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Badilisha Lugha KISWAHILI

Oil crisis: When government chooses shortcuts, cheap politics, and blame game at the expense of the truth

11th November 2012

 Every time there is a crisis caused by fuel shortages in our beloved Tanzania, my friend convinces herself that the "wananchi" will be so incensed with the situation that our government will have no option, except, to implement effective changes.

She is invariably sorely disappointed as the changes that are implemented are generally ineffective and one cannot help wondering whose interests they are actually intended to serve as we ungraciously hobble onto the next fuel crisis.

During times of crisis, there is one thing that we can all rely on without fail: the inelegant and heavy-handed response of the Tanzanian authorities. It is so very predictable.

They respond with the same venom they reserve for all crises, pointing accusatory fingers at everybody within sight in a vain attempt to clear themselves of all blame.

Why they see a need to bother trying to cleanse themselves baffles me, because no one will hold them to account in any event, so they may as well accept the blame, take their monthly pay cheques, ride in their big fuel guzzlers and posh cars, hoard their travel allowances and peacefully move on to the next crisis without a care in the world.

The present fuel shortage is acute and the people suffering the most are those living upcountry, and predictably the authorities are pointing their oft-used accusatory finger at the Oil Marketing Companies.

Apparently, they are to blame because, according to the authorities, they are hoarding a vast amount of fuel as a result of their alleged disappointment with the low prices set by EWURA. As a child, whenever my paternal uncle thought we were attempting to pull the wool over his head, he would declare: “Kids, you can fool all the people some of the time; you can fool some of the people all of the time; but you cannot fool all the people all the time”. Although it took us some time to figure out the intricacies of this saying, we quickly learnt that this pronouncement meant that he had caught us out.

It would seem that this time around, the authorities have not managed to fool all the people all the time, as “the Citizen” in its Editorial of 2 November 2012, urging the authorities to "Urgently sort out this mess in fuel supply" appears to have caught them out.

I salute “the Citizen” for putting the same question, which I have wanted put to the authorities. If the present fuel shortage is artificial, caused by hoarding and alleged greed of Oil Marketing Companies as the authorities would have us believe, then "Why did the regulator issue a credit bond to the TRA to allow oil marketing companies to procure fuel destined for neighbouring countries?"

If OMCs have a substantial quantity of fuel in storage, speculatively hoarding it and waiting for EWURA to announce higher prices, as suggested by the authorities, then why do we need to “expropriate”, and I use this word advisedly, fuel destined for landlocked countries?

The answer to that question is simple. We have no fuel. The OMCs are not hoarding any fuel. The fuel shortage is real and is rooted in a number of causes, and the most important of these is the fact that our economy like those of our neighbouring landlocked countries, has been growing in the past two decades, thereby needing more oil imports to fuel it. However, the port infrastructure for receiving imported oil has not been improved to match that demand.

According to information I received from a TPA employee, the port at Dar es Salaam has two berths for delivery of oil, KOJ 1 and KOJ 2. It also has an SPM commissioned over four decades ago, which is presently used for delivering crude oil through the TAZAMA pipeline to Zambia.

The SPM and KOJ1 can handle ships with a capacity of 38,000 tonnes and KOJ 2 can handle ships with a capacity of 5,000 to 8,000 tonnes.

KOJ 1 was constructed in 1958 at an original capacity of about 8,000 tonnes, which was increased to its present capacity in 1992/3 almost two decades ago. KOJ2 was constructed in 1997 after the decommissioning of the Tiper Refinery. The problem is that these limited facilities are relied upon by Zambia, the DRC, Burundi, Rwanda, Uganda and ourselves. In addition, we use the same facilities to import vegetable oil, kerosene, petrol, diesel and LPG.

In 1992 when the capacity of KOJ 1 was increased our total daily petroleum consumption was about 16,000 barrels per day. For those of you whose memories go back so far, you will recall that until about 1997 when the Tiper Refinery was finally decommissioned, we were also refining crude oil for domestic consumption; so we relied on the SPM to import crude oil as well as KOJ 1 to import refined product for domestic use. With the death of the refinery, we relied entirely on the importation of refined petroleum products.

By 2009 our daily consumption rose to 34,000 barrels, more than double of that in 1992, and we were no longer refining crude oil, yet our port capacity had increased by a mere 5,000 to 8,000 tonnes.

We can be sure that our neighbours’ needs for petroleum products had also been growing. In an attempt to forestall the looming disaster, last year the authorities commissioned a contractor to construct a multipurpose SPM through which refined petroleum products could also be delivered.

The SPM was supposed to be up and running in April this year but to date this has not happened and rumours have it that it will be commissioned this month, which should then ease our problems.

There is a misconception propagated by those in authority that the Bulk Procurement System (BPS) that was imposed on the Oil Marketing Companies by the Government at the end of last year is the panacea to all our oil problems, from pricing to quantity.

This of course is totally false because by way of a simple example our petroleum requirement for Nov 2012 is about 324kt. Assuming that the demand is consistent throughout the year, that is equivalent to 8.5 Vessels of 38,000 tonnes per month.

As it takes between four to seven days for a 38kt tanker to discharge its cargo and all purchases made through BPS are discharged through KOJ1, you need at a minimum a 34 day months to discharge our domestic petroleum fuel requirement alone, and this does not include fuel oil for power plants, vegetable oil for cooking, LPG and transit products destined for neighbouring landlocked countries.

In theory, this country needs at least a 45-day month to ensure uninterrupted availability of petroleum products for domestic use and no matter how kind God has been to Tanzania, a month stretched up to 45 days to discharge the oil requirements for a 30-day month, is definitely not on his list of things to do.

With the current infrastructure, our domestic needs and our international obligations, it does not take a genius to calculate that fuel shortage is inevitable on the simple grounds that we do not have the capacity to accept importation of fuel to meet our needs and the needs of our neighbours irrespective of whether we force OMCs to create an importation cartel through the BPS or not.

The problem of capacity was made more acute in the month of October 2012 by the fact that the Zambian Indeni oil refinery at Ndola, which receives its crude oil supply through the TAZAMA pipeline, was shut down for 21 days maintenance.

Zambia, which imports crude oil for refining and nevertheless needs to import refined petroleum products to meet its total fuel needs, has been relying heavily on the Dar es Salaam port infrastructure for the importation of its present fuel needs, thus putting more pressure on the already overstretched Dar es Salaam facilities.

As for pricing of petroleum fuel, this is dependent on the international market. Tanzania’s consumption of fuel, which was about 0.041% of world consumption in 2009 is far too miniscule for us to have any impact on fuel prices if fuel prices could be decreased by bulk buying. In fact, to believe that bulk procurement will bring down prices with the present infrastructure is relying on what my dear father would call, “voodoo economics”.

The economy of scale, which the authorities envisaged would occur through the BPS could potentially lower the cost of petroleum products imported in the country, but the savings are more in the freight/premiums than the FOB price of the molecules of the fuel itself.

This saving on the freight of course has not been realized by Tanzania because the importation of the fuel is still conducted in the same 38,000 tonnes vessels as before the introduction of the BPS and premiums are now higher than they were before the introduction of the BPS, due to other problems with the system. So once again any theoretical gains have been thwarted by the stark realities of our infrastructure.

In addition, petroleum fuel is priced in US dollars and in the past decade, the TZ shilling has been consistently declining against the US dollar, thus making petroleum fuel more expensive for us.

Despite what the authorities may believe, some us do have working memories and can recall that during the height of the international oil crisis in 2008 when the international price of petroleum fuel was at its highest, we were paying about TZS 2,100 per litre.

Can someone explain why we are now paying around the same price per litre, when BPS was supposed to put these so called profiteering OMCs in their places and the international petroleum market has stabilised? Do I dare suggest the weakness of the TZ shilling may have a role to play or would that be too much for those whom we have handed the economic reigns of the country to accept?

So should we place the blame of limited infrastructure and the weak TZ shilling on the oil marketing companies? Unfortunately, rather than telling the “wananchi” the truth, the authorities are shirking their fair share of responsibility by taking the easy option of blaming the OMCs for our current problems.

This inequitable conduct will not provide the solution to the fuel shortage problem but will only create animosity towards OMCs, which could lead to avoidable social unrest. In the sort term, would it be too much for us to hope that the authorities place their energy into ensuring the completion of the SPM and in the long term, would it be too much for us to expect the powers that be to get our economic house in order so that the TZ shilling does not continue on this downward spiral against the US dollar?

The easy and indefensible option lovingly embraced by the authorities, is to politic and spin doctor facts in order to paint Oil Marketing Companies as the villains of this particular piece by calling them "saboteurs", instead of "partners" who have played an important role in our economic growth.

Can I remind everyone that before EWURA was used by Government to control as opposed to regulate the petroleum market, we never experienced fuel shortages.

We seem to be so intent on acting inequitably that we are “expropriating” by decrees issued through EWURA to the TRA, our neighbours’ fuel stored in some OMC’s depots. There will be a long-term price to pay for this shortsighted and ill-thought out manoeuvre.

In October 1973 during the international oil crisis, Lee Kuan Yew, Prime Minister of Singapore reassured OMCs operating in Singapore that his government would not make a claim over their stocks even though the stocks in question could have run Singapore for a period of two years.

Despite the crisis Lee Kuan Yew chose to respect proprietary rights and OMCs paid Singapore in kind. By the 1990s the tiny island of Singapore was the third largest oil refining centre after Houston and Rotterdam; the third largest oil trading centre after New York and London; and the largest fuel bunker market in the world in terms of volume.

In his account of the Singapore economic miracle “From Third World To First”, Lee Kuan Yew writes “If I have to choose one word to explain why Singapore succeeded, it is confidence”.

He knew that his decision to refrain from relying on expropriation as a means of resolving Singapore’s short term oil needs “increased international confidence in the Singapore Government, that it knew that its long term interest depended on being a reliable place for oil and other business”.

A government that makes a nasty habit of expropriation, only succeeds in portraying the country it is supposed to serve as disagreeable and unattractive to foreign investors.

The present domestic fuel crisis is short term. However, attempts to expropriate our neighbours’ fuel will have a long-term impact on any hope we have of developing Dar es Salaam into an oil hub for East Africa. Or have we not thought that far ahead, because if we haven’t then rest assured Kenya and Mozambique have done so.

Ms. Karume was called to the Bar in the Middle Temple and is an advocate of the High Courts of Tanzania and Zanzibar. She is presently Litigation Partner with IMMMA Advocates in Dar es Salaam. Email: [email protected]

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