How Tanzania can benefit from greater fuel storage

Friday December 03 2021
Fuel pic

Energy Minister Makamba confirms that vastly expanding Tanzania’s reserves capacity is among the measures which the govt. is considering. Photo credit| iStock

By Rosemary Mirondo

Dar es Salaam. The government is considering several options, including building massive storage capacity for oil reserves in an effort to cushion the country from frequent fuel price rises.

“That (boosting reserves capacity) is being considered,” Energy Minister January Makamba told The Citizen yesterday.

He was responding to calls by some analysts who said Tanzania, as an oil importing country, needs a massive storage capacity that would help prices to remain affordable at a time when global prices are rising.

Among those who raised the proposal yesterday was economist-cum politician Zitto Kabwe who said that, considering the current global fuel prices surge, Tanzania has an opportunity to capitalise on the demand and price hike.

According to him, Tanzania can become a hub for fuel supply in the African Great Lakes region if the government creates a reserves hub by working with the private sector and supply the fuel to other countries. This would also reduce complex procurement and supply chains.

“The government can discuss with foreign countries and reach an agreement, then get an investor to build massive reserves facilities. This would mitigate price fluctuations due to global market shifts,” he said.

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The proposal comes at a time when the Energy and water Utilities Regulatory Authority (Ewura) has revised pump prices upwards in response to rising global prices.

In the new prices, which became effective on Wednesday this week, petrol, diesel and kerosene that have been imported through the Dar es Salaam port will cost Sh84, diesel Sh29 and Sh18 more than last month’s prices.

Analysts’ views are based on the fact that, with enough storage capacity, Tanzania would import massively when prices are down and store the fuel for use when prices rise.

The point in focus was that, on April 20, 2020, there was a historic drop in global fuel prices that had West Texas Intermediate crude dropping by almost 300 percent, trading at around negative $37 per barrel.

The crash in demand that followed the Covid-19 spread - along with a price war between oil giants Saudi Arabia and Russia in early March - spurred negative prices.

The fall was good news for non-oil producing countries like Tanzania where the price fell to 10-year lows of Sh1,520 and Sh1,546 for a litre of diesel.

University of Dar es Salaam economist Abel Kinyondo said the government needs to suspend all charges and taxes to be able to stabilize fuel prices.

“Starting a price stabilisation fund is more applicable theoretically than in practice because the norm is that prices are more likely to increase than decrease,” he said.

Another incident that calls for enough storage capacity is what Ewura announced on Tuesday: that Tanzanians will get a relief in January 2022 following the November downward trend in the global oil market prices.

However, some analysts are of the view that the country only needs a price stabilisation fund to get things moving smoothly.

The Executive Director of the Tanzania Association of Oil Marketing Companies, Mr Raphael Mgaya, said the only way to address the issue of fuel price increases is for the government to establish a Price Stabilisation Fund (PSF) for which the State introduces temporary charges when prices go down.

“When the prices are down, customers will not feel the pinch of the charges and when the prices go up the money from the Fund is used to cushion the prices. This is currently being practised in Kenya, Rwanda, Zambia and South Africa,” he said.

He noted that, following the recent hike in prices, the government suspended Sh1 on every litre, but if there was a price stabilisation fund, it could have been used to cushion the prices.

Among the steps taken by the government in an effort to reduce the impact of rising global fuel prices on the local economy included President Samia Suluhu Hassan’s directive to reduce a total of Sh102 billion on levies, fees and charges on petroleum products.

The government had last October formed a team of experts from Ewura, Tanzania Revenue Authority (TRA) and the Ministry of Energy - among other experts - which it tasked with the responsibility of reviewing the levies, taxes, fees and charges on fuels.