Demand, supply & politics driving Zim energy costs up

Energy-backed cost-push inflation on the horizon for Zimbabwe

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  • ZWL Petrol up 4.47%
  • ZWL Diesel up 6%
  • International energy demand on the rise

Zim Fuel Price Review

Following a cautionary statement by the country’s energy regulator ZERA, October 2021’s fuel price caps were pushed up in both ZWL and US$ terms from the previous month’s price levels.

Petrol’s maximum price levels are now ZWL 123.71/L up 4.47% from the previous month, while diesel has risen 6% to ZWL 122.13. In the more widely available US$, pump prices have also risen, with petrol and diesel now capped at US$1.4 and US$1.38 respectively.

In both currencies, October 2021’s price revisions are the highest price ceilings ZERA has announced to-date. The upward fuel price revision falls in line with both regional and international fuel price adjustments by retailers in response to an extended oil demand – supply mismatch in global markets.

As the controlling body of approximately 40% of the world’s oil production, OPEC and its allied oil producers recently resolved to maintain production cuts of 400,000 oil barrels per day. Without a ramp-up in production from top producing markets like the USA, oil prices are expected to continue rising in response to supply shortfalls, with countries like Zimbabwe having to absorb the impact through upward fuel price revisions.

Global Energy Highlights

Natural gas challenges have dominated news headlines in the last few weeks. Not even established energy markets like the China, the UK and its Channel neighbours have been immune to supply lulls in recent weeks.

In the case of Europe, an almost immediate remedy is available in the form of Russia’s 1,230km Nord Stream 2 pipeline – built but still standing-by for certification as an energy network operator in the pipeline’s terminal location (Germany). A natural gas need by Western Europe is clear, but the region needs to balance this with a reasonable concern of long-run Russian energy dependency.

Although premature, a leading concern is that Moscow could leverage Nord Stream 2 to manipulate European trading partners, a fear shared by the USA on the grounds of its own foreign policy.

As debates drag on, West European consumers and businesses will have to brace for a costly Winter.

Looking Ahead

As the Northern Hemisphere approaches winter, energy demand – supply imbalances have set-in, triggering an inflationary chain reaction as the costs of living and doing business continue to rise. Periodic politicisation of energy market affairs, as is the case in Central, Western Europe and the USA, holds-back producers from addressing energy supply shortfalls at the expense of consumer welfare.

In the case of Zimbabwe, bureaucracy and the operating environment are competing factors for barriers to energy market development. The former discourages and slows down private sector efforts to move from commercial concept to functioning operations, challenges often reported by local and international independent power producers (IPP). Red tape on the part of the country’s regulatory body and unethical practices within the Energy ministry are issues yet to be fully addressed, reducing the ease of doing business in Zimbabwe’s energy sector.

Concerning the operating environment, investor confidence remains low due to uncertainties on issues such as project financing, where unless an IPP’s base currency is a (stable) foreign currency, historical evidence and current affairs support the view the ZWL is an unreliable unit of account.

With respect to electricity, the only sustainable solutions are to ensure ZPC’s assets are up and running and are maximising their productive potential as consistently as possible while facilitating smooth IPP development between the pre-licensing and production phases.

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