The time lag between the establishment of Letters of Credit (LCs) and their ultimate actualization at foreign banks is the major source of delays in fuel supply into the country, Reserve Bank of Zimbabwe (RBZ) Governor, Dr John Mangudya has said, while dispelling widespread notions that the country is experiencing fuel shortage due to non-payment of suppliers.
Zimbabwe is currently experiencing fuel shortages since last year.
Speaking a Parliamentary Committee on Energy and Power Development this morning, the Central Bank chief said owing to foreign currency constraints, the bulk of the country’s fuel was purchased using LCs, instruments used by banks to procure the commodity as a stock of value to be paid in foreign currency once they mature at a later date.
However, the process involves multiple banks , starting with the oil marketing company’s local bank which establishes the LC, followed by the confirmation process done by the Afrexim bank which means it will have guaranteed the LC before it goes on the third party bank which plays the advisory role to the supplier of the fuel, who then gives the nod to the fuel marketing company to supply the fuel to dealers for sale.
‘There is a time line between establishing an LC and for the fuel company to start delivering the fuel. It is those lags that there is a discrepancy between what is paid for and what is received. What we are seeing is that what we have in the market is the mismatch otherwise the fuel has been paid for, it will come and will bridge the gap,” said Dr Mangudya.
He further highlighted that most fuel companies in the country have weak bank balances and facilities to back LCs for speeding up of fuel supply.
He however said the situation is expected to normalize during the course of the month as the Bank is currently engaging external banks and other financiers to access strong facilities to back LCs.
In January the country through the LCs procurement system paid for 120 million liters of fuel but to date, it has only received 104 million liters with the 16 million liters still in transit owing to delays in the actualization of LCs.
Observers are anxious of the continued LCs procurement system, which despite taking too long to supply fuel on the market will still choke local firms once they mature as foreign currency availability in the short to medium term remains bleak on the market.
Fuel consumption has been on the decline since the announcement of a 150 percent price increase by President Emmerson Mnangagwa early this year. The increase resulted in monthly fuel demand sliding from 155 million litres to 130 million litres.
