Tanzania to revive oil import monopoly


JF-Expert Member
Feb 11, 2007
In my opinion TPDC should be allowed to import oil

Tanzania to revive oil import monopoly


Tanzania is to float an international tender for a single firm to take over the importation of all petroleum products into the country, in a bid to end price fluctuations that distort the market and hamper economic growth.

The International Competitive Bidding (ICB) process is likely to face stiff opposition from the Tanzania Oil Marketing Companies (TOMC) association, whose members are well established and currently doing business country-wide.

Bulk procurement is expected to provide cost effective access to petroleum products by improved procurement and supply chain management, reduction in duplication, and lower freight charges.

Haruna Masebu, director general of the Energy and Water Utilities Regulatory Authority (Ewura), said last week that bulk buying would reduce costs of importation by between 20 and 30 per cent.

“We anticipate a saving of 20 to 30 per cent on the cost, insurance and freight (CIF) value once the system is operational, which would be in March next year,” said Mr Masebu.

Before the liberalisation of the petroleum sector in 1997, the state-owned Tanzania Petroleum Development Corporation (TPDC) imported 70 per cent of the country’s petroleum products requirement on behalf of the government and sold it to the oil marketing companies.

The remaining 30 per cent was produced locally by the TIPER refinery, which was shut down under pressure from the World Bank, although Tanzania had already engaged a private firm to construct and operate a 200,000 tonne refinery.

In July 1997, the industry was partially liberalised, allowing oil-marketing companies to import fuel through a ministerial Technical Task Force, which floated tenders under which the successful company could import fuel on behalf of other oil companies.

The oil marketing companies are now allowed to import any product they need to service their customers, a system that allows big firms to share their imports with the smaller companies. This system thus helps small companies and new entrants to the market.

Following the amendment to the Petroleum Act in January 2000, the Technical Task Force has been given the role of Interim Regulator for the petroleum sector until new legislation is adopted.

Mr Masebu said bulk importation would promote transparency in the procurement of supplies and lead to competitive CIF costs. It will also help sectoral quality monitoring, information and import data collection to ascertain oil reserves, consumption patterns and tax purposes for other agencies such as the Tanzania Revenue Authority and the Energy and Minerals Ministry.

Implementation of the new arrangement will also be in line with Section 8(1) (a) of the Petroleum (Interim) Regulations Act 2000, which stipulates that importation of petroleum be done from a supply source that generates competitive prices for the country.

According to Mr Masebu, the process will be open to local and international investors through a competitive tender bidding process.

The decision to tender, however, appears to reverse the recent government decision to allow Tanzania Petroleum Development Corporation (TPDC) to import oil.

In the middle of the oil crisis this year, TPDC was asked to draw up a comprehensive oil importation business plan, but was subsequently told to conduct a stakeholders’ meeting to “gather public views before any further step.”

Yona Killagane, director general of TPDC, told The EastAfrican last week, “I do not really know how the new decision will affect TPDC’s plan to start importation of petroleum products.”

Mr Killagane said however that a stakeholders’ meeting scheduled for November 23 would shape the future of key players in the oil industry.

Ewura proposes that whoever wins the tender to import in bulk should get the mandate for three months before another bidding process takes place.

However, the new system will need improvement in procedures and streamlining of the tendering mechanism.

“Defects in petroleum products importation partly lie with the supply chain,” he noted.

Under the current procurement procedure, each importer enters into a contract with a supplier as per terms agreed between them.

This triggers variation in prod-uct prices “This, together with other factors such as differences in profit margins from one company to another, bring about price fluctuations and disparities to consumers as different retail stations,” Mr Killagane said.

He cited other defects of the current system as being multiple entry points for imports (through Dar es Salaam, Tanga, Sirari, Lake Victoria and Mtwara), which pose difficulties in monitoring quality and quantity of imported products.

The Ewura director said that there is lack of current supply and demand data for petroleum products as oil marketing companies have failed to submit information to authorities as required under the law.

“Fragmentation of imports caused by a situation whereby each company is free to individually import products may be a source of higher costs due to loss of economies of scale, importation of substandard products, congestion at the Kurasini Oil Jetty leading to high demurrage costs; and transfer pricing,” he added.

In the present situation, there are no formal or transparent methods in place in Tanzania for verification of current costs, profits and prices to give assurance that the present supply strategy is indeed fair.

A similar system is being applied in Mozambique where Imopetro imports petroleum products in bulk through a competitive tender process.

“Many believe that the bulk importation of petroleum products, a practice employed in Mozambique, Malawi, Kenya and elsewhere, will lead to cost savings based upon realised economies of scale,” said Mr Masebu.

Additional reporting by Wilfred Edwin
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