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By Fortious Nhambura
OVER the past decade, Zimbabwe has failed to come up with adequate strategic fuel reserves.
This has not only affected the transport sector in the country, but also business and the pricing regime.
Although the fuel situation has since normalised over the past weeks, events of the past month call for Zimbabwe to urgently build its own reserve stocks to use in the event of a mishap in the supply line.
National strategic fuel reserves are fuel inventories or stockpiles held by the Government of a country and the private sector, for purposes of providing economic and national security during times of an energy crisis.
Traditionally, common in developed nations, the phenomenon has spread to developing nations and Zimbabwe can only ignore this at its own peril.
Zimbabwe is indeed lagging behind, but with disastrous consequences especially now whenever demand for fuel continues to soar or there are upheavals in the oil-producing nations.
For a country that has been under illegal economic sanctions for more than a decade, Zimbabwe’s task is quite tough but reality remains that somewhere somehow, the country must build its strategic fuel reserves.
Other countries in the region stand better than Zimbabwe because they have not been under the trade embargo.
In that vein Zimbabwe needs to circumvent the sanctions and allocate resources from its vast diamond resources towards the projects for continued and sustainable fuel supply.
Zimbabwe could also contract some corporate company to build the strategic reserves while the Government supplies the storage facilities to beat hospitality or handling fees.
The threat of pirates on the coast of Somalia worsens the situation for countries in Southern Africa that rely on freight through that area.
Analysts say Zimbabwe needs to address the issue right now if the country is to fuel its development.
They acknowledge the need for a fuel cover of up to seven days that can be raised to 21 with time, a situation that requires partnership between Government and the private sector.
Although such a partnership is difficult to fathom given the credit crunch being experienced in the country, this however, is the only way forward for all non-oil producing countries like Zimbabwe.
Sakunda Energy managing director Mr Kudakwashe Tagwirei thinks the need for partnership has now risen more than before, as Zimbabwe needs to cushion itself against hitches in the supply line.
“The country cannot continue relying on daily imports without a reserve stock of fuel. Such a stock is critical in times of need. Zimbabwe has capacity – the pipeline – and that should be used to the advantage of its people.
“Once the reserves are in place, it becomes easy to maintain them and ensure Zimbabwe does not feel the heat whenever fluctuations in the prices or supplies emerge,” he said.
There is therefore need to promote strong partnerships between the National Oil Company of Zimbabwe and private fuel dealers so that Zimbabwe fully utilises the infrastructure capacity within the parastatal.
A partnership would see the sector craft a deal where Noczim and BP Shell, among other companies, provide infrastructure while fuel merchants come in with capital for restocking.
The deal would, however, be underlined by a clause that shields the reserve from anyone’s reach until the need to tap into them arises.
Noczim has a fuel storage capacity of about two million litres that is lying idle in Harare and that can be used as a starting point.
A bigger storage facility for BP Shell is in Gweru, but use of the facility is being hampered by alleged exorbitant “hospitality fees”. The fee is charged per litre of fuel kept in one’s stead
Once there is a starting stock, analysts claim, they can them move to create larger reservoirs for bigger stocks. The storage facilities would be a private and public sector initiative to cushion taxpayers from massive tax adjustments.
At present, the national reserve capacity of one million litres at Msasa, a seventh of the nation’s needs of about four million litres of diesel, three million litres of petrol daily fall far short of the ever-increasing vehicle population.
Sources within the petroleum industry say it costs US90 cents to get a litre of diesel or petrol to Msasa Noczim depot by pipeline. Factor in other local components (tax and storage costs) the price goes up to US$1,18.
This is before the inclusion of 7 percent industry margin fuel the landing price.
If the cost is around US$1,20 per litre, it therefore means Zimbabwe requires about US$4,8 million for diesel and US$3,6 million for petrol.
To create a seven-day fuel reserve cover, Zimbabwe would require US$58,8 million, an amount that can be raised through proper planning.
With fuel reserve stocks no longer a luxury, it is critical that Zimbabwe considers the move which is being practised elsewhere in the region.
Apart from South Africa, other nations such as Uganda, Botswana and Malawi are moving towards increasing national reserves.
For instance Malawi, which also experiences fuel challenges whenever there are problems at Beira, is also considering creating a 21-day reserve of fuel from the current five-day reserve.
Botswana has also mooted the need to boost its national reserves from a 22-day cover to 90 days in the long term. Kenya from five-day to 10-day fuel reserves.
Government and private sector partnership would also ensure that Zimbabwe has a record of all its fuel importers and distributors so that they can get the fuel on time, to avoid shortages.
This would ensure suppliers, most of which are not registered with the country’s authorities, do not abuse the nation’s trust and increase prices at the slightest glitch in supply.
Zimbabwe has only five main fuels companies, among them Redan Petroleum, Sakunda Energy and Exor Fuels and the number is easy to co-ordinate in order to pull resources together for the national reserve.
Although the sector’s Achilles heel is shortage of money, a deliberate pulling together of resources by these companies and Government would ensure that Zimbabwe can purchase large fuel supplies some of which can be kept as reserve stocks.
Once that reserve capacity is in place, it is possible to avoid fuel supply glitches and unexpected fuel shortages.
Instability in fuel supplies directly affects pump prices as witnessed recently when the country ran out of both diesel and petrol.
But as soon as fuel supplies stabilised, pump prices fell from as high as US$1,50 a litre to between US$1,22 and US$1,40 for diesel and from US$1,25 to US$1,45 for petrol, respectively.
The pump price of fuel is, however, heavily dependent on methods of transportation – whether rail, road or pipeline.
Such instability in the sector due to fuel unavailability often leads to significant increases in transport costs and prices.
A manager with Redan Petroleum believes that Zimbabwe should not be affected by problems in docking and stoppages in pumping at the port of Beira.
“Such glitches in pumping at Beira will not be easily felt in the country if Zimbabwe has significant fuel reserve stocks. That should never be allowed as Zimbabwe has some storage capacity lying idle.
“It is critical that we begin building our reserves so that we are not easily affected by price and supply fluctuations on the global market,” he said.
Energy and Power Development Secretary Mr Justin Mupamhanga underscored the need for additional capacity to house buffer stocks.
“Current facilities for the strategic reserves cannot store large quantities of fuel.
“We are hoping for a situation whereby we have huge facilities to store bulk fuel,” he said.
Bulk reserves will ensure the Government does not rush into deals that sometimes end up with the nation losing.
These resources will also ensure Zimbabwe is not forced into hasty deals like the one with South African company NOOA, where Government is battling to recover US$5 million advanced to the firm as payment for fuel supplies.
Such a fall-back position will also guard the country against procuring low-octane fuel from fly-by-night suppliers, as the industry has enough time to secure supplies from reputable suppliers.
In the past, unexpected shortages have resulted in panic resulting in Zimbabwe being fed with low combustion level used to ignite thermal power stations.
Vendors also grabbed the opportunity to milk the public by doubling fuel prices.
Owing to the confusion caused by the shortages, motorists are forced to store fuel in containers and risking their lives.
All this can be avoided if Zimbabwe installs a bulk fuel reserve plant.
As the Government moves to unbundle Noczim, it is also critical that authorities refocus the company so that it fully satisfies its mandate – to ensure fuel security in Zimbabwe.
The Infrastructure Company, which will have rights over infrastructure, among them Beira-Feruka and Feruka-Msasa pipeline, should be empowered to ensure that it has the capacity to keep reserve stocks by increasing storage capacity at both Feruka and Msasa.
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