The wide gap between the price of diesel and that of petrol could be an indication that the government is planning to phase out vehicles that use petrol from the public transport sector. It may not regulate this. Petrol vehicle owners will simply find it increasingly difficult to operate viably once the country solves the current fuel crisis and the price of petrol continues to escalate. The government could also simply give preference to the procurement of diesel.
The Insider understands that this has been under discussion for some time. Sources say the government wants to have more conventional buses as commuter transport and would prefer to have vehicles that allow free movement of passengers. These are mostly mini-buses with a seating capacity of 30 or more and usually use diesel.
The government recently increased the price of diesel to $200 a litre while that of petrol soared to $450 a litre. This saw operators more than doubling their fares to at least $300 a trip but the government has since approved new fares which range from $60 for the shortest trip to $300 for the longest trip. Commuter operators have been defiant insisting they will stick to their own fares.
With the entry of more diesel vehicles, those using petrol could be driven out of business as this is likely to result in price wars among commuter owners once consumers start resisting the high fares. Already, there is disagreement among long distance operators as to whether they should increase fares because the number of people travelling is dropping except during public holidays.
The effective use of larger vehicles has already proved effective in countries like Tanzania where the shilling has gradually fallen from around 600 to a greenback to about 900 shillings but dala dala (commuter omnibus) fares have not been adjusted. They have remained at 150 shillings for years, which makes the prices charged in Zimbabwe ridiculous since fuel is more expensive in Tanzania.
Zimbabwe has been experiencing a fuel crisis since 1999 largely because of a shortage of foreign currency and also because the product was too cheap. A study by the Ministry of Energy and Power Development, which was later adopted by the Tripartite Negotiating Forum, had clearly shown that Zimbabwe had the cheapest fuel in the region. This was being exploited by people from its neighbours, especially South Africa, Zambia and Mozambique.
The price discrepancy had also led to rampant illegal trade in fuel which resulted in some unscrupulpus traders and vendors preferring to sell the product in neighbouring countries, especially Zambia where there is an abundance of hard cash. Even locals have been exploiting the situation. Though the economy had shrunk by 25 percent, there had been no reduction in fuel consumption.
Another major problem had been that though the government had opened up fuel procurement to the private sector to allow more players, no one has taken that up because it is not viable because the retail price is too low. Sources say even the new price which resulted in a three-day strike by workers is still too low to enable private companies to make a profit from fuel procurement.
But it is a step in the right direction. The government’s strategy is to have cross subsidisation and deregulation of the prices of unleaded petrol and Jet A1. It argues that because diesel is mainly used in the productive sector, any upward price adjustment would lead to price increases across the board. Any price review should therefore take product cross subsidisation into consideration.
The use of blend, on the other hand, is two-dimensional. It is used in supporting business and for luxury purposes. Since Zimbabwe is not an oil producing country, those who can afford to drive noncommercial vehicles should pay relatively high prices. This would enable it to maintain a lower price for diesel and paraffin which is mostly used by the poor.
The government does not seem to have any sympathies for those who use unleaded petrol because vehicles that use this type of fuel are too expensive to buy. Those who can afford them, therefore, have a relatively inelastic demand for fuel and are therefore insensitive to price increases. This is, to some extent, true because these are the people feeding the black market because they can afford to buy fuel at prices of up to $1 000 a litre.