enough money, but businesses need to push conservation of energy up the agenda since even if competition will not affect you much it is certain that if you push up prices you lose volume because your customers can no longer afford to buy what you sell, or have to buy less.
The same applies to liquid petroleum gas. Here there is a lot less refining, rather a cleaning of the gas, so while there are still fixed charges for transport and the like, the final retail price changes are more in line with the movements in the global price of natural gas. And those prices seem more volatile than those of crude oil.
Many cook on gas because of Zesa. The load shedding at peak hours is largely because those peak hours are the time when many people need to cook, so some have to cook on gas. One area where Zimbabwe could win is for Zesa to figure out how to manage supply.
With the Kariba South Bank Extension Zesa has flexibility to run that station flat out at high demand times and turn off most of the taps for low demand times.
But that, in turn, means there must be enough power from other sources so Kariba power does not have to be used for base load at low demand times. The poor maintenance over the decades at Hwange Thermal is one again a really serious problem and need to be fixed properly.
We have been through these price crises before when politics interferes with global oil markets.
Countries move out of the major markets. But sometimes times change. American companies were strongly discouraged, for example, from buying from Venezuela.
Now they are being encouraged to make up the switch from Russian supplies by returning to that major source. So there is benefit for some.
