A report of the
AFREPREN/FWD Theme Group on
Special Studies of Strategic Significance
Adequate energy supplies are vital for the efficient functioning of all sectors of the economy. For landlocked countries such as Zimbabwe and some of the Southern African Development Community (SADC) countries which import all their liquid fuel requirements, robust and sustainable fuel sector policies are of crucial importance to national economic growth.
The energy sector in Zimbabwe accounts for 8-9% of the country's GDP, but it contributes only 1% to formal employment. More significant is its share in aggregate investment, foreign borrowing, and debt. Investment in the fuel sector during 1996-1998 totalled about Z$ 985 million (US$ 18 million). The sector is foreign exchange intensive and its foreign exchange requirements tend to strongly influence economic policy decisions. While Zimbabwe is 84% self sufficient in energy requirements, petroleum products need to be imported in their entirety at very high cost.
Since the last quarter of 1999, Zimbabwe has been experiencing serious fuel shortages. Supplies have been erratic to the extent that the country had at times operated with as low as 40% of normal supplies. These shortages have been attributed mainly to foreign exchange shortages and alleged mismanagement and corruption at the National Oil Company of Zimbabwe (NOCZIM). As the shortages become more severe, problems of product shortage began to unfold. The public began to question the industry's policies and questions were raised on the sustainability of the liquid fuel sector policies in Zimbabwe. Of particular concern was policies regarding regulatory mechanisms, pricing, distribution,
Utilisation of storage facilities, supply routes and NOCZIM management.
This study examined the challenges facing the Zimbabwean petroleum sector and presented recommendations that could assist in ensuring a robust and functional national fuel sector.
1.Fuel Pricing Policy
The Government of Zimbabwe has not been committed to the implementation of its fuel pricing policies. The policy is aimed at ensuring long-term viability of the oil industry. However, this has not been achieved as shown by one of the industry's major players, NOCZIM, which saddled with very large debts largely due to poor implementation of the pricing policy.
Fuel prices, unlike electricity tariffs, are approved by the Cabinet. Bureaucracy in the fuel prices approval process is one of the major problems which has led to the delays and/or non-approval of fuel prices in the country. Partly due to inadequate fuel price increases, the national oil company has been unable to raise the required local finances to purchase foreign currency.
2.Strategic Storage Reserves Policy
NOCZIM has not been keeping the required stocks of 60 days. This has not been possible due to lack of financial resources as a result of Government's reluctance to raise the fuel price. The country has no legal instruments to enforce Government policy on strategic reserves.
3.Fuel Supply and Distribution Policy
There is no distribution policy in Zimbabwe and this has led to uneven distribution of fuel between the rural and urban areas. In addition, there are no incentives to distributors that would encourage them to distribute fuel to the remote rural areas of Zimbabwe. The uniform pricing policy has led to fuel shortages in remote rural areas as marketers find urban areas cheaper to supply.
The supply routes are not adequate to supply the whole economy as their capacity cannot match demand. Total daily demand is about 2 billion litres, yet the pipeline can pump a maximum of 1.2 billion litres, with rail and road moving up to 0.5 million litres. Both the road/rail and pipeline capacities need to be increased.
4.Poor Management of NOCZIM.
The National Oil Company has a very huge debt of over Z$19 billion (US$ 345 million). The debt is a result of non-viable fuel prices, poor debt management and poor procurement practices at the oil company. The deteriorating exchange rate has also contributed to the build-up of the debt.
The choice of NOCZIM Board Members is wrong, with the Board largely made up of civil servants with no representation of other key stakeholders. Most of the NOCZIM's key senior positions are held by people in their acting capacity. The company's tendering process has been flawed with no clearly defined rules and guidelines. This has contributed to the escalation of the NOCZIM debt. For example, the transportation of fuels has been done without any contracts being signed between NOCZIM and the transporters.
Foreign currency has been in short supply in the country and this has had a major negative impact on fuel supplies. The shortage has been caused mainly by the shrinking export base of the country and by the poor relationship between the Government and international financiers such as the IMF and World Bank.
Of the little foreign currency available, the Government has allocated US$ 10 million per month for fuel imports, which can only cover about half of NOCZIM import requirements. The extra foreign currency is sourced from the parallel market.
To address some of Zimbabwe's key weaknesses in the liquid fuel sub-sector, the study proposed the following recommendations:
1.The Zimbabwean Parliament should pass a Petroleum Supply and Distribution Law which would be the legal instrument regulating the industry.
2.Viability of liquid fuel prices could be achieved through monthly price and margin reviews and automatic foreign exchange and inflation adjustments.
3.There is need to re-introduce a strategic storage levy and stabilization levy to finance the purchase and holding of strategic stocks.
4.The national oil company NOCZIM should employ international "best practice" tendering procedures in the fuel import business.
5.The supply infrastructure should be expanded.
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