By KENNEDY MUPESENI –

THE petroleum sector plays an important role in the economic development of any country as it determines the cost of production.
Non-oil producing countries like Zambia which are far from sea coasts struggle to get petroleum products.
The country’s total petroleum requirements are met through imports because the country does not have any proven reserves of crude oil.
The petroleum industry in Zambia is made up of Tanzania Zambia Mafuta Pipelines Limited (TAZAMA), which is co-owned by the Governments of Zambia and Tanzania, Indeni Petroleum Refinery,  Ndola Fuel Terminal, Bulk fuel storage depots and the Oil Marketing Companies (OMCs).
The major activities that take place in the petroleum sector are; procurement, transportation, refining, distribution and supply of petroleum products to various customers.
Zambia imports a mixed petroleum feedstock consisting of crude oil, naphtha and diesel from the Middle East.
This comingled feedstock is processed at Indeni Petroleum Refinery and sold to OMCs as finished petroleum products.
On behalf of the OMCs, transporters distribute the petroleum products mainly by road to the service stations and commercial customers.
The OMCs uplift the refined products from the Ndola Fuel Terminal and bulk fuel storage depots for distribution and sale to service stations and commercial customers.
With all these activities in the sector external market forces largely determine the price of the fuel pump prices on the local market.
For example, the drop in oil prices on the international market more than four months ago, saw fuel prices reduced by K2.29 for petrol and K2.59 per litre for diesel.
International oil prices and the domestic exchange rate are the major determinants of the prices of fuel in Zambia.
Last week, the prices were increased by an average of K1 owing to the depreciation of the Kwacha against the United States (US) Dollar and the recovering international oil prices.
Energy Regulation Board (ERB) has pegged the price of petrol at K8.74 per litre from K7.60 representing an increase of K1.14.
Diesel is fetching K7.59 per litre from K6.59 per litre highlighting an upward adjustment of K1 while the cost of low sulphur gasoil is up from K9.89 per litre to K10.88 per litre.
Stakeholders have often been blaming the high prices of fuel to the many middle people who are allegedly involved in the oil procurement.
Economic Association of Zambia (EAZ) immediate past president Isaac Ngoma says eliminating middle people from oil procurement will result in greater efficiency to the process and serve a lot of money.
“It is not surprising that the prices of fuel has always fluctuating, because we all know that the local currency has been under a lot of pressure and also other issues including procurement system since we maintain a uniform pricing ,” Mr Ngoma.
A local think tank, the Policy Monitoring and Research Centre (PMRC) in its recent research analysis says Government should revisit and reform the controls and taxes that govern the petroleum procurement system.
This is to allow greater competition in the market.
PMRC head of monitoring and evaluation Salim Kaunda says this would ultimately eliminate any expensive procurement procedures.
“The long-term solution for the petroleum sector in Zambia is to liberalise it. This may reduce the financial burden on the treasury and possibly free up resources to other sectors,” Mr Kaunda said.
Government should stiffen measures to ensure that there was uninterrupted flow of petroleum products into the country to guarantee supply and ensure stable and predictable prices.
With respect to the taxes charged on fuel, Mr Kaunda said Government should consider reducing the rate of taxes on petroleum products and address the state of the major infrastructure in the petroleum supply
chain; namely the refinery and the pipeline.
These assets, he says, are all more than 30 years old and that they require substantial investment to make them more efficient.
Presently, the refinery’s production can only meet about 50 per cent of national demand and fuel still remains one of Zambia’s largest import products.
For instance, TAZAMA and Indeni Refinery are 100 per cent dependent on the flow of petroleum feedstock that should ensure reasonable capacity utilisation to operate efficiently.
Any inconsistency in the supply of petroleum feedstock results in operating these facilities below minimum capacity levels will demand an increase in the level of imports for fast selling products.
According to the Ministry of Finance, to deal with challenges in the petroleum sector, the Government is reviewing the petroleum supply chain and the financing options.
Further, alternative sources of fuel supply are being pursued to reduce costs.
Discussions at bilateral level with oil producing countries for the supply of crude and finished products have commenced to streamline the procurement process by eliminating middlemen, if any.
Indeni Refinery was built with an installed refinery capacity of 1.1 million litres of petroleum per annum.
Currently, Indeni is only able to process between 300,000 and 700,000 litres of petroleum per annum.
The Government, in its quest to stabilise the prices of fuel in the country recently sent a letter of intent to Saudi Arabia on the possibility of a Government-to- Government oil procurement deal.
According to Mines, Energy and Water Development Minister Christopher Yaluma after experts who were sent to Saudi Arabia returned the Government sent a letter of intent to the government of that country.
He said after the procurement document on the deal was received, the Ministry of Finance in collaboration with his ministry will further scrutinise the offer.
“We will look at the contents in the draft contract to see if it will meet our expectations regarding prices and what they will offer,” Mr Yaluma said.
He adds that the Government would continue exploring means and ways proving to be cost-effective in the procurement of oil to make fuel pump prices affordable in the country.
On proposed oil procurement from Angola, Mr Yaluma says currently the Lobito refinery in that country was not yet completed to start purchasing the commodity from that country.
Mr Yaluma said starting a new oil pipeline construction from Angola would be costly, especially that the ministry has engaged companies in oil exploration which he says will be a waste of resources if they strike oil.
The Government and other stakeholders should engage each other to explore means of making the prices of fuel stable and low if the cost of production in the country is to reduce.