Retail pump prices hiked up by high exchange rates |21 November 2020

The rupee-dollar exchange rate which has gradually hiked up in recent months is causing a major impact on the price of fuel in Seychelles given that the national petroleum company, Seypec, pays all its fuel products in US dollars.

The financial turmoil resulting from the Covid-19 crisis has triggered a sharp currency devaluation for the local currency as is the case in most developing countries where the US dollar has taken an unprecedented rise of 45% since April this year from R14.24 to peak at R20.64 by the end of last week. The climb is still expected to affect the financial and monetary dashboards and is indeed considered as a lightning shock in as much as it has never been experienced.

The economic fallout

Things are different this time. The fallout from the Covid-19 shockwave is ongoing and increasingly difficult while there are clear indications that things will get much worse for developing economies before they get better.

The full impact of the health crisis hitting many developing countries has yet to reach a turning point. In Seychelles, the tourism industry is expected to see a drop of 75% in arrivals for 2020 which has contributed to the local forex well drying up with the country reserves reducing.

Fig.1

For Seychelles, any glimpse of recovery is heavily dependent on the situation in the country’s main tourism markets. Despite the IMF’s anticipation of a re-launch of the economies in 2021, the restart of the engines of growth is still a wish and not a genuine forecast. This acute stress on the national currency has inevitably led to a scarcity of forex and rise in demand for imports.

“The petroleum products import bill is among the major chunks of the forex expenses,” Sarah Romain, Seypec’s general manager commercial says. “The situation is therefore crystal clear: being entirely energy dependent on imports, the country’s petroleum purchases weigh heavily on the forex situation as it requires approximately US $5 million per month to meet its domestic fuel requirements.”

Movement of the retail price of motor gasoline (January 2020 – November 2020)

Fig. 2

During the past months, motorists have benefited from the sharp fall of oil prices on the international markets. Prices at the pump for mogas started falling in March due to the Covid-19 effect of reducing demand globally and consumers were indeed happy to see one of the lowest pump prices when motor gasoline reached R14.96 per litre in May despite the exchange rate jumping up to R17.82 at the time.

At a time when forex was becoming scarce, Seypec stated that it would be using its USD proceeds from its activities in bunkering foreign vessels in Victoria as well as from its tanker operations worldwide to support its fuel purchases. As such, Seypec did not buy any USD on the local market between June and November and this has enabled a lower price of fuel during that period as the company did not have to purchase any USD from banks locally at a higher rate.

“It is the first time since June that we must knock on the local market to source USD 3.3 million for imports,” Mrs Romain explains. “We have, up to now, managed to refrain from doing so by managing our own foreign earnings through revenue from bunkering and tanker activities, something which has eased the pressure on the national forex reserves. Without this forex management by the company, we would have been compelled to add much burden on the already limited forex of the country.”

However, the revenue in USD from tanker activities and bunkering is inadequate to sustain fuel purchases on a long term basis and Seypec must imperatively turn to the local market for its forex as it is no longer sustainable for the company to finance its own forex needs. The cargo priced for the week beginning November 16 was at a significantly higher rate of R20.64 which was the only reason for the 87-cent increase at the pumps this week. Had the rate of exchange remained at R14.23, at the pre-Covid-19 rate, the current retail price would have been R16.16 per litre, meaning a R2.18 per litre difference just because of the devaluation of the rupee versus the dollar.

Lowest regional prices at the pump

The price of mogas on the local market may have hiked up, but the regional comparison in the Indian Ocean still shows that Seychelles still has the lowest prices among countries in the region when comparing their pump prices in Seychelles rupees. Reunion Island shows the most expensive price tag with R30.48 despite being a French department without the forex headache like other independent countries of the region. Mayotte, another French dominion is even worse charging R34.48 per litre. Mauritian motorists must disburse R24.13 per litre at the pump whereas Madagascar lags Seychelles with a R22.92 per litre tag.

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