Commentary, 19th – 25th October 09

What started as a small incident with a reported technical fault at Zambia’s Oil refinery, Indeni, now appears to be a crisis in progression. There is serious shortage of petrol in Zambia. There was an initial assurance by the government the problem would last a few days. The government gave a further assurance that the country would not experience any shortages as stocks were sufficient to last this period when the catalyst at Indeni was being reactivated.

The situation has not improved as we go into the second week. Even those who bought fuel out of panic are now turning out to be genuine motorists in great need. Long queues are sporadically forming around many service stations in Lusaka. The situation may be the same elsewhere. In Chelstone, motorists have been queuing up at the BP service station which was by Sunday hedged with yellow tape signaling the luck of fuel. However, the motorists live in hope that a fuel tank may be offloading at some time during the day.

Government over the weekend directed the Energy Regulation Board to carry out dipping spot-checks at various service stations with the accusation that Oil marketing Companies were hoarding up huge reserves of petrol. In business terms, there is no logic for OMCs to hoard up fuel to create an artificial shortage given that the budget that could induce fuel price increases has since been announced.

It must be appreciated that the fuel business largely depends on volume to make profits given the small margins in the business. Closing business even for a day creates a huge revenue gap. Even if there is an anticipation of a hike in the price of petrol, the OMCs will never recover the losses incurred for not selling at smaller margins. In other words, it is not possible OMCs and respective service stations would close the petrol tap for no clear business reasons.

This situation is becoming a crisis with ghastly economic implications. Households and business houses are losing time. Some of them have suspended operations as they need petrol for logistical purposes. We are entering the most crucial farming period and farmers depend on petrol to manage daily logistics.

It appears the problem as it stands has not been properly diagnosed. Confidence levels in the capacity of institutions to manage such a critical resource, energy, are waning. It is not an appropriate signal for investor confidence and economic development. The situation must be arrested by authorities before it goes out of hand. The government will certainly need the support of all stakeholders that can provide a lasting solution to the current fuel shortage.