Zimbabwe: Monopolies Are Hazardous

The issue of the state protecting monopolies dates back to the era of the East India Company, also referred to as the British East India Company (BEIC), during the colonial times from around 1500.

The British government offered charters that gave the BEIC a monopoly. In economics, that kind of monopoly has a special name–coercive monopoly.

According to Wikipedia, “in economics and business ethics, a coercive monopoly is a firm that is able to raise prices, and make production decisions, without the risk that competition would arise to draw away their customers.

“A coercive monopoly is not merely a sole supplier of a particular kind of good or service, but it is a monopoly where there is no opportunity to compete with it through means such as price competition, technological or product innovation, or marketing; entry into the field is closed. As a coercive monopoly is securely shielded from the possibility of competition, it is able to make pricing and production decisions with the assurance that no competition will arise. It is a case of a non-contestable market.”

There were personal gains for British politicians to maintain the BEIC monopoly. The company was well-known for monopolies in the spice trade and tea. Its business model was using its monopoly to obtain raw materials in colonies, process them in British factories and export as value-added products.

Closer to home, we had the colonial British South Africa Company run by Cecil John Rhodes. Billy Rautenbach’s Green Fuel, which exclusively supplies ethanol for petrol blending, is using this ancient form book.

Last week, the Zimbabwe Independent published a story stating that the country’s petrol is the most expensive in the region. What is adding to the overall petrol price is the cost component of ethanol.

Government introduced mandatory blending in 2013. President Robert Mugabe’s government then forced through legislation introducing 5% mandatory blending despite public concerns that the new fuel blend might harm vehicles. Green Fuel is the only company producing anhydrous ethanol that is blended with unleaded petrol. Mugabe not only capitulated to the push for 5% mandatory blending, but went further to raise it to 10% mandatory blending (E10), then 15% (E15) and now we are on 20% (E20).

Mugabe for years argued that government should not enact a law that benefits one person, referring to Rautenbach, who is the major shareholder in Green Fuel.

Zimbabweans are asking why government is maintaining a law that serves a single company.

Zimbabwe Energy Regulatory Authority (Zera) announced a dual pricing model, which saw the price of petrol shooting up from ZW$28,90 to ZW$71,62 or US$1,28 per litre, driven by the expensive ethanol.

According to the cost build from Zera, the total landing cost for petrol per litre is US$0,48 including the free on board cost of US$0,37, financing cost of US$0,02 and pipeline costs of US$0,07. Total levies and taxes comprising duty, Zinara levy and debt redemption amounts to US$0,48. Administrative costs made up of storage fees and clearance agency fees are US$0,02. Distribution costs are a mere US$0,05. It is the ethanol cost of US$1,10 per litre that has raised eyebrows, with Zimbabweans saying it was cheaper to use unblended petrol than the expensive E20 petrol.

Honestly, it boggles the mind why we are blending if it is going to push up the pump price, higher than unblended. In 2013, the price of E5 was US$1,10 per litre. So why are we being forced to pay US$1,28 per litre for E20 when we can buy unleaded at a lower price?

An increase in ethanol blending has over the years resulted in huge profits for Green Fuel at the expense of motorists. The government is also spending more on ethanol, as well as on blending by the 11 fuel dealers licensed to blend petroleum products.

Monopolies are archaic. It is time to allow for competition in the sale of petrol products, including unleaded fuel.

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