2 February 2013

Tanzania: Bulk Procurement - Does It Bring Sanity in Oil Marketing?

OVER a year ago, motorists would not know how much to pay for a litre of fuel. Oil marketing companies would charge different pump prices thanks to different sources from where they got their fuel.

It was not only a chaotic market but also very unprofessional, characterized by adulterated oil and widespread cheating. "The situation was pathetic when we introduced bulk procurement over a year ago because oil marketing companies were left free to choose their own source, decide on quality and standard," said former Petroleum Importation Coordinator (PIC) Chairman, Mansoor Hiran.

The Kwimba lawmaker who served in his capacity for a year, said bulk procurement system (BPS) has introduced sanity in the market which had already been eroded following years of experimental free market arrangement. Many motorists and the general public agree that BPS has brought some sanity in the oil marketing sub sector where over a year ago things were chaotic and unprofessional.

"It's not that this system is perfect no, we still have a lot of things to do in the right way but at least some movement in that direction is seen," said Juma Mosi, a commuter bus operator in the city. Mr Mosi said it is true that with BPS and Energy and Water Utilities Regulatory Authority (Ewura) intervention, prices have stabilized across the board and quality has greatly improved as under the system, a company that win the tender is given specific conditions including pricing and standard.

But to the government, it's not only quality and standards plus prices that have improved but also the revenue collected from fuel imports and pump prices. But most of the big oil marketing companies which made billions of shillings in profits under the chaotic market arrangement are opposed to the system saying it has caused more problems than bringing solutions to the business.

"We know that most of the leading oil marketing companies had opposed bulk procurement from the onset because it introduces a system that stops them from making super-profits," said Ewura's Corporate Communications Manager Titus Kaguo. A few major oil marketing companies used to control over 80 per cent of the domestic market through importation of 90,000 metric tons of petroleum products monthly earning on average 100 million US dollars (about 160bn/-) in profits.

The import bill for fuel has dramatically fallen under BPS assisting the government save vital foreign currency while curbing smuggling hence taming revenue loss. Ewura records show that when the system was introduced last January, a record 412,712,795 metric tons of petroleum products were imported compared to 382,261,877 metric tons during the same period in 2011.

"This simply implies that government revenue has increased and smuggling controlled under BPS," Ewura Director General, Haruna Masebu said. Mr Masebu said while defending BPS against critics that even pump prices for fuel have increased only slightly compared to the world market price increase.

"While the world market price increased by 9 per cent last month when Ewura's indicative prices calculation was done, local prices have only increased by 4 per cent maximum," Mr Kaguo argued saying the difference has been absorbed by the new system of bulk procurement. Some of the factors which have stopped local pump price from surging include costs such as demurrage which have been done away while things like transfer pricing have also been contained.

Organization of Petroleum Exporting Countries (OPEC) said in its monthly report covering the month of March 2012 that the price of a barrel rose by 5.1 per cent. "The increase was supported by geopolitical factors that were further amplified by a surge in speculative activities in the crude oil future markets," the oil cartel said in its report. But critics of the system still argue that big oil marketing companies are controlling the system as most of its members sit on PIC board which makes key decisions.

"We need interest free personalities to sit on the PIC board and not big company representatives," said Orlando D'Costa of Augusta Energy which won three first BPS successive tenders between January and March last year. Mr D'Costa said because of the increasing influence which big oil marketing companies have on PIC board, some of them have gone unpunished after violating BPS conditions. "But we at the ministry are watching very closely what is happening and will not hesitate to take disciplinary or legal measures against any company that contravenes BPS regulations," said Permanent Secretary in the Ministry of Energy and Minerals, Eliakim Maswi.

Mr Maswi said PIC has already been ordered on several occasions to take stern disciplinary measures including imposing penalties and rejecting BPS fuel imports which do not meet minimum standards as spelt out in the tender documents. But critics have also faulted priority berthing for transit ships or edible oil ships which interrupts BPS ships from smooth discharging of the country's oil shipment.

Tanzania Revenue Authority has been on the receiving end when priority berthing ships interrupt BPS ships. TRA Commissioner General , Harry Kitillya last year wrote a letter to Permanent Secretary at Ministry of Energy and Minerals complaining against such interruptions. "For example for September 2012, ten days have been used for vessels granted priority berthing. However the customs law provides for priority berthing once the Commissioner for Customs and Excise has been satisfied that there exists a reasonable ground involving national interests," Mr Kitillya wrote in the letter.

Kitillya however pointed out that in most cases, priority as given to ships bearing no national interests while eroding the government's main source of revenue. Customs duty constitutes the bulk of TRA revenue collection with over 52 per cent of all total government revenue per annum. "On average, one ship can occupy the berth for between 1-4 days and this has revenue implications," warned Kitillya joining Petroleum Importation Coordinator (PIC) and some oil marketing companies which have complained against the disruptions.

But PIC's Mjinga is optimistic that what is happening currently is a process of perfecting the BPS arguing that problems were always expected because the system is new and most of the players are learning through practicing. As BPS enters its second year, it is clear that consumers would like to see improvement of prices and quality of the commodity.

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