An impasse between Nocma and PIL has the potential to plunge the country in a fuel crisis similar to the one experienced in 2011 and 2012, Mera has confirmed.
Malawi Energy Regulatory Authority (Mera) chief executive officer Collins Magalasi said in an interview on Monday: “If this impasse continued, Nocma could be chocked as it would not have capacity to trade, and this could have affected security of supply. Nocma was also running the risk of being blacklisted because it operates on letters of credit from banks.”
In the impasse, Petroleum Importers Limited stopped buying fuel from the State-owned fuel reserve manager, National Oil Company of Malawi, in August, PIL has confirmed.
The development left the National Oil Company of Malawi (Nocma)—which has no direct trading contracts with oil marketing companies (OMCs)—stuck with 26 million litres of fuel after it (Nocma) refused to sign a 50:50 share fuel importation arrangement with PIL in August.
Magalasi said Mera intervened in the wrangle by engaging the two companies in discussions where it was clear that both PIL and Nocma were not ready to give in to the demands of the other.
In a bid to deal with the emerging challenges, Magalasi disclosed that with effect from November 1 2018, Mera has operationalised the regulations and every player is expected to play by the rules.
“From now onwards, all fuel importers are required to have storage reserves in order to be issued with a licence to be importing the product,” said Magalasi.
“Going forward, PIL will only be allowed to import the volumes that they can store … If they don’t build the reserves, then it will not be an importer,” he said.
“The question is: Do we just stop them from importing just like that? No; the implementation will be gradual because of contractual issues, but in future, if they don’t build the reserves then PIL will not be an importer.”
Magalasi said on its part, Nocma, which was nominated as a strategic fuel reserve manager, although in essence, it is also an oil marketing company, should also fill up its reserves with 60 million litres of reserve fuel in line with the regulations.
Said Magalasi: “Mera is aware that there was a 50:50 arrangement between PIL and Nocma on importation of fuel, but this is not formal. The law says this is a liberal market and any player can import fuel. What was being suggested was wrong; and as a regulator, we have now advised that the two companies cannot share the market.”
Under an arrangement between the two firms, made in April last year, PIL was supposed to be buying 50 percent of its supply from Nocma’s reserves.
He said: “Ideally, the 26 million litres that Nocma is stuck with now is not supposed to be sold, as it is for reserve. We have also given Nocma time to start looking for money and make sure at all times the country has the 60 days emergency stocks.”
When PIL stopped buying fuel from Nocma, the latter requested the Ministry of Energy and Natural Resources to allow it to stop importing fuel. Magalasi confirmed that Mera was consulted on Nocma’s request, which he said was rejected.
A Nocma official who opted not to be identified said the firm relies on its sales to raise money to pay its suppliers. With the reduction in its sales, the company cannot raise enough money to achieve this.
“It, therefore, does not make business sense to continue receiving fuel which the company cannot pay for; hence its request to suspend fuel importation until the situation is resolved,” said the official.
According to an expert in the fuel sector, fuel has a shelf life and, therefore, has to be offloaded every six months for best performance.
If Nocma does not offload the 26 million litres in its strategic reserves within six months, it could lose K26 billion—at the current retail price.
PIL chief executive officer Enwell Kadango confirmed, in an interview on Tuesday, his company stopped buying fuel from Nocma.
Said Kadango: “As PIL, we were just assisting them. The main reason the consortium stopped buying fuel from Nocma is because Nocma refused to sign a 50:50 volume shares deal.”
According to Kadango, the challenge is that Nocma does not have signed contracts with oil marketing companies to automatically rotate the fuel.
On April 4 2017, PIL agreed to Nocma’s proposal to be importing 50 percent of the fuel into the country, with the other half to be handled by Nocma, over a 10-year period. But in August this year, Nocma said it had reviewed the decision and would take up 100 percent fuel imports in line with the country’s regulations and rules for fuels and gas and supply.
The wrangle between PIL and Nocma dates to 2013, when PIL accepted to take up to 10 percent of national volumes from Nocma.
But in 2015, the Ministry of Natural Resources, Energy and Mining announced that government had decided that Nocma would be the sole importer of fuel and would be selling it to owners of filling stations as it had capacity to keep about 60 to 90 days of fuel for the country following construction of fuel reserves in Blantyre, Lilongwe and Mzuzu.
But according to Kadango, Nocma was supposed to sell its fuel directly to oil marketing companies.
While agreeing that PIL does not meet some of the regulations, Kadango insisted his company is more concerned with security and adequate supply of fuel into the country, saying PIL is geared to cover the full market as it has always done before.
He said PIL is at the moment covering the complete market requirement on imports and wants Nocma to sign supply agreements with oil marketing companies and sell directly.
In an earlier interview, an energy insider Robert Mdeza, who is chief executive of Sudanese-based Trinity Energy Limited, said for the country to harness economies of scale, oil and gas procurement should be a joint venture involving all licensed importers.
Liquid, Fuels and Gas (production and supply) regulations of 2009, state that an application for an importation licence shall be accompanied by, among others, a scale plan of storage construction equivalent to 30 days storage of expected market share as well as approved building plans and storage tanks and depot equipment.
Commenting on the issue, chairperson for Parliamentary Committee on Natural Resources Victor Musowa on Tuesday said his committee is aware of the differences between PIL and Nocma.
Musowa told The Nation on August 9 this year that if Nocma was the sole importer there would be no guarantee of security of supply of fuel in an event of delay or lack of funding.