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Saasa counsels govt on bp exit

Saasa counsels govt on bp exit
By Chiwoyu Sinyangwe
Tue 09 Mar. 2010, 04:01 CAT

THE government should establish an economic intelligence system on BP Zambia Plc’s exit process so that it does not lead to a fuel crisis, Lusaka economic consultant Professor Oliver Saasa has observed. And petroleum consultant Webster Nonde has observed that local entrepreneurs do not have the financial and technical capacity to take over BP operations.

Meanwhile, BP Africa which last week announced plans to quit five African countries to focus on refining and marketing investment has denied growing market intelligence data that its business will be taken over by French oil giant Total.

BP Zambia Plc, the country's biggest oil marketing company (OMC), is being sold as BP Africa sells 75 per cent of its business in Namibia, Malawi, Tanzania, Zambia and Botswana while focusing on refining and marketing investment in South Africa and Mozambique.

BP Zambia Plc controls about 40 per cent of the total domestic oil marketing sector and is a key supplier of oil and lubricants to the mining sector and controls about 75 per cent of the aviation oil segment.

BP Zambia Plc is followed by Total at 24 per cent while Chevron is at 8.8 per cent.

Others include Engen with 4.5 per cent while Petroda stands at three per cent.

The move by BP Zambia Plc to exit the local market has raised concerns among key stakeholders but energy minister Kenneth Konga has said the company’s withdrawal from Zambia would not disrupt the supply of fuel to key industries like the mines and the rest of the economy.

Konga said the government was confident another investor would take over the assets and shares of BP Zambia.

“BP has given assurance that this will be a seamless transition and as such we don’t expect any disruptions in the flow of fuel to the mines and other industries,” Konga said.
But in an interview, Prof Saasa said there was need for the government to be on top of things and ensure that BP Zambia Plc’s pullout did not disrupt the fuel supply chain in the country.

“The government must put in place an economic intelligence on the boardroom decisions of BP so that the decisions do not result in disruption of fuel supply in the country,” Prof Saasa said. “The whole essence is that due to the size of BP on the local market, if not properly managed, this transition…the process sell of majority stake of BP might lead to shortages like the way we saw when Indeni Petroleum Refinery abruptly shut. So, even if BP is not…a parastatal, the government needs to be on top of things so that we maintain macroeconomic stability as you know fuel has the potential to disturb the economic fundamentals in the country.”

Prof Saasa said there was need for the country to smoothly manage the exit of BP Zambia Plc from the local market considering its economic implications on the domestic economy.

“The government should not wait to read about the story in the newspapers… The Post. There is need for the government to be proactive,” Prof Saasa said. “This transition, if not properly handled might effect normal fuel supply in the country and that affects production…energy sector is so fundamental across the production of all goods and services...”

Prof Saasa said the Zambian economy continues to be slowed down by abrupt and sometimes unreliable fuel supply when most situations could be avoided or mitigated.

“One would only pray that this pullout would not adversely affect the economic fundamentals in the country,” said Prof Saasa. “The implication is that we have seen the turbulence in the oil sector has seriously affected our economy, disruption pushes the price of fuel and that has spiral effects on the inflation…and we are barely keeping it within the target...you saw last month.”

And separately, Nonde said the local players did not have the capacity to buy the assets dumped by BP Africa.

Nonde said it was not profitable for a large OMC to make meaningful return in small markets like Zambia as oil marketing was driven by sales volumes.

“There are two key variables you will be looking at. You will be looking at the balance between the margin and the volume… and the two should give you a point where you are just making sufficient return on your investments,” Nonde said. “Right now, because Zambia is a small market and there has been an influx of marketers in the petroleum industry, the cake has become so small such that companies which have invested heavily over the years just cannot see a return which they expect. The returns can’t allow and when they compare with other geographies like North Africa, the margins are less than here but the volumes are big, so because of the balance between the margins and the big volumes there, they are able to hang around in those markets.”

He said the weak fundamentals for the survival for large multinational oil marketing markets was not unique to Zambia but the whole of southern Africa region.

Nonde said the quitting of a large company like BP impacted negatively on the domestic economy in terms of technology transfers and ensuring the local industry catches up with global trends.

“The petroleum downstream challenges are in the region because the decision BP has taken is affecting five countries,” he said. “For Zambia, the implications are worth considering. BP will be the third out of the five original petroleum multinational companies to exit the Zambian market. We had Agip leaving the market in 1999, and then Mobil in 2005, now BP. What it means is that we will be losing something as an industry in Zambia in terms of world class operational standards. BP and Mobil are world leaders in petroleum industry and what countries like Zambia benefit is the extension of world class operation standards. For these companies to be leaving Zambia and the region generally, it means that there is something fundamental which cannot be overlooked.

Because they are leaving the sub-Saharan Africa and they are hanging around all the North African countries, and they are not exiting South Africa. From my own assessment, the marketing incentives probably are not at levels which will sustain their participation in the market in southern Africa region...it’s a regional problem. And those markets where BP has remained continue to benefit from the high operational and safety standards which are necessary in this industry.”

Nonde stressed that Zambian entrepreneurs do not have the capacity to buy BP assets.
However, he said the move by BP group to exit the local market would not result in fuel disruption in the country.

“It’s very rare that BP will unbundle into smaller units and mind you there will be international interest from other global players,” said Nonde. “The sale of BP will be seamless because whoever buys it, will buy a going concern. Normally that is what happens and they will be negotiating like that to whoever they are going to sell their assets to. And that is why it is not easy what people are saying that briefcase entrepreneurs will just rise and get it. The assets won’t be split for people to say ‘me I want the mines, me I want that station’. That is not how it is going to be done…like Agip and Mobil were sold, they were sold as complete units.

“If we go by that precedent, it will go as complete units which means if it works like that, their customers will see a seamless transition, basically it is just one supplier going and another continuing. I don’t think it will cause a disruption in fuel supply. The exit for BP may provide opportunity for local enterprises, but petroleum business is of an international nature and the standards that accompany this business are of international nature purely because of the huge financial demand in research and development. So, it’s not a simple situation of saying the big guy has left, then we will fill in with small oil marketers.”

Meanwhile, BP Africa has denied growing market intelligence information that Total was favoured to take over its assets.

Total is seen by most analysts to be only company with the financial muscle and expertise to run the infrastructure of BP.

The move would be seen by most analysts to fit into the business refocusing of Total, which recently dumped its 50 per cent stake in Indeni Petroleum Refinery.

But BP Africa director for communications and external affairs Sam Mupanemunda denied reports linking Total to BP assets.

“The project is still in its initial phase and potential buyers have not yet been identified at this point,” Mupanemunda told Business Post in an interview from Johannesburg.

Labels: BP, OLIVER SAASA

posted by MrK @ 6:15 AM