Petroleum Importers Limited (PIL) have agreed to the National Oil Company of Malawi’s (Nocma) proposal to be importing 50 percent of fuel in country, with PIL importing the other half.
But Parliamentary Committee on Natural Resources and Climate Change chairperson Welani Chilenga on Thursday expressed concern over the Malawi Energy Regulatory Authority’s (Mera) decision to allow government to dictate matters on the importation of fuel.
Chilenga told Weekend Nation in an interview on Thursday that when Nocma and PIL appeared before his committee, it was clear that government has used its powers to direct PIL on the share. He said by importing fuel Nocma has overstepped its mandate, which is to store fuel and sell it to industry.
He also accused Mera of practising favouritism, which he said may backfire by destroying the importation of fuel and put PIL in a fix.
But acting Mera chief executive officer Ishmael Chioko said in an interview yesterday that Mera’s interest is to operationalise the strategic fuel reserves which are ready.
Said Chioko: “Mera’s interest is to operationalise the strategic fuel reserves (SFRs) which are now ready.”
He said the 50-50 split on fuel importations between Nocma and PIL was an arrangement between the two firms and not with Mera, and is not binding on Mera or government.
Currently, PIL—a consortium of fuel companies—imports 70 percent of the fuel into the country while the rest is imported by Nocma.
In a letter dated April 4 2017, which Weekend Nation has seen, Nocma chief executive officer Gift Dulla advises PIL that government through Nocma has accepted the 50-50 fuel importation split between PIL and Nocma valid for 10 years.
“We have no doubt that as a strategic partner in the oil industry in Malawi, you want to see that there is stability and security of fuel supplies in the country at all times through operationalisation of the SFRs (Strategic Fuel Reserves),” says Dulla in the letter.
The agreement follows Nocma’s request—through the Ministry of Natural Resources, Energy and Mining—to PIL, to lift 50 percent of the national volume of fuel.
In a letter dated May 6 206, PIL board chairperson Zubier Bhana agreed to government’s request to share the importation of the fuel on condition that the two parties should sign a 10-year contract for the split “regardless of any change in policy or law”.
Bhana added that should the contract take long to be agreed and signed, PIL would continue with the current arrangement of importing 70 percent of the commodity, with Nocma importing its 30 percent until the agreement is signed.
The wrangle between PIL and Nocma started in 2013 when PIL accepted to take up to 10 percent of national volumes from Nocma. This was on condition that Nocma imports the fuel and sells it to PIL. PIL would then sell it and get a 25 percent commission on the import margin that Nocma was to earn on the volumes.
In 2015, Minister of Mining, Energy and Natural Resources Bright Msaka announced that government had decided that Nocma would be the sole importer of fuel, and would be selling it to owners of filling stations.
Msaka said the decision to make Nocma the sole importer was arrived at because it has capacity to keep about 60 to 90 days of fuel for the country following construction of fuel reservoirs in Blantyre, Lilongwe and Mzuzu. Msaka said PIL does not have capacity to keep fuel, a situation which puts the country in a precarious situation.
Until 2006, fuel importation was being regulated by government through the Petroleum Control Commission (PCC).
However, government abandoned its mandate to control the fuel industry when it established Mera to take some of the duties of PCC albeit with a different mandate.
But PCC was riddled with corruption and political interference and was abolished in 2006, a development that resulted in the establishment of PIL.
Between 2010 and 2012 Malawi experienced serious fuel shortages which necessitated the formation of the Nocma, a State-owned company.
To solve the fuel shortage problem, Mera introduced the Bulk Procurement System and Strategic Fuel Reserves, which necessitated changes in the mode of purchase and storage of fuel. It embarked on construction of fuel reserves across the country. At the time the administration argued that Nocma would ensure security of supply and that private importers could not invest in fuel storage facilities.
Nocma has since then been positioning itself as better placed to import fuel accusing PIL of lacking capacity for the task and that it was mostly interested in profiteering.
But PIL has been doubting Nocma’s capacity based on how PCC messed up the fuel importation through corruption and political interference.
PIL also expressed fears of a conspiracy within the State architecture to kill it off by crippling its fuel importing ability.
Nocma was forced to tender for small volumes to act as back up to industry, but generate revenue to cover overheads. At the time Nocma had access to a relatively cheap trade credit from the International Islamic Trade Finance Corporation (ITFC).
Nocma’s volumes turned out to be cheaper and that did not go down well will PIL. They refused to take some of the cheap fuel that Nocma got for the country.
In October 2015, Mera instructed PIL not to tender for fuel supply of 2015, but PIL defied the order. Mera quoted Section 9 and 37 of the Energy Regulation Act.
Mera said it was working on a road map towards bulk fuel procurement for the country. But PIL believes Nocma is not supposed to be involved in procurement of fuel.
Mera ordered PIL to stop purchasing fuel for the entire year for the State to exhaust its stranded volumes from January to 2015 onwards only for PIL to tender for the whole year.
Malawi borrowed money from the Government of India to construct Strategic Fuel Reserves (SFRs) expected to keep 60 million litres of fuel at a cost of $55 million. Since then Nocma has been positioning itself to be the supplier to the SFR and that the country’s retailers should be drawing from the national reserves.