Energy Forum Zambia opposes government disengagement from petroleum procurement

Over 200 fuel tankers which were marrooned at Tunduma in Tanzania have started moving into Zambia as seen in the picture

Over 200 fuel tankers which were marrooned at Tunduma in Tanzania have started moving into Zambia as seen in the picture

In his 2017 Budget Address to Parliament, Minister of Finance Honourable Felix Mutati stated that with effect from 1st march, 2017 government will disengage from the procurement process of refined petroleum products and allow the private sector to import fuel for themselves. Government will remain with regulation which include control of pump price. He cited the need for efficiency as part of the reasons for disengagement.

While the Forum commends government for taking bold steps to migrate electricity tariffs to cost reflective figure by end of 2017 and for attaching visible political will to diversifying the energy mix, the Forum wishes to oppose government disengagement from fuel procurement for the following reasons:

Impact on small and medium oil companies

Women, youth and citizen empowerment which was being achieved or which could be achieved by encouraging Transnational OMCs to partner with citizen owned OMCs for the purpose of participating in the national procurement process which government wants to disengage from will be lost. Fuel procurement is not only a multi-billion dollar business but also presents the easiest vector for local empowerment. This is the vector that should be creating billionaires for Zambia. By disengaging without adequate measures in place, government is transferring a multi-billion dollar business into the laps of Transnational OMCs which dominate the local market.

Multinational oil companies will be able to leverage economies of scale and land fuel with better margins. This arbitrage will significantly impact other OMCs and ultimately kill them. In addition, TAZAMA will lose significant revenue since part of its income comes from handling at least 500 million litres of refined fuel imports per year.

Logistics and storage capacity

Zambia is yet to build adequate strategic fuel tanks to hold sufficient national strategic reserves to last a minimum of 90 days which is in tandem with good global practice. More often than not, the country has fuel reserves covering less than a month. In addition, the combined storage capacity held by the private sector is not enough to be entrusted with this national responsibility at a time when fuel consumption has significantly increased. What would happen if OMCs refuse to import fuel on account of government failure to increase the pump price? The power of Transnational OMCs must never be underestimated. Further, from a financial perspective, a number of OMCs have actually been struggling to comply even with the most basic license requirement of keeping a minimum of 15 days of stock in their tanks at any given time.

Impact on Biofuels roll out

Government has promulgated biofuel standards and to this end, significant investment is currently under development. Growing Biofuel crops has great potential for job creation and will reduce the amount of forex required to import fuel by at least $100m per year. To successfully roll out this exercise, there is need to establish focal points for biofuel blending. When all private players start to import fuel, it will be a challenge to manage quality and biofuel blending.

Currency fluctuation and weak economy

African economies including the Zambian economy are in a fragile state for government to disengage from managing the fuel procurement process without adequate safety measures. Our judgement is that the Zambian Kwacha will remain vulnerable and susceptible to fluctuations for some time. This will mean the OMCs will be calling for frequent fuel price increase failure to which they may be unable to import fuel. In addition, financing imports will have a more adverse effect on small and medium companies especially that OMC margins still remain low.

Product Quality Management

When everyone starts to import from different sources, product quality control will become a major issue especially that some importers will have to share storage facilities since there is inadequate storage facilities in the country, and a number of OMCs do not have their own storage facilities.

Way forward

Energy Forum Zambia wishes to advise government to handle the proposed policy cautiously. It may seem easier especially that it was implemented at one time; but that was some decades ago when fuel demand was not this high and the global economy was not fragile. In our view, whatever has caused government involvement to become unsustainable and inefficient may also affect private players given that government will remain with price control. The following is proposed:
Put on hold the disengagement from fuel procurement until government has built enough strategic fuel reserves to last a minimum of 90 days. This will mean building more storage facilities.
Government to Government fuel procurement still remain a better option and has the potential to lower pump prices even without subsidies.

Research how other countries such as Namibia, Mozambique, Kenya and Ghana have been going about fuel procurement without government involvement but in a way which does not side line and potentially kill other oil companies especially small and medium companies.

In some of these countries, there is an independent body which administers a tender system for the private petroleum sector to ensure that one or two oil companies are selected every six months to import fuel into the country while the rest of the OMCs buy from them at a regulated price. This implies that all registered OMCs singularly or through alliances are given an opportunity to import on behalf of the rest. This is one way of empowering citizen owned OMCs.

The Forum appreciates the significant challenges government is facing and remain hopeful that government will placate the nation without exposing it to significant risks through rushed decision implementation which is not anchored on adequate safety measures. The Forum wishes to assure government of its support in pursuing progressive policies.

By Johnstone Chikwanda (PhD Cand.)
Energy Forum Chairperson


    • This Chikanda is a PF Liar. Which SME collaborated with the large oil companies to win a tender for procuring oil? Is he talking about his relatives’ companies or Winter Kabimba’s? What is the point of making one or two crooked PF individuals super-rich by inflating fuel prices? Chikanda should join KK’s diesel from grass project. These fake biofuels have been in development since the mid 1990s and up to now I have not driven on even a little of biofuel in Zambia and I have never heard of anyone doing the same. Maybe Lungu who survives of Jemason biofuel? Do these jatropha trees take 100 years to mature?

  1. Please LT do not publish anything from EFZ, it has absolutely zero interests for the taxpayer and is a lobbyist for the Ruling party.

    Speaking in a telephone interview with the Lusaka Star, Mrs. Phiri urged the Commission to accurately and thoroughly investigate the allegations made by Post Newspaper reporter Mukosha Funga that government officials attempted to bribe her in disclosing who gives her classified documents.

    She further said the ACC should also investigate as to whether the named Indeni Board chairman Johnson Chikwanda was sent by government to bribe Miss Funga or was representing his own interest.

    In a story carried by the Post Newspaper yesterday (25th August, 2015) under the headline “Govt offers Funga bribe,” Indeni Board chairman Johnstone Chikwanda is reported to have…

    • Indeni Board chairman Johnstone Chikwanda is reported to have told Miss Funga that the state would drop her court case, give her a new job and a scholarship if she disclosed who gives her classified information.

      Mrs. Phiri urged the Post Newspaper not to drag government into the matter adding that Mr. Chikwanda was a mere Indeni Board Chairman who was not in any way acting on behalf of the government.

      “That Mr. Johnson Chikwanda who had a private meeting with the reporter is not a government official but a Board Chair at Indeni … And for the Post Newspaper to put up that screaming headline is a shame,” she added.

  3. Agree with some of your points, but lets for once starting doing things for ourselves. Firstly Government’s involvement is why Zambia has the most costly Fuel in the Region or maybe in Sub Saharan African. The pipeline you are talking about (Tazama) can be commercialized and opened up to be used by private Oil Marketing Companies. Zimbabwe has done that with their National owned pipeline & despite the hardships they face, it has worked for them to some extent. This will move will also allow Indeni to either compete as a profitable entity or just close shop. The move will certainly bring a lot of competition in the sector. Maybe government must stop foreigners from owning filling stations & only Zambians should be allowed to do. It is up to us Zambians to grab entrepreneurship…

  4. You cannot talk about quality minus involving the bureau of standards. Thats why we have problems in this country.You want to cite quality issues when you are not a quality expert:engage ERB and ZABS before you talk about quality being a problem.I am not very conversant with the other things you talked about but to assume the ere will be quality problems when ERBS and ZABS have not issued any opinion on such is naive.Thanks.

  5. Detailed guidelinesare missing for biofuels production, distribution and pricing. This sector has great potential to create jobs and provide affordable fuel for consumers. Details are missing in terms of coordination, monitoring and evaluation to avoid wastage. In the absence of private initiative at network level, nothing short of a quasi statutory body in collaboration with old players will do. This is a unique opportunity to make history for Zambia. Future generations will not pardon lack of vision when they compare achievements in countries such as Brazil or Zimbabwe to the Zambia.

  6. Ba chikwanda,please keep that to yourself for u are first supposed to breakdown the cost of petroleum products in zambia and show were the subsdie is because going by the current world price and exchange rate of kwacha to dollar,i dont see what the govt claims to subsdisie for lets assume this situation — a barrel ( 159 litres almost 160 litres ) is about $48 takn $1 – K10 it gives me K480 or $30 cents (K3) takn the all 159 litres as many products are obtained from crude oil and nothng is wasted. if we add logistics costs (transportation and handling costs from middle east to filling station ) and processing costs on top of the K3 per litre,please show us as to how much it will come to before taxes and also where the so called petroleum subsidie is because it cant be seen anywhere in…

    • He can not give you an update as he is a tool for the elite that profit from all this daylight robbery; when you dig deeper you will discover how EFZ is funded. No one looks out for the poor taxpayer they all have selfish interests, was it not Wynter Kabimba who was tasked to look into the high prices Petrol at the pump in 2012 only for him to form a company and become a middleman himself.

  7. Government has no right to be in the fuel procurement. This is an open door to corruption and inefficiency.

    Let private oil companies do it and the competition will automatically bring the price down – dramatically!

  8. Comment:The challenge is that Indeni is a separator of co-mingled fuels, it’s not a refinery. Each time there’s a significant adjustment in fuel prices, GRZ claims it has removed subsidies, it’s now a monotone. What competition is there when all OMCs uplift their fuel from Indeni?

Comments are closed.