1 January 2013

Tanzania: Efficiency Up Under New Fuel Supply System

AFTER 12 months in operation, the Bulk Procurement System (BPS) has made remarkable achievements in the supply of petroleum products in the local market, despite some notable challenges which authorities has vowed to address and increase efficiency.

The key objective behind establishment of the BPS was to ensure that petroleum importation for Tanzania's market is efficient, transparent and that there is security of supply of products. It was also aimed to encourage competition within the industry.

The Petroleum Importation Coordination (PIC) General Manager, Mr Michael Mjinja, said over the weekend that the one-year performance of the BPS in the fuel market has recorded some successes which have to a great extent eased costs of doing business in the oil sub-sector.

He said the BPS period under review has been successful because it has assured security of fuel supply, correct records which in turn help the Energy and Water Utilities Authority (EWURA) in calculating cap prices for the local market. "It has been a successful period of the BPS operations of oil supply in the local market with expectations of further improvements which will make the system more transparent and profitable to both the government and the business community," he said.

The former petroleum supply system had several weaknesses including fragmentation of imports whereby each company individually imported products of small quantities, resulting in higher costs, congestion at off-loading facilities that led to higher costs due to demurrage and transfer pricing.

Furthermore, it was revealed that the petroleum downstream sub-sector was characterised by tax evasion, lack of information and data, adulteration of products and general inefficiencies in the various segments of the petroleum supply chain. Ideally, the government in the year 2000 liberalised petroleum stream sub-sector in order to reduce costs in respect of procurement, storage, transportation and distribution of petroleum products by eliminating inefficiencies in the supply chain.

The refining of crude oil at the Tanzanian and Italian Petroleum Refining Company Limited (TIPER), an activity that was seen to be more expensive than directly procurement of refined or white products contributed greatly to the inefficiency. However, Mr Mjinja said pulling down premiums has been one of the challenges that PIC is facing which need to be addressed in the near future, to ensure that prices in the local market go down at the benefit of the economy and end users.

For example, some bidders offered lowest prices in some petroleum products but at the end of the day, their weighted premiums remained higher, thus denying them the opportunity to win the tenders. Mr Mjinja made the remarks at the opening of the eighth tender since the introduction of BPS in January, this year.

Previously the tenders were being floated bimonthly but according to industry watchers, this formula had put local investors out of the business. The PIC on behalf of the government are now floating the tenders on monthly basis in order to enable local oil companies to participate. Two foreign firms -- Addax Energy SA and Augusta Energy SA -- won and supplied fuel for the seven previous tenders conducted in the year 2012 under the BPS.

GAPCO (T) Ltd is the first locally registered company to win the tender under the BPS, the system that has completed one year since it became operational. "The Gapco (T) Ltd offered the lowest premiums ever in one year's existence of the BPS and as competition increases, we hope to see prices going down," said Mr Mjinja, of PIC Ltd at the opening of the eighth tender to supply petroleum products for the month of February.

Gapco (T) Ltd beat other five companies which are Glencore Energy UK Ltd, Augusta Energy, Vitol SA, Gunvor SA and Addax Energy SA after offering the lowest price of 52.55 US dollars per metric ton against 60.45, 62.35, 62.805, 62.96 and 67.15 US dollars respectively.

Gapco (T) Ltd shall deliver 178,900 tonnes of diesel, 73,300 tonnes of petrol, 24,520 tonnes of JET A-1 fuel and 6,150 tonnes of Kerosene worth 14.86 million US dollars (about 23.78bn/-). He said PIC will in the future consider the system currently used in Kenya of separating the tenders for each product to be imported to provide opportunity for bidders who offers low prices in some categories to win.

Currently, bidder who offers lowest premium becomes the winner. He also cited the existing low storage capacity as another bottleneck that needs to be addressed to capture the neighbouring market (transit fuel). Currently most fuel importers use TIPER for storage, whose capacity has been limited.

However, with the functioning of the Single Point Mooring (SPM) has increased significantly efficiency in offloading of fuel thus resolving problems of congestions of vessels at the port which occurred few months ago. Demand for fuel in the country is volatile and depends on the period of the year. For example, during harvest seasons, demand for fuel rises due to increased movement of business people from areas with high supply of agricultural products to market centres.

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