Potential fuel Shortages probable in Future
By Mwansa Chalwe Snr
Zambia’s economic management has been plagued by two major weaknesses since independence: extreme shifts in policy and a lack of risk management strategies. The recent IMF driven fuel reforms, where the government has completely disengaged from fuel procurement and financing – effectively privatising the petroleum sector – is the latest case in point. This is likely to lead to disastrous consequences in the future like the Structural Adjustment Programme (SAP) did in the 1990s and 2000s. And there are already ominous signs in the market for petroleum products, with sporadic shortages from time to time.
Zambia Petroleum Industry reforms
Under the supervision of the International Monetary Fund (IMF),Zambia has implemented significant reforms in the Petroleum sector in the last two to three years which were intended to boost efficiency, stability, lower prices and prevent debt accumulation. These reforms include the transformation of the Indeni Oil Refinery company into an oil marketing company, Indeni Energy Company limited; and the repurposing of the Tanzania Zambia Mafuta (TAZAMA) pipeline to transport finished products, replacing crude oil. Additionally, a monthly fuel price revision mechanism has been introduced meant to reflect changing market conditions. The TAZAMA pipeline has also been liberalized, allowing multinational oil marketing companies to utilize it with the tendering system being implemented.
However, these reforms have resulted in significant disruptions and challenges. The country now faces unstable and high fuel prices, which have contributed to the high cost of living and doing business. Moreover, allegations of corruption have emerged, casting a shadow over the sector’s transparency. The over reliance on private sector imports has led to price volatility, exacerbating the economic burden on citizens and businesses. The State owned Indeni Energy Company limited has been marginalized in accessing the Government owned asset-TAZAMA pipeline. To address these challenges, Zambia needs to revisit its petroleum sector reforms by considering adjusting current strategies and implement risk mitigation measures to ensure price and supply stability.
Why governments play a role in the Petroleum Market
Petroleum is a sensitive and strategic resource, and governments worldwide, including African countries like Botswana, Nigeria, South Africa, Uganda, and Kenya, to name but a few, actively participate to influence supply, pricing, and distribution rather than solely relying on the private sector, whose primary focus is maximization of profit.
Governments want to ensure energy security by guaranteeing reliable fuel supply and mitigating external market volatility. Additionally, they aim to protect national interests, prevent monopolies, and promote competition. Furthermore, governments want to maintain strategic fuel reserves to address potential supply disruptions. They can only do this if they retain some control in the supply chain. A notable example is South Africa’s recent formation of the South African National Petroleum Company (SANPC), a merger of several energy companies.
“The SANPC would be poised to become a leading player in South Africa’s energy sector, ensuring energy security, driving new technologies, developing, and enabling essential infrastructure, fostering strategic partnerships, and propelling social and economic development,” The company told BusinessTech, an online publication.
By balancing private sector interests with national priorities, governments involvement in the fuel sector ensures a secure and stable energy supply, ultimately benefiting the economy and citizens.
Why must Indeni Bid for Tazama Pipeline Use?
In the past three years, under the direction of the International Monetary Fund ( IMF), Zambia has moved from one extreme of excessive government participation in the market, to almost zero participation, including opening up the use of the TAZAMA pipeline to the private sector.
“ During the time of the Refinery, Indeni was the exclusive user of the Pipeline. Our intention now is, with the liberalized market, we do not intend to be exclusive user, but to have significant portion that will result into jobs that will help the improvement of the economy”, Evans Mauta, the Chief Executive Officer of Indeni Energy Company Limited said on the company’s Facebook page, when answering a member of the Public’s question.
The IMF has imposed a condition on Zambia in the Petroleum sector where they require the implementation of open access to the TAZAMA pipeline by the Multinational oil Corporations through a tendering process. This is one of the key performance indicators of the IMF referred to as Structural Benchmark (SB) and was expected to be implemented by end of August,2024.
“ Competitive tenders to implement open access to the Tazama pipeline have faced delays due to procedural disruptions. To ensure full cost recovery more consistently, the retail and wholesale price structures will continue to be published monthly. Remedies to resolve Tazama pipeline tender disruptions are being crafted. The authorities will leverage the support of an independent consultant to revise the Tazama pipeline open access tender procedures, also committing to the publication of the tender results.”, The IMF Third review report of Zambia’s Extended Credit Facility (ECF) report Published in June,2024 stated.
Critics argue that the International Monetary Fund’s (IMF) conditions on Zambia’s TAZAMA Pipeline usage and Indeni’s competition with multinational oil marketing companies compromise the country’s economic sovereignty and threaten national security. The requirement for Indeni, a state-owned enterprise, to compete for access to a government-owned asset has sparked outrage from many Zambians. How can IMF dictate to Zambia who should use our own asset, which they never invested in, they argue.
As a result, there is a growing call to reassess and potentially renegotiate the IMF’s conditions on petroleum sector reforms to prioritize Zambia’s economic interests and national security. So far, the IMF’s petroleum reforms have yielded unfavourable outcomes, fuelling criticism. There are already signs of isolated shortages of diesel, and suspicions that some oil marketing companies may be hoarding Petroleum products thus creating artificial shortages.
How Zambia can reduce fuel Prices and stabilise Kwacha
There is no question that the majority of the IMF inspired petroleum reforms have not worked, and will not work in the best interests of the economy and the Zambian people. Besides, they failed in Kenya. It is time to press a reset button. Zambia should n consider using two benchmark countries for a new and better petroleum procurement systems : Uganda and Kenya.
“Kenya in March ditched the Open Tender System (OTS), in favour of direct procurement under a government-to-government(G-to-G) deal with Saudi Arabia and the United Arab Emirates (UAE). Kenya is currently importing fuel on a 180-day credit period, with the deal attributed to being key in propping up the shilling and stabilising it to the current exchange rate of 129.17 compared to the lows of 155.4 units towards end of last year,” The Nation Media group reported last month. “Kampala has already embraced the direct import model in which the Uganda National Oil Company (UNOC) buys the country’s entire fuel stock from Vitol Bahrain E.C before distributing it to OMCs in the country.”
According to very reliable sources from the United Arab Emirates, Indeni Energy Company Limited has long been offered a deal by Abhu Dhabi National Oil Company (ADNOC) which entails the bulk supply of fuel on credit for six months, the building of new storage tanks and pipeline modernisation. The only major condition that Indeni should fulfil is to proof that it has unfettered access to TAZAMA. Why this deal has not been consummated is beyond understanding.
Conclusion
As an evidence based analyst, with a proven track record to foresee financial and economic events under various Zambian administrations, my risk assessment credentials speak for themselves. I accurately predicted the Zambia bank collapses, which had mushroomed in the 1990s, warned of consequences of excessive borrowing in 2015, foresaw the West and China rivalry on Zambian soil in 2021, and identified China is the key player in speeding up the debt restructuring talks in 2022. My articles on the same are on line.
The Zambian government is well advised to reassess the IMF-imposed tendering system. This system has failed in Kenya. It compromises the government’s control over the strategic Petroleum industry. Such a loss of control risks severe consequences, including economic instability and market volatility, as well as political fallout such as loss of public trust, possible electoral backlash in 2026, and potential social unrest.
To mitigate the aforementioned risks, Indeni should have unfettered access to TAZAMA to safeguard national energy security, promote economic stability, and protect state interests while giving a reasonable percentage access (40%) to the Private Sector.
This recommendation aligns with the President of the Oil marketing Association of Zambia (OMCAZ) – a Private Sector organisation – Dr. Kafula Mubanga. As a local expert with intimate knowledge of Zambia’s energy sector, Dr. Mubanga’s views should take precedence over IMF conditions that may not fully account for national interest and the political risk. He advised government to revisit its current fuel policy and partially participate.
“They should consider engaging gulf countries, like the Kenyans where they have
engaged the gulf countries, to supply government directly, maybe by 50 percent. Why is the government not supposed to get a higher 100 percent is because we are coming from a precedent where the government accrued more than enough debt to meet its suppliers. So, to avoid that, let’s give the government a 50 percent, let’s give 50 percent to the private owners.
“That’s how they are going to balance it so that the government also is not at an advantage of ripping off the country and leaving it in debt. But also, we don’t endanger the country towards arm twisting, processes of shortages or sabotage and things like that. So, we need to create a balance. The trend of multinationals always on their way towards election years, because they tend to hold back products, they tend to arm twist governments to make hasty decisions. You’ll have a problem towards the last year of elections because most of those players are going to withhold products”, said Dr Kafula said in an interview with NewsDiggers Newspaper.
I urge policymakers to carefully consider alternative solutions that balance economic prudence with national interest rather than solely adhering to some of the IMF’s conditions that rely on the market, which has no brain, feelings and judgement.
In the same vein, and on the basis of my objective analysis, I would like to appeal to President Hakainde Hichilema to consider intervening, and ensure that the Indeni Energy Company Limited deal with ADNOC, which is alleged to be boggled down in government bureaucracy, is finalized and implemented to accelerate economic recovery.
The deal will result in kwacha appreciation, lower fuel prices, extended period of price reviews from the current one month, reduce in inflation, reduce cost of living and doing business, as well as mitigate against future political risk for the current administration.
The writer is a Chartered Accountant, Author and an independent financial analyst and Economic Commentator.