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Friday, 6 September 2013

Let us liberalise the oil sector, 2nd Edition

Indeni Petroleum Refinery needs around US$1.7 billion to have a new plant or upgrade to enable it meet the current demand for petroleum products in the country. According to CEO Maybin Noole the current plant has never been rehabilitated for the past 40 years and new infrastructure is required to modernise the plant. All the pieces of equipment at the plant are in an obsolete state and need replacement.

Government has invested US$16 million to rehabilitate the plant so far, but it has no money to invest. Energy Minister Chris Yaluma says, “We want to address the issues at Indeni by ensuring that we find the required money to either rehabilitate the plant or put up a new one". But where will the money come from? The money saved from the fuel subsidies is going on paying new civil servant wage rises and meet Zambia's rising debt burden. We are a country that enjoys self harm!

There has been an idea of finding a new investor to partner Government by taking 49% of the shares. Cabinet earlier this year approved the "sale". But that search has drawn blanks - just like MMD also tried and they couldn't find anyone. Who would invest in Indeni? And of course it's not just Indeni which needs money. TAZAMA pipeline is also in need of rehabilitation.

The only credible solution is to completely liberalise the sector. The price of fuel can come down considerably if only the tax restrictions on Oil Marketing Companies (OMCs) are eliminated. The ERB simply need to complement that with an increase regulation of regulation of the OMC industry in such a way that only companies with significant shares by indigenous Zambians can operate.

The misguided questions around security can be met by Government procuring sufficient oil reserves, in same way that it does for agriculture through the FRA - and sell at full cost to ensure sustainability.

These are not popular ideas politically but as two ancient Chinese proverbs say 'zhong yan ni er li yu xing' (loyal advice that sounds unpleasant must still be followed); and 'liang yao ku ko li yu bing' (effective medicine that tastes bitter must still be swallowed). I thought I quote from the Chinese since PF is so fond of coping from China everything!

Chola Mukanga | Economist
Copyright © Zambian Economist 2013

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