Introduction
The Commission of Inquiry into the Energy Regulation Board
completed its work and presented their report to Cabinet for further action.
Whilst the findings of the Commission were not made public it is worth noting
the following:
·
The responsibility for the procurement of
petroleum (both crude and petroleum products) is within the purview of the
Ministry responsible for Energy
·
There is an on-going requirement for Zambia to
import petroleum products to satisfy market demand. This particularly true for
ultra-low sulphur diesel (diesel with sulphur content <500 ppm) which cannot
be produced at the INDENI Refinery but is a preferred fuel for use in heavy
diesel mining equipment in Zambia.
·
There is a need to import feedstock (crude oil
mixed with finished products) as Zambia does not produce its own petroleum. The
INDENI Refinery is not configured to process a pure crude into petroleum
products and satisfy Zambian market demand unless more investments into this
facility (such as the installation of a hydrocracker) are made.
·
The supply of petroleum into the Zambian market
requires the involvement of two parastatals namely the INDENI Refinery (100%
owned by Government of the Republic of Zambia (GRZ)) and TAZAMA Pipelines (2/3
owned by GRZ and 1/3 owned by the Government of the United Republic of
Tanzania). Both these companies have supervisory Boards chaired by the
Permanent Secretary of the Ministry responsible for Energy.
The Committee indicated in their summary on report handover
that they had exposed irregularities and corruption in the procurement process.
The following are some the factors that need to be present to allow corruption
to take place:
·
Inadequate institutional frameworks to handle
the transaction
·
Insufficient accountability frameworks of
supervision and accountability for those handling a transaction
·
A lack of transparency in the procurement,
execution and management of a transaction
The Government through the Zambia Public Procurement
Authority advertised two tenders: one for the supply of petroleum products and
another for the supply of petroleum feedstock. Since the completion of the
Committee’s report, we have not seen any changes in the institutional
framework. It therefore would appear that there is still an environment in
place which allows for corruption to take place. In this environment it may
perhaps be the right time to ask the following questions:
1.
Is Government is the correct entity to control
and execute the procurement of petroleum feedstock and products?
2.
Is sufficient attention being paid to best
international practices in corporate governance to ensure that parastatals
improve their performance and eradicate the potential for corruption?
3.
Is enough being done to secure the future
sustainability of the Zambian economy in terms of petroleum supplies?
Petroleum Exploration
In 2009, the Petroleum (Exploration and Production) Act of
1986 was repealed and replaced with a new Act. This Act updated the precious
Act to better reflect the changes in how this type of activity is now carried
out worldwide. To a large extent the majority of new finds in the petroleum
sector are happening in the shadow of the rise of the NOC (national oil
company). Whilst the NLOC maintains majority shareholding in the petroleum
resources, they work with international oil companies as technical partners to
unlock their petroleum resources. This
kind of system works very well once the presence of commercial oil deposits
have been established. It is much more difficult to create an environment in
which exploration on a large scale is being carried out. Large amounts are
being spent in exploration in Angola, Mozambique, Tanzania, Kenya and Uganda.
Not a week passes by these days without news of new discoveries in all these
countries.
Whilst Zambia seems to have a system which supports mineral
exploration, the same cannot be said for petroleum exploration. Successive
regimes in this country have bemoaned the “high price” of fuel in Zambia but
little attention is being paid to the best long term solution to this problem
which would be the discovery and exploitation of our own petroleum resources.
This may perhaps be due to the fact that investments of this nature may take as
long as ten years for them to bear fruit and this may not sit well with short
term political planning. A good example of this would be Ghana. The Kufuor
regime spent large resources in the search for oil. This paid off but the
benefits are now being seen by the opposition; in this case the regime of
Professor John Atta Mills. First oil in Ghana coincided closely with the change of power and there
have been challenges noted in how revenues
from oil have been administered. Considering Zambia’s own experience with
mineral revenues, it may be instructive to study legislation such as the Petroleum
Revenue Management Act in Ghana.
Oil wealth has tended to have a mixed record in
Africa, it is in the wider interest of this nation that if these resources are
there, they should be exploited. Whilst there will be a long lead time to
“first oil”, this time should be used to build up the relevant institutions so
that the process of petroleum exploitation can be as transparent and inclusive
as possible.
Parastatals
Perhaps the greatest challenge in our current environment is
the operation of our parastatals. It is also apparent that privatisation is not
being seen as a viable alternative to the operation of these entities. If we
are committed to continuing to run these entities as businesses then there is a
need to change the approach of
how appointments to the respective supervisory Boards are made. There is
nothing stopping appointing authorities from requesting search committees to
receive applications from members of the public wishing to serve as Directors
of state owned companies as a first step in the reform process. On average in
the best run companies, it is not unusual to have a director serving for 15
years. Perhaps our challenge is to
create a process that will generate enough credibility such that Directors
are allowed to contribute to the respective companies for this period of time.
The Contracts
Two companies have been reported in the press as being the
preferred suppliers for the respective petroleum contracts. The structure of
the Zambian market requires study and further monitoring to establish whether
there is real competition in place. The award of a substantial contract for the
import of petroleum products to a company which also has a presence in the
retail and distribution market will put pressure on regulatory agencies to
ensure that the servicing of this contract does not unduly give them over
competitors. The need to ensure this will fall on both the Energy Regulation Board
and the Competition and Consumer Protection Commission. There will be a need to
strengthen and support the operations of these agencies if they are to effectively
carry out this important task. There also appears to have been some
shortcomings in the management of previous contracts and this may have contributed
to the belief that there is corruption in the procurement of petroleum. Those discharging
these contracts will need to ensure that everything that has been done will
stand up to public scrutiny.
Conclusion
There is an opportunity to set a new standard in the management
of the petroleum procurement process, This may require Government to make
decisions regarding the market structure of the petroleum industry and whether
it is appropriate for them to take the lead in petroleum procurement. There
will also be a need to strengthen the oversight, through boards, of parastatals.
The energy sector has taken a beating in the press in which its management and
regulation has been found wanting. What is not clear at this point is the
measures both in the short and long term that will be instituted to bring back
credibility to the operations for this sector. The public has heard enough
about what is failing; it is now time to get the sector running in a form that
will re-establish confidence. There is an expectation that there will be a
steep rise in the price of petroleum in the next two years and we need to make
decisions that will find us ready to deal with this eventuality when it arises. It may therefore not be advisable to build the expectations of the public that fuel prices will reduce when the cost of crude and petroleum products imported into Zambia is not something that the importer can control.
