In a bid to stabilize Malawi's fuel supply, the government has unveiled a new government-to-government (G2G) arrangement for importing fuel, which experts say promises to offer more favorable terms than the current open tendering system. The new system, set to be fully operational by March 2025, will see the National Oil Company of Malawi (Nocma) as the sole fuel importer. This move, spearheaded by the Ministry of Energy, is expected to reduce fuel shortages and stabilize fuel prices, benefiting both consumers and the economy.
Currently, Malawi's fuel imports are managed through a process that involves multiple suppliers. According to Ibrahim Matola, the Minister of Energy, this system has several inefficiencies. "Currently, Nocma uses so many suppliers, and so does Petroleum Importers Limited (PIL), but these suppliers import in smaller quantities each, which means they don't enjoy quantity discounts," he explains. The result? Malawi ends up paying more for fuel due to the lack of economies of scale and a fragmented supply chain.
One of the significant advantages of the G2G framework is that Nocma will now be able to procure fuel in large quantities from major international oil companies such as the Abu Dhabi National Oil Company (Adnoc), Emirates National Oil Company (Enoc), and Saudi Aramco. By dealing directly with these oil giants, Malawi will likely secure better pricing and more favorable credit terms. As Matola puts it, "Under the arrangement, Nocma will likely be enjoying quantity discounts, which were previously unavailable with multiple smaller suppliers."
Another key benefit is the streamlined foreign exchange process. Currently, fuel importers apply for foreign exchange through various commercial banks, inflating the demand for dollars and contributing to the depreciation of the local currency. The new G2G system will reduce this strain by consolidating foreign exchange applications through Nocma alone, helping to stabilize the Kwacha. "With Nocma applying for foreign exchange, the correct demand will be reflected, which will result in a stabilization or even an appreciation of the local currency," Matola says.
But it's not just about price and currency stability. The G2G arrangement also promises to enhance the efficiency and reliability of the fuel supply. By centralizing imports under one government entity, Malawi can better plan and monitor fuel stocks, reducing the risk of shortages. This is particularly important in light of recent fuel crises that have plagued the country, causing long queues at filling stations.
Additionally, the G2G framework will provide more flexibility in payment terms, allowing Nocma to negotiate better credit facilities with oil producers. "The G2G arrangement will provide more extended credit periods, which will help the country manage its cash flow and avoid the perennial fuel stock-outs that we have witnessed in the past," Matola adds.
National Advocacy Platform's Benedicto Kondowe agrees with the new model's potential to reduce fuel costs and improve economic resilience. "This model should lead to a reduction in fuel costs and mitigate the burden on consumers," he says, urging the government to ensure that transparent mechanisms are in place to prevent corruption and ensure accountability in the management of these agreements.
However, Matola acknowledges the inherent challenges in any new system, particularly in moving away from the open tendering process, which has been the preferred method of procurement under Malawi's Public Procurement and Disposal of Assets Act. "We are aware that fuel trading should ordinarily be left to the private sector," he admits. However, the government's intervention in this case aims to stabilize the economy and prevent the damage caused by unreliable fuel imports.
The new arrangement comes at a time when Malawi is struggling to balance its foreign exchange demands. The country needs around $600 million annually to import fuel, but its total foreign exchange generation is just around $1 billion per year. With the G2G system, the government hopes to secure better terms from oil producers and ensure a steady supply of fuel without overwhelming the country's foreign exchange reserves.
Sign up for free AllAfrica Newsletters
Get the latest in African news delivered straight to your inbox
As Matola concludes, "The benefits of the G2G arrangement will be evident in the long run as it will reduce the volatility of fuel prices, stabilize the currency, and enhance the overall efficiency of the fuel supply chain."
The G2G fuel import arrangement marks a significant shift in Malawi's energy sector and could serve as a model for other countries facing similar challenges in managing their fuel supply chains. With transparent management and careful implementation, the new system holds the promise of lower fuel costs and a more resilient economy for Malawi.
