Tanzania: Bulk procurement of oil faulted `

AS the dust has not settled on the fuel crisis between the government and oil marketing companies over new petroleum prices, a senior economist has warned against the proposed move on bulk procurement system.

Executive Director of Economic and Social Research Foundation (ESRF), a think tank organisation, Dr Bohela Lunogelo has told the 'Daily News' in an exclusive interview that it would be disastrous on the economy and social life if the idea was implemented without taking keen measures.

He advised that the government should continue with the current modality of engaging the private sector to do business. “If the government will proceed with the bulk procurement of petroleum plan, the country stands to suffer massively,'' he said.


The Minister for Energy and Minerals, Mr William Ngeleja was quoted by the media in June this year saying he had already forwarded the regulations to the Attorney General's (AG) office for gazzeting and the new procurement system would start by early next month.

But Dr Lunogelo said the government cannot cope with the risks involved and the volatile nature of petroleum business compared to private companies which can take drastic decisions in a fraction of a minute.

“My worry is that the public sector (government) will mismanage the oil stock and at the end the country will suffer huge losses which will be a burden to the country”, he said, adding: “We should also be worried that the supply chain-from the depot to the pump station would be interrupted and it would take years to normalize the situation,”

He suggested that the government should have a strategic reserve to save the nation from unforeseen disasters such as an abrupt change of prices.

“In the case now where the oil prices have been unpredictable, the government could have intervened by releasing its stocks to stabilize the market”, Dr Lunogelo said. He said that oil companies have always carried the burden without the government taking into account big investments in the sector.

“In the current arrangement, if prices in world market fall, oil companies are the ones who carry the burden of reducing the prices of old stock,” Dr Lunogelo said adding that the government should remember why it stopped doing oil business before.

He also faulted the move by the Energy and Water Utilities Regulatory Authority (EWURA) to force the companies to sell fuel at the recommended price without the two parties agreeing on the best formula. He said most of the companies are servicing bank loans and overdrafts for procuring oil.

“On top of that they pay all taxes and levies in advance. Whenever there is any change of policy or law they are affected because they have to repay back the banks regardless they sell at profit or loss,” he explained.

He noted that the best way was for the government to undertake a quick audit on every oil marketing company and assess how much they could lose and refund them. Dr Lunogelo advised that EWURA should continue regulating fuel pricing in consultation with the private sector.

He said the savings that will be made from the current reduction of oil prices from 2,052/- in July to 2,004 in August for Petrol, 1,939 to 1910.84 for diesel will have a huge impact on the economy.

On the high kerosene prices, he said it was not true that majority of Tanzanian depended on it as source of energy because various studies including the 2007 household survey revealed that about 95 per cent of Tanzanians depend on firewood and charcoal.

“The remaining 5 per cent use gas, electricity and kerosene for cooking, therefore the increase in price will slow shift from charcoal and wood to kerosene and gas as source of energy. That should be the long term worry from the price change,” he noted. Kerosene is currently sold at 1,905/- per litre in Dar es Salaam.

Fuel consumption in Tanzania is about five million litres per day on average, with the exception of tax-exempted fuel to mining companies, according to EWURA Principal Communications Officer, Mr Titus Kaguo.

Available statistics show that about 1.7 million metric tonnes of petrol, diesel, kerosene and jet fuel are imported per annum.