Nocma stuck with 76m litres of fuel

National Oil Company of Malawi (Nocma) is stuck with about 76 million litres of fuel to be lifted in the country because the deal that the company had with Petroleum Importers Limited (PIL) expires this month.

Nation on Sunday investigations show that Nocma in 2013 tendered and signed contracts with international oil suppliers to supply 96.6 million litres of fuel in support of the fuel industry in Malawi.

But the company could not bring the fuel from October 2013 to end of February 2014 as it had no outlet in Malawi for its fuel.

Nocma also faces fines if it fails to lift the fuel from the suppliers in line with the contracts agreement.

In 2014, Nocma and PIL signed a Memorandum of Understanding (MoU) that PIL should be selling 10 percent of Nocma’s fuel for six months whose agreement expired in December 2014.

To avoid penalties from suppliers, Nocma and PIL signed a second MoU in which the former could sell the latter at least six million litres a month and so far about 44.141 million litres of fuel from contracts have been drawn and 76.612 million litres are remaining.

However, in a paper we have seen, Nocma claimed that PIL’s has been impeding its efforts to enter the importing arena.

“Nocma was forced to tender for small volumes to act as back-up to industry but also generate revenue to cover overheads. At the time, Nocma had access to a relatively cheap trade credit finance line from the International Islamic Trade Finance Corporation [ITFC].

“Nocma’s volumes turned out to be cheaper than PIL’s. Even that did not go down well with PIL. They refused to take some of this cheap fuel that Nocma got for the country. Finally, after meetings spanning from October 2013 to February 2014, they accepted to take only 10 percent of the national volumes from Nocma.

“This was on condition that Nocma brings the fuel into the country and sells it to PIL. PIL would then get a 25 percent commission on the import margin that Nocma was to earn on the volumes,” claims the paper.

In October 2014, Malawi Energy Regulatory Authority (Mera) instructed PIL not to tender for fuel supply of 2015, but the private importer defied the order.

In a letter from Mera/ER/2/1 dated October 4 2014, Mera acting chief executive officer Ellias House told PIL: “We have noted that you have gone ahead to unilaterally invited bids for the supply of fuel for the period between January and December 2015 without Mera’s approval.

“Kindly be informed that by virtue of Section 9 and Section 37 of the Energy Regulation Act, Mera hereby directs you to withdraw the invitation for the bids which you have placed in The Nation and Daily Times newspapers,” reads in part the letter.

Mera said it was working on the road map towards bulk fuel procurement for the country.

Nocma said the order to stop purchasing fuel for the entire year was for the State firm to exhaust its stranded volumes from January 2015 onwards to avoid penalties, only for PIL to go ahead to tender for the whole year.

“This is despite having had a round-table discussion in the afternoon of 24th September 2014 following a request from the Minister when they met him earlier. What was needed is a coordinated approach where the parties came together and agree ratios and loading plans that will assist in exhausting the old contracted volumes as well as give room to new stocks that needed to be secured now through a PIL tender,” said Nocma in the paper.

In an e-mail response, Nocma communications officer Telephorus Chigwenembe said following high-level meetings, a new MoU between the two parties will be agreed soon.

“This MoU will take into account projected completion dates for the Strategic Fuel Reserves [SFRs]. The proposal is to complete lifting volumes during the second half of this year through a combination of direct sales and filling up of the SFRs,” reads the response.

Mera communications officer Fitina Khonje said Nocma will sell the remaining fuel to the oil marketing companies as it has been done all along, saying the authority expects Nocma and PIL to renew their MoU in which they had agreed on the market share.

“Nocma supplies to the oil marketing companies. PIL supplies the same and the two mutually agree on the market with a view that right quantities of fuel are procured,” she said.

Khonje said Mera did not stop PIL from buying fuel for the year 2015, but “noting that Nocma had stranded fuel volume that could not be uplifted in 2014, Nocma was allowed to carry those volumes and uplift them in 2015.

“This meant that the national requirement was reduced by Nocma, meaning that the total required less the total already available from Nocma’s contract,” said Khonje in an e-mail response.

She said Mera allowed PIL to enter into a supply contract for 12 months.

“PIL was aware that government intends to adopt Bulk Fuel Procurement. If that happens, PIL will adjust their contract accordingly to pave the way for the new system,” Khonje said.

PIL, a consortium that controls the fuel market, believes Nocma is not supposed to be involved in procurement of fuel.

But on stranded fuel, PIL general manager Enwell Kadango said the company has no problem continuing selling Nocma stranded volumes as long as the company will be willing to continue with the current arrangement.