In the next couple of weeks, we will be expecting to hear the findings of the Special Committee investigating the Energy Regulation Board. What has become clear, however, is that the petroleum sub-sector is not in a great state of health. Since the cancellation of the World Bank sponsored Petroleum Rehabilitation Project in 2001, there has been no sustainable institutional framework in place to manage the importation of petroleum products in the country. Both the Refinery and the Pipeline (both Government owned) are in need of re-capitalisation and expansion. Government also has fully taken on the responsibility for the importation of all petroleum.
Oil Pricing
A study of the international petroleum industry will indicate that it is becoming increasingly difficult to find petroleum. Deep water finds in Angola and in Brazil are pushing the envelope in terms of the technology that is now deployed to exploit these resources. The use of remote submersibles for the deployment of production infrastructure is an expensive undertaking. Consumption or demand has been suppressed by the continued poor performance of Western economies. It is clear that this will not continue and at some stage, most of the Western economies will recover. This will in turn increase demand and this will result in an upward pressure on the price of crude. In Zambia, we have no power over these pricing dynamics as we import all our petroleum requirements. It is therefore inevitable that at some time in the future there will be a price shock in the oil market and we need to prepare ourselves for this eventuality.
Supply of Petroleum
There are essentially two ways in which petroleum can be supplied to the country. Firstly we can supply ourselves. This means showing more seriousness in our search for a petroleum resource within Zambia’s borders. As I write this blog, the Geological Survey website which hosts all the information for interested applicants to apply for a block is not accessible. The Petroleum (Exploration and Production) Act Cap 440 of the Laws of Zambia was revised in 2010. Provision was made in the Act for the setting up of a National Oil Company. Progress has not been made in the setting up of this oil company nor have there been significant efforts to promote Zambian petroleum exploration opportunities. Our national oil company continues to be absent from important industry showcases such as the World Petroleum Congress and Africa Upstream. In the region Namibia, Tanzania, Mozambique and Uganda are registering significant investment in petroleum exploration and the same countries have all recently reported significant finds of oil and gas. All these countries have active and effective National Oil Companies.
The other method of supplying the nation’s needs remains that of importation. Continued Government involvement in the importation of crude needs to be better structured so as to ensure adequate levels of accountability and transparency exist in the process. The possibility of allowing the private sector to import feedstock should also be considered as a sustainable option. History has proved that the temptation for a government to politicise fuel pricing if it is involved in importation has been overwhelming. Attempting to subsidise energy consumption has proved to be extremely costly and has the potential to damage a national economy. Previous regimes have racked up large bills for petroleum over the years. The fact that the liquidator for Zambia National Oil Company is still active ten years after the company wound up should be an indication of the capability of settling bills. It is also clear that over the last two years the fuel price in Zambia has not been reflective of the price on the international market.
An innovative way to resolve this dilemma would be for the regulator to advertise a licence to supply petroleum feedstock. Companies like the refinery or TAZAMA or the private sector would have to compete so as to ensure the best deal is obtained for the Zambian people. The role of Government would be to facilitate a financial environment where instruments to hedge fuel prices can become available to large consumers.
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| The Single Buoy Mooring in Dar-es-Salaam |
Logistics of Supply
The main route for the supply of petroleum products is through the TAZAMA Pipeline. Whether or not the Refinery continues to operate, the pipeline will remain and important tools for the delivery of fuel to the market. It is important to note that there is need to expand the capacity of the pipeline. Opportunities also exist to extend the pipeline to DRC and also to study the possibility of extending the pipeline southwards to Lusaka if it is being used in a finished products mode. The existence of a market in Lubumbashi would offer opportunities for raising finances for pipeline extensions. Thus far little progress has been made to open competing routes to the pipeline from the Western seaboard or from the South. As the economy expands, it will important to diversify the routes of supply to the country. This includes studying opportunities of supply from both Angola and Namibia. A study of all these options will go a long way towards reducing the cost of supply of petroleum products to Zambia and thus sustainably keeping the cost of petroleum products down.
