PREPARED BY

UNDERSTANDING FUEL PROCUREMENT IN ZAMBIA

IN COLLABORATION WITH

Monitoring and Evaluation Division

©2015 Policy Monitoring and Research Centre (PMRC) www.erb.org.zm
[email protected] | www.pmrczambia.com

THE PROCESS Extract:

Zambia’s total petroleum requirements are met through imports because Zambia imports a mixed petroleum feedstock consisting of crude oil, naphtha PETROLEUM IN THE NATIONAL ENERGY POLICY 2008
the country does not have any proven reserves of crude oil. The petroleum and diesel from the Middle East. This petroleum feedstock is processed at
INDENI Petroleum Refinery and sold to OMCs as finished petroleum products.
industry in Zambia is made up of TAZAMA Pipelines Ltd, which is owned, On behalf of the OMCs, transporters distribute the petroleum products mainly Petroleum is wholly imported and subject to ever increasing
by the Governments of Zambia and Tanzania, INDENI Refinery, Ndola Fuel by road to the service stations and commercial customers. international prices and uncertain supply. The high cost of petroleum
imports affects the costs of production and development programmes.
The basic business activities involved in the petroleum sector are:
Terminal, Bulk fuel storage depots and the Oil Marketing Companies (OMCs).
• Procurement and financing of • Storage and distribution: The OMCs 5.4.1 OBJECTIVE
The major activities that take place in the petroleum sector are; procurement, petroleum feedstock; uplift the refined products from The policy seeks to ensure an adequate, reliable and affordable supply of
petroleum the Ndola Fuel Terminal and bulk
transportation, refining, distribution and supply petroleum products to various • Transportation of
feedstock from Dar-es-Salaam by fuel storage depots for distribution
petroleum products at competitive and fair prices and also the reduction
in importation costs.
customers at a reasonable cost. •
pipeline to INDENI Refinery in Ndola;
Refining of petroleum feedstock by
and sale to service stations and
commercial customers.
INDENI Refinery; and 5.4.2 POLICY MEASURE AND STRATEGIES

a) Enhance security and cost effectiveness of supply of petroleum by:

THE FUEL SUPPLY CHAIN IN ZAMBIA i. Attracting investment in the exploration and development of
PRICING STATUS ANALYSIS hydrocarbon resources;
3 2 1 ii. Facilitating the acquisition of geological and geophysical data for
In determining fuel (Petroleum) prices, the Energy Regulation Board Fuel remains one of Zambia’s largest import products. assessing the petroleum potential of the country;
(ERB) uses the Cost-plus Pricing Model, (CPM), which operates on iii. Building capacity in the relevant institutions to monitor and
the principle that the final price of petroleum products should cover TAZAMA and INDENI Refinery are 100% dependent on the flow of petroleum regulate petroleum exploration and development;
all the costs incurred in the supply chain. Using the CPM model the feedstock that should ensure reasonable capacity utilisation in order to iv. Diversifying the shareholding structure in the petroleum refinery
ERB determines the wholesale prices and pump prices of petroleum operate efficiently. Any inconsistency in the supply of petroleum feedstock to include other investors;
products. OMCs rarely import finished products due to the high would result in operating these facilities below minimum capacity levels and v. Establishing and maintaining strategic stocks of petroleum
import duty of 25% on petrol and diesel. would demand an increase in the level of imports for fast selling products. feedstock and refined products ;
vi. Enhancing regional cooperation in the importation of petroleum
TAZAMA Tank Farm in Feed Stock Cargo Ship at Dar-es-Salaam Procurement of INTERNATIONAL OIL PRICES AND ZAMBIA According to the Ministry of Finance, in order to deal with challenges in the
to improve security of supply;
Dar-es-Salaam Petroleum Feedstock petroleum sector, the Government is reviewing the petroleum supply chain
vii. Accessing alternative international sources of petroleum supply
and the financing options. Further, alternative sources of fuel supply are
as well as alternative procurement and pricing mechanisms to
being pursued to reduce costs. Discussions at bilateral level with oil producing
THE PLAYERS countries for the supply of crude and finished products have commenced to
reduce cost and supply vulnerability;
streamline the procurement process by eliminating middlemen, if any. viii. Facilitating the blending of petroleum products with biofuels like
A. TANZANIA – ZAMBIA MAFUTA (TAZAMA) PIPELINES D. BULK FUEL STORAGE DEPOTS bio diesel and ethanol;
TAZAMA Pipelines is jointly owned by the Government of the Government commissioned bulk According to the Ministry of Mines, Energy and Water Development, INDENI ix. Effective management of the Single Point Mooring (SPM) through
Republic of Zambia (67%) and the Government of the Republic fuel storage depots in Northern and Refinery was built with an installed refinery capacity of 1.1 million litres of Government-to-government cooperation between Zambia and
of Tanzanian (33%). The Pipeline runs from Dar es salaam Lusaka Provinces. Other depots are petroleum per day. Currently, INDENI is only able to process between 300,000 Tanzania;
(Tanzania) to Ndola (Zambia) into the Indeni Refinery over a also currently under construction in litres and 700,000 litres of petroleum per day. This is an indication that the x. Increasing petroleum, infrastructure capacity including storage
4 distance of 1708 KM. Western and North-Western Provinces, refinery has challenges in operating at full capacity. facilities;
TAZAMA has continued to have various problems mainly due to the two districts of Mongu and Solwezi, Determinants of fuel prices: Important to note that the domestic xi. Rehabilitating the existing petroleum infrastructure and running
the under utilisation of the pipeline facility as well as an aged respectively. The depot in Solwezi prices of petroleum products are mainly affected by a rise or fall in them on commercial basis; and,
infrastructure which requires upgrading. is over 90% complete. The objective international oil prices and the exchange rate of the United States CONSUMPTION PER SECTOR xii. Ensuring that the pipeline continues to be governed, and operated
of the depots is to decentralize the dollar to the Zambian Kwacha. Also worth noting is that increases in as agreed between the Zambian and Tanzania Governments.
B. INDENI REFINERY distribution of petroleum products and the local fuel prices have a tendency to trigger a general rise in the
TAZAMA Pipeline provide relief to the Ndola Fuel Terminal. cost of goods and services i.e. inflation. According to the 2014 statistics from the Energy Regulation b) To promote the participation of Zambians in the Petroleum Industry
Indeni is Zambia’s sole refinery and is located in Ndola. It is
owned by Government and refines the petroleum feedstock Consequently, the bulk fuel depots in Board (ERB), Zambia’s average daily consumption in litres is as through:
received through the TAZAMA pipeline. Lusaka and Mpika are stocked with follows: Petrol (1.11 million litres), Diesel (2.28 million litres) and i. Ensuring that Zambians hold shares in OMCs and given priority
As in the case with TAZAMA, once there is a consistent flow of products imported rather than products Kerosene (50,000 litres). to participate in all stages of supply, transportation, storage and
petroleum feedstock, INDENI Refinery should be able to run at from INDENI Refinery. distribution.
almost full capacity and should be able to perform better. When
Indeni is fully operational (in its current state) it offloads about E. OIL MARKETING COMPANIES c) Improve efficiency in the petroleum industry by:
600,000 litres of petrol daily on the Zambian market. Zambia’s Oil Marketing Companies (OMCs) Imports of Finished i. Ensuring full capacity utilisation of existing petroleum
daily consumption of petrol is approximately 1.2 million litres distribute and market petroleum Petroleum infrastructure; and
To Ndola of petrol, while diesel stands at approximately 2.2 million litres products, locally. All Oil Marketing Products from the ii. Encouraging investment in the modernisation of the petroleum
(Zambia) per day. Companies in Zambia are required to Region infrastructure through appropriate incentives.
be registered with the Energy Regulation
C. NDOLA FUEL TERMINAL Board (ERB). The products uplifted d) Promote health and environmental safety in the petroleum sector
The Ndola Fuel Terminal was constructed for the sole by OMCs are mainly, Petrol, Kerosene, through:
purpose of storage and distribution of petroleum Diesel and Jet fuel. Other products such i. Transitioning from leaded to unleaded petrol in line with regional
products. The fuel terminal is the selling point of as Heavy Fuel Oils, LPG and Bitumen are and international commitments;
5 refined petroleum products from INDENI Refinery. The sold directly to large users and uplifted 8 ii. Promoting the use of bio-fuels as a fuel additives;
products are sold to privately owned Oil Marketing from INDENI Refinery. iii. Ensuring the operations of the Refinery and Pipeline are
Companies (OMCs) who distribute and market environmentally friendly;
petroleum products, locally. iv. Formulating policy and standards on the quality of fuels including
reducing sulphur content in diesel; and
6 7 v. Ensuring retail outlets adhere to environmental, safety and
service standards.
Train This consumption pattern is key for the purpose of setting appropriate policy to
ensure that the productive sectors of the economy such as mining, agriculture e) Improve petroleum pricing by:
and manufacturing remain at the focal point of sustaining the economic growth. i. Constantly reviewing petroleum pricing to reflect existing
arrangements in the market;
ii. Engaging in long-term supply contracts;
Source: ( National Energy Policy 2008 and Energy Regulation Board)
INDENI Refinery (Ndola) Ndola Fuel Terminal Road Filling Station (Countrywide) iii. Ensuring full price deregulation and competition at the pump;
iv. Setting up an incentive mechanism to mitigate high petroleum
CHALLENGES RECOMMENDATIONS prices in rural areas; and
v. Encouraging low cost petroleum retailing in rural areas.
INFRASTRUCTURE: The state of the major infrastructure in the petroleum supply chain; namely the refinery and the pipeline need to be addressed. 1. The Government must revisit and reform the controls and taxes that on the Treasury and possibly free up resources to other sectors.
These assets are all over thirty (30) years old and require some investment to make them more efficient. At present, the refinery’s production can only govern the petroleum procurement system in order to allow greater f) Ensure prompt response to and minimisation of possible
3. Government must stiffen measures to ensure that there is uninterrupted emergencies and disasters by:
meet about 50% of national demand. competition in the market, which may ultimately eliminate any expensive
flow of petroleum products into the country to guarantee supply and i. Putting in place early warning systems and mitigation measures;
procurement procedures.
ensure stable and predictable prices. and
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2. The long-term solution for the petroleum sector in Zambia is to liberalise
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4. Taxation: With respect to the taxes charged on fuel, Government must ii. Regular reviewing of emergency systems.
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