News Column

Oil Politics in Zambia, Part 1

June 17, 2014

Reasonata



There are few commodities in the world more valued - or more controversial - than the importation of oil products. In the case of Zambia, fuel costs consume as much as 10% of total FOB import costs. Adding fuel subsidies to this, and we are looking at as much as 40% of the government's total deficit.

Many analysts have identified the fuel trade as one of the most important barriers to economic development. It's not difficult to see why: almost all economic activities involve the usage of oil, from the electricity running the factories, to the manufacture of basic materials to package goods, and of course the transportation of goods to the consumer. So why has this important sector been so mishandled to such an extent that the prices we pay at the pump are among the highest in the world? Even among sub-Saharan nations, our fuel prices are higher than everyone else's including other landlocked nations.

From the outset, I would like to give a perspective what has taken place in oil market and hopefully address the myriad of perennial problems that has resulted in high oil prices in Zambia. Most of the experts in the past focused on a single problem - monopoly - and the lack of competition it breeds. Unfortunately, though many have come forward with proposed solutions to increase competition and lower prices, these plans lay gathering dust in government offices while we bleed at the pump.

My article draws heavily from these reports by financial and oil experts. And I intend to revisit this seemingly intractable problem of oil marketing.

By presenting a chronological account of the problems from the day fuel imports arrive in Dar es Salaam to the pump price in a retail service station, I hope my insights may resonate with all concerned.

Background

The enigma of our fuel problems dates back to the moment of the Unilateral Declaration of Independence in Southern Rhodesia (Zimbabwe) in 1965. This was followed by the closing of borders by the renegade Prime Minister Ian Smith of Zimbabwe at that time. Our country had no choice but to divert importation of all goods coming into the country, including oil. The Tazara pipeline was then constructed by the government to transport our oil, and, in line with the political philosophy at the time, the state became the primary player in oil marketing.

Fast forward several decades to the end of Kenneth Kaunda's one party state, and the nationalist model of oil imports was breaking down. The arrival of the Movement for Multiparty Democracy (MMD) party in 1991 saw a well-articulated economic policy based on market system. Hopes were raised that the government would let go of government intervention in oil marketing. Approximately 90% of Parastatals were sold. But President Frederick Chiluba for personal reasons stalled on oil enterprises like Indeni and Tazama oil pipeline. Other major parastatals like Zesco and Zanaco were also not privatized. I do believe that if Zambia had sold these three major companies (oil, Zesco & Zanaco), we could have transformed our country to a better performing country compared to today.

Return of Shortages

It is noteworthy to mention that during this period of MMD rule, 1991-2009 the country never experienced fuel shortages.

Perhaps the worst retrogressive step in oil marketing was taken by no other than the late President Levy Mwanawasa. In 2007, the late president ordered the last private OMC, Agip, to pack up and surrender their share in the Indeni oil refinery to the government.

This now gave the government total control of the oil trade from importation to processing, and through the establishment of the Energy Regulation Board being the final control of prices at the pump.

Perhaps it shouldn't have come as a surprise, but as a result of Mwanawasa's statist policies, in 2009 oil shortages resurfaced in Zambia.

As a result of these retrogressive oil policies by respective governments, Zambia witnessed an exodus of many multinational oil companies who had been squeezed out of the trade. Most had operated here from time immemorial. Companies like BP, Shell, and Caltex existed here from the time of the country's independence.

"Cha Cha Cha" Economic Policy

These unfortunate developments of the multinationals fleeing our country was a result of changing economic philosophies which was and still is today at variance with prudent policies undertaken by all developed and developing countries in this field.

Other nations have been more successful in delivering lower fuel prices because there are multiple operators competing to deliver the highest quality product at the lowest price, as opposed to the state handling oil marketing without any clear incentive to improve performance. Unfortunately, there are clear reasons why successive Zambian governments have been reluctant to diversify the oil marketing sector, because there are clear political strings that one can pull to appeal to the public.

For the purpose of my discourse, I will call the ideology adopted by our political leaders from Mwanawasa rule to date as "cha cha cha" economic policy, which seeks first to appeal to populist sentiment and answer to economic realities second. As an economic policy steeped in emotive ideals, this approach prioritises the raising of taxes to solve any and all problems, while when disaster (inevitably) strikes, they resort to their favorite sport: blame the foreigner, or describe the economic mismanagement as "the work of the enemy."

In the end, it is us, the citizens, who lose out in this situation, requiring a stronger, smarter push to demand that our politicians set aside the "cha cha cha" economics.

In the next write up I will give a chronological account of the problems that beset the fuel trade from the place of import Dar er Salaam to the pump prices in our country...


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Source: AllAfrica


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