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(TIMES) Zambian fuel supply chain

Zambian fuel supply chain
• • • as explained by energy expert
By KELVIN KACHINGWE

THE demand for fuel energy in the mining sector is likely to go up significantly again, a scenario that has made experts and analysts to call on planners to review the current supply scenario of not only fuel products but also other forms of energy.

On assumptions that a positive economic growth rate will continue to be recorded despite the sorry state of the world financial markets presently, experts argue that there is need to quickly deal with issues relating to the well-being of the whole fuel supply chain in Zambia.

However, one expert, Evaristo Kasunga, former managing director of Zambia National Oil Company, at a public discussion organised by the Zambia Open University in Lusaka, said the fuel supply chain was, by and large, normal and clear.

He said every actor had a role to play and that there was no duplication of efforts, particularly that Tazama Pipelines Limited was involved in the importation of crude, transportation of feedstock, and selling of finished products at the terminal.

He observed that the main features of fuel energy demand had changed drastically in the last three years resulting in an increase of requirement of over 30 per cent.

Firstly, a number of commercial and personal vehicles had increased and, secondly, industrial activities in various sectors of the economy had also increased in response to positive growth rates.

“Demand of fuel energy in the mining sector is likely to go up significantly, again meaning importation of fuel products has got to be jacked up immediately.

“This wake-up call requires planners to review the current supply scenario of not only fuel products but also other forms of energy such as electricity, charcoal and coal as all these are strongly linked to economic growth,” he said in his presentation.

One of the issues that have to be dealt with is the well-being of Indeni Petroleum Refinery and Tazama Pipelines Limited as these were the two most important companies directly involved in the fuel supply chain.

Satisfying on that score is that the Energy Regulation Board (ERB) has already invited consultants to deal with the future supply scenario.

Tazama Pipelines, a parastatal company jointly-owned by the governments of Tanzania and Zambia, is one of the longest pipelines in the world and traverses through undulating landscapes and acid soils, particularly in the Tanzanian region.

It has seven pumping stations and a total distance of 1, 700 kilometres between Dar-es-Salaam tank farm and Bwana Mkubwa Ndola terminal.

It is said that the undulating landscape and acid soil in the Tanzanian region make it very difficult to maintain the line.

“Corrosions weaken the pipe, resulting in line bursting when operated under high pressures. The receiving point of fuel feedstock, together with half of the pipeline, are right now a ticking timebomb – meaning more capital investment is needed to upgrade security of supply to Zambia’s inland refinery.

“Apart from managing the pumping of feedstock, the pipeline has been recently appointed as a government agent in the procurement of petroleum products from Indeni Petroleum Refinery,” said Mr Kasunga who is also former group executive director (Energy) in the defunct Zambia Industrial and Mining Corporation.

The pumping capacity of the pipeline is around 1.1 million tonnes per annum and this is almost the capacity Indeni Petroleum Refinery has.

These pumping and refining capacities were designed 30 years ago when Zambia’s fuel requirements were around 720, 000 metric tonnes per annum.

There are close links in the operations of the pipelines to those of the refinery and their operations are paid for by the Government through agreed tariff rates, but it has been argued that such pumping tariff rates should be adequate to permit maintenance and re-investment.

On Indeni, whose name represents the original shareholders’ corporate names of Indeco Limited and the Eni Group of Companies of Italy, now replaced by Total International, Mr Kasunga still has some thoughts.

Indeni Oil Refinery has a total refining capacity of 1.1 million tonnes which is similar to that of the pipeline.

Both the refinery and the pipeline have idle capacities which could be utilised to their advantage and to take care of increased demand of fuel products.

Feedstock to the refinery is commingled in a proportion by weight to meet product demand while creating stock days of the same.

“For example, where gasoil stock days are needed, the following feedstock percentage blend composition by weight will be imported: Arab light crude, 43 per cent, naphtha, 15 per cent, dual purpose kerosene, five per cent and gasoil, 37 per cent.

“Or Murban crude 38 per cent, gasoil 45 per cent and heavy naphtha 17 per cent or indeed Oman crude 34. 5 per cent, gasoil 40. 5 per cent and condensate 25 per cent.

Apart from three mentioned cargo compositions, there are several other combinations which can be agreed, provided they meet, firstly, refinery requirement and, secondly, national market demand,” Mr Kasunga said.

“Indeni Oil Refinery gets its income from refinery tariff which has been agreed to by the Government or its agent.

“The more the refinery refines, the more income. The refinery tariff should be appropriate enough to allow adequate maintenance and replacement of capital.”

On the procurement of refinery feedstock by tender arrangements, he says the calling of tenders by the Government is a transparent way of determining the most suitable supplier under agreed conditions, openly binding the supplier and the buyer.

In oil trading, prices and their products are a common knowledge through publication of Platts and international oil trading journals.

There, what buyers require are reduced transport (marine freight and insurance) costs, he says.

Further, in oil trading, the distance between the loading ports and the off-loading ports matter a lot as the buyer is worried of marine cost, insurance and freight (CIF).

“Through tender procedures, assurance is certain that the CIF Dar-es-Salaam cargo shall be optimally achieved.

“Looking at oil pricing at a glance, we will obtain that there are various oil trading blocs with each having its own pricing base.

“The USA and American continent price quotations are based on West Texas, whereas for Europe and the Miditerranean area, price quotations are based on Brent.

“The Red Sea, Asia, Indian Sub-Continent and Africa, the price quotation formula is based on the average of Oman and Dubai generally referred as the Eastern Destination formula.

“It would be highly irregular to start using price quotations which are outside trading blocs; otherwise, the Gulf region provides the appropriate trading area for Zambia,” said Mr Kasunga, adding that it is for this reason that Angolan and Nigerian Crude oils are described to be out of range for the Zambian market.

On oil marketing prices, he said they calculate pump prices in a manner to recover all costs but remain with oil marketing companies (OMCs)’s margin while taking care of the dealer margin.

And in order to take care of the deficit in supply of products in the market, there is an on-going arrangement allowing OMC’s to import finished products.

This importation programme has mitigated shortfalls while the Government, through the ERB, is looking for a medium and long-term solution.

With that, Mr Kasunga’s take is that the introduction of tender procedures in the supply of feedstock has improved reliability of supply of feedstock.

He, however, says the absence of adequate financing arrangements to support feedstock remains a worry although there is an assurance from the Ministry of Energy that the arrangements are about to be finalised.

And most importantly, the high pump prices in Zambia are not due to the fuel supply chain numerous high taxes and levies.

The challenge, as seen by many experts, is to intensify exploration of oil and gases in the country.

In any case, energy, in whichever form it comes, is relevant to economic activities and social life itself.

Labels: FUEL

posted by MrK @ 1:06 AM