Mera snubs Fuel deals

Malawi Energy Regulatory Authority (Mera) has rejected an application by National Oil Company of Malawi (Nocma) to allow it to award fuel contracts to two suppliers from a field of 23 applicants.

In a letter dated January 15 2021 to Nocma, which we have seen, Mera acting chief executive officer Ishmael Chioko wrote:  “I am therefore writing to inform Nocma that Mera has declined to approve Nocma’s application.”

Mera’s communication to Nocma means that the latter cannot proceed to seek a ‘No objection’ from the Public Procurement and Disposal of Public Assets Authority (PPDA) to award the two contracts for Nocma’s required supply of 314 830 metric tones (MT) of fuel for the whole 2020/21

Mera’s decline of the proposed awards comes two months after Minister of Energy Newton Kambala cancelled the tenders because Nocma did not have an executive management in place to execute such transactions.

In its submission of results to Mera dated December 9 2020, Nocma reported that an adhoc evaluation committee had evaluated 23 bids after which its internal procurement and disposal committee approved the award of contracts to two firms: IPG and Lake Oil Company.

IPG (Independent Petroleum Group) is a group of companies headquartered in Kuwait with worldwide operations in the trading and marketing of crude oil, liquid petroleum and gas (LPG), petrochemicals and fertilisers. In addition to this core activity, IPG has interests in terminalling, pipelines and shipping.

Lake Oil Limited is a Tanzania-based company also with operations in the trading and marketing of crude oil, LPG and petrochemicals.

But in its rebuff, Mera advised Nocma to, among other things, transparently re-evaluate the 23 bidders as submitted by the various interested suppliers.

Mera also wants Nocma to ensure that there is a clear link between the prices of fuel in the contracts and the prices that were announced when the bids were opened.

Mera further advised that all volumes should be procured under the ex-tank procurement system as it is regarded as a cheaper option than the DDU (delivered duty unpaid).

Under ex-tank procurement, local importers take charge of ownership of the product destined for Malawi and are responsible for in transit risks like theft, accidents and contamination up to the internal receiving depots of oil marketing companies.

Under the DDU system, the supplier assumes all the risks for delivery of the product from the external depots at the ports to various internal depots in the country. In this case, the local importer only takes charge of the products after it is delivered on site at local depots in the country.

We were not able to establish under what system Nocma accepted the initial two bidders.

An energy expert, who spoke on condition of anonymity, hailed the ex-tank procurement system, saying it offers many benefits to the supplier.

Said the expert: “It has many benefits including full utilisation of locally registered transporters who are usually circumvented when it comes to the other method of procurement, especially DDU.”

Mera also advised Nocma to renegotiate applicable premiums based on competitive premiums that the bidders offered.

Another condition was that Nocma should ensure that the two main routes of Dar es Salaam in Tanzania and Beira in  Mozambique have at least two suppliers for each fuel product to mitigate the risk on non-performance and ensure fuel security of supply. 

Lastly, Mera wants Nocma to award contracts to suppliers that expressed interest to supply volumes in particular routes.

If it is not possible to do the above, Mera advised Nocma to re-tender and start the whole process all over again.

Asked to elaborate on the requirement for transparency, Mera spokesperson Fitina Khonje in an interview on Thursday observed that it was important for Nocma to open up to the public about the tender process and that licensees should also be transparent about their operations.

If the process is to start all over again then new suppliers can only be given contracts in June or July this year as it takes at least five months from issuing of adverts to awarding contracts, according to a Nocma source.

The source said Nocma board held an extraordinary meeting this week to discuss the way forward after receiving the communication from Mera.

Nocma board chairperson Zangazanga Chikhosi did not respond to our inquiries while Nocma deputy CEO Hellen Buluma refused to comment on the outcome of the body’s extra ordinary meeting.

Minister of Energy Newton Kambala in a telephone interview on Thursday said   people should not panic over the delay in awarding fuel contracts as there is enough fuel supply to last for months.

“From their submissions some weeks ago, Mera indicated that there will be a steady supply of fuel even if there are delays in issuing new fuel supply contracts,” he said.

According to a confidential memo we have seen from Mera to Minister of Energy dated December 28, 2020, titled ‘ Assessment of balance on fuel supply contract for the purpose of security of supply in 2021’, as of November 30, 2020, the two major importers of fuel in the country Petroleum Importers Limited (PIL) and Nocma had supply volume balances of 153 257 MT and 118 477 MT .

The letter signed by Mera board chairperson Leonard Chikadya reads: “Based on PIL market share, the volume balances are adequate to cover 6 months of continuous consumption. In the absence of any other importers in the market the PIL volumes are adequate to cover national consumption for 4-5 months.”

The letter adds that for Nocma, the balances are adequate to cover six months of continuous consumption based on the market share and that in a situation where no other importer can supply the volumes can last for three months.

According to Nocma’s submission to Mera, IPG was allocated 86 559 MT for ex-tank and 66 707 MT for DDU (totaling 153 266 MT) while Lake Oil was allocated 157 380 MT for DDU.

The letter also indicated that IPG as a winning bidder was expected to import fuel from Beira, Nacala and Dar es Salam routes.