PART 1: FERTILIZER PROCUREMENT
By Sean Tembo – PeP President
1. If a regime is going to steal from the Zambian people on a large scale, there are basically four key areas where such theft can be perpetrated, with little or no notice from the citizens. Three of the four areas are on the expenditure side of the budget, while the fourth is on the revenue side. These are fertilizer, medicines and fuel procurement on the expenditure side, and tax holidays on the revenue side.
2. Fertilizer procurement for the Farmer Input Support Program (FISP) presents a unique opportunity for a regime to steal from the people because of the huge value and volumes involved. However, in order for this scam to work, certain conditions have to exist. The first and perhaps most important condition is that there has to be a high level of panic or semi-crisis with the procurement process so that the minds of citizens should only be focused on having the inputs delivered and not whether proper tender procedures have been followed. In order to achieve this condition, a thieving regime will ensure that fertilizer procurement is done at the very last minute before the commencement of a farming season. Indeed, every Government knows with absolute certainty that farmers will need fertilizer to be delivered to their door-steps by late September or early October, therefore there is no discernible reason why they should not commence the fertilizer procurement process as early as February so as to allow for any eventualities such as the award being challenged in court.
3. The late commencement of the fertilizer procurement process is not by accident or due to incompetence. It is a deliberate ploy by the regime to create a crisis and elevate the levels of anxiety among the people. Once that condition has been achieved, the next step is to use it as an excuse for sidelining established tender laws, processes and procedures under the pretext that there is an emergency. The other condition that must subsist for the fertilizer scam by a regime to succeed is that procurement must be made from outside the country. That is because if procurement is made from local fertilizer manufacturing companies, it becomes a problem to inflate prices, meaning that the only other available way in which theft can be done is through under delivery. However, under-delivery as a mode of theft is replete with too many obstacles one of which is that the beneficiaries on the ground are likely to make an outcry that they did not receive the fertilizer at all, or that they received only a fraction of their allocation.
4. Therefore, it is paramount to a thieving regime that the fertilizer is sourced from abroad. The average price of fertilizer on the world market is between $250 and $350 dollars, and even after a supplier adds insurance and freight, there is no good reason why the Government should be paying three to four times the world market price. Other than for purposes of siphoning money from the Zambian people. This means that local fertilizer manufacturing companies stand little or no chance of being awarded a substantial fertilizer contract by Government. There will always be a preference to award tenders to traders rather than manufacturers, because traders offer a greater opportunity for inflating prices.
5. Of course Government has to come up with an excuse why they prefer to award fertilizer contracts to traders rather than local manufacturers such as Nitrogen Chemicals of Zambia and other private sector players. The common excuse is that these manufacturers do not have the capacity to manufacture the quantities which Government seeks. This is only so because a thieving regime will set unreasonable delivery timelines which favor traders compared to manufacturers. If the fertilizer contracts were awarded as early as February, the local manufacturing companies would have more than six months to produce the fertilizer in readiness for distribution in September. But instead, the thieving regime will award the fertilizer contract in September and demand that it be delivered in a few weeks time. Under these circumstances, local fertilizer manufacturing companies are only allocated less than two percent of the total quantities due to their “limited capacity”. And the stealing goes on.
6. The other important condition that must exist for the theft from the Zambian people to succeed, is that the fertilizer contracts must be awarded to people who are supporters of the ruling party so that they can pump back in the chipani, most of the supernormal profits from the inflated fertilizer contract. For example, if Alefaz Fertilizer Commodities Company is awarded an inflated contract to supply 100,000 metric tonnes of fertilizer at an inflated price of $1,400 per metric tonne, this amounts to $140 million. Since the price of fertilizer on the world market is between $250 and $350, we can take an average of say $300, which means Alefaz Fertilizer Commodities Company will incure a total estimated cost of about $30 million to procure the 100,000 metric tonnes of fertilizer. The average insurance cost is usually not more than 5% and the cost of freight can be put at about 25%, which means that the total landed cost for the consignment will be about $39 million dollars, which we can round off to $40 million. This means that out of their $140 million contract, Alefaz Fertilizer Commodities Company is making a supernormal profit of $100 million, or in local currency K1.58 billion.
7. Since Alefaz Fertilizer Commodities Company is linked to the ruling party, this K1.58 billion supernormal profit from the fertilizer contract is then distributed to various party beneficiaries, as instructed by the President. Most of this money is then used to bribe voters so that the ruling party can prolong it’s stay in office.
In part 2, 3 and 4 of this series of articles we shall look at how theft is done by the UPND regime in the procurement of fuel and medicines, as well as in the granting of tax holidays.