Maravi

Expert urges govt to address question of Indeni’s relevance

Expert urges govt to address question of Indeni’s relevance
By Fridah Zinyama and Florence Bupe
Tue 10 Nov. 2009, 04:01 CAT

GOVERNMENT should deal with the underlying question of Indeni Oil Refinery’s relevance before finding an equity partner for the parastatal, an energy expert has advised.

And an economic advisor has urged the government to quickly address the fuel crisis to prevent possible price hikes of the commodity, which threatens to plunge the country into turmoil.

Meanwhile, University of Zambia (UNZA) development studies lecturer Fred Mutesa said it is critically important that the government takes measures that will ensure stability of fuel supplies in the country.

The government last week announced that it had acquired the 50 per cent shares in Indeni previously held by Total at a cost of $5.5 million. It later announced that it sought to sell the 50 per cent shares to an equity partner who would meet its requirements.

The decision by the government to own 100 per cent shares in Indeni Refinery raised concerns among stakeholders who questioned the government’s ability to competently and efficiently run the entity without any disruptions to fuel supplies on the local market.

Cabinet is said to soon meet to consider the best way to sell the 50 per cent shares and considerations are being made to either find an equity partner or float shares to ordinary Zambians on the Lusaka Stock Exchange (LuSE).

In an interview, Energy and Financial Solutions managing consultant Andrew Kamanga said it was important for the government to consider Indeni’s relevance to the Zambian economy.

“If government still considers Indeni Refinery relevant to the economy, then it can go ahead and find an equity partner who will pump the much needed finances into the entity,” he said.

Kamanga said if the answer to the problems facing Indeni was unfavourable, the government should then think of setting up a new refinery with the help of the private sector.

“Once government establishes the way to go with Indeni, then it will make sense for them to start considering the best way to permanently deal with the supply of fuel in the country,” said Kamanga. “This idea will be more saleable to the public who might consider investing into another refinery or Indeni Refinery.”
And Association of Bureaux de Change of Zambia president Paul Kalumba said there was a need for the government to seriously and hastily address the fuel challenges facing the country to prevent the economy from weakening further.
He said Zambia’s financial performance over the last one year had not been satisfactory, and any further pressure on key components of the economy would have a negative bearing on general growth.

Kalumba said the exchange rate was key in determining the economic performance of the country, and warned that hikes in essential commodities would negatively impact on the standing of the kwacha.
“As long as we can avoid increments in fuel prices, we are likely to see a stable to bullish Zambian kwacha. We may experience some negative fluctuations this time of the year but that has been the trend,” he explained.

Kalumba expressed concern that despite benefiting from some facilities in the last year, this did not trickle down to ensuring a stronger kwacha.
“The exchange rates have remained high this year. We opened around K4,800 and we are currently around K4,700. However, considering that we had even gone below K3,500 the year before, we have not done very well in this sphere,” Kalumba said. “We expected that with the kicking in of Lumwana Copper Mine and the increase in copper prices, we would have seen a more substantial strengthening of the kwacha.”

Kalumba also said the increase in the International Monetary Fund (IMF) special drawing rights should have positively impacted on the performance of the local unit, although this was not the case.

“Within the course of this year, we have been beneficiaries of the IMF special drawing rights. All this should have translated into high US dollar availability, thus a stronger kwacha, but this has not happened,” he said.
Kalumba also said the outcome of some corruption cases had negatively impacted on the investment climate as the situation eroded investor confidence.

“The happenings at the former Task Force on Corruption and the outcome of the FTJ (second Republican president Frederick Chiluba) cases have led to some donors and locals questioning our commitment to fighting corruption. This is always bad for business,” Kalumba said. “Investors will put their money where they believe that there is protection of their investment and corruption is kept in check.”

He also cited the scam at the Ministry of Health as one that had a significant impact on donor confidence.

Kalumba also criticised the removal of windfall tax on the mines, saying this would continue to affect levels of government revenue.
“We also removed the windfall tax on the mines. Those are earnings lost. We certainly would have benefited more as a country if we had the windfall tax,” he said.

On the performance of the banking sector, Kalumba said although there had been an increase in the number of commercial banks, this had not been matched with positive competition.

“We have seen an increase in the number of banks in the country. However, it only becomes positive if the increase in banks increases competition, leading to reduction in rates. We have noted that while banks in the last two years have begun lending to individuals, most of this lending is consumer based and salary backed,” Kalumba said. “What we need is a shift to more investment lending which helps to grow the economy.”

Kalumba also cautioned the government against undertaking deals that it could not sustain, saying this would negatively affect the performance and growth of the economy.

“We worry that government at times participates in business transactions which are hard to understand. We do not understand why, for example, government has bought 100 per cent shares in Indeni. It is hard to run businesses like Indeni, such transactions may affect our economy,” said Kalumba.

Meanwhile, Dr Mutesa, who is also president of Zambians for Empowerment and Development (ZED), said Zambia needed an uninterrupted supply of fuel products and adequate electricity to drive the economy forward.

“Our objectives of diversifying the economy, poverty reduction and attaining the millennium development goals (MDGs) will not be realised if we mishandle the energy sector,” he said.

Dr Mutesa said the government should revisit its energy policy, identify the problems of implementation and invite stakeholders to provide expert advice on the way forward.

“We wish to emphasise that a lasting solution to the crisis in the energy sector can only come from a roundtable review of policy performance involving stakeholders such as government, the oil marketing companies, workers representatives, and consumers,” said Dr Mutesa.

Meanwhile, management and financial consultant John Kasanga urged the government to clearly state what its long-term objectives were for Indeni and what it hoped to achieve with its 100 per cent shares in the oil refinery.
“There are certain issues which are pending at Indeni Refinery which need to be quickly addressed,” he said. “The issues of Indeni only refining a particular grade of crude oil should be looked at...Indeni Oil Refinery only processes semi-processed crude oil, other kinds of crude oils cannot be processed.”
He further added that measures needed to be put in place to ensure the delivery of crude oil or fuel at an economic cost to the country.

“We need to reduce the landed costs of fuel into the country,” he urged. “A decision should be made that will permanently deal with the issue to supplying the country with fuel at an economic rate.”

Kasanga added that the government should allow a situation where other stakeholders could put up another plant that would refine crude oil in the country.

“If this is not done, then government should allow oil marketing companies to bring in already processed fuel products into the country,” he said. “But whoever would be given this task should ensure that there was no back handling.”

Kasanga added that the issue of the government using certain companies to import fuel into the country had worsened the fuel situation.

“For the most, these briefcase companies do not have adequate finances to import fuel into the country, which has greatly contributed to the current crisis,” he said.

Kasanga added that if fuel imports continued at this rate, the country would experience increased production costs that would make Zambian products uncompetitive in the region.

Labels: FRED MUTESA, INDENI, UNZA

posted by MrK @ 8:46 AM