Tanzania's Oil Companies Can't Operate a Cartel With Only a 0.5 pc Margin

VANGHAN GIBSON, newly elected chairman of the 17-member Tanzania Association of Oil Marketing Companies, talked to ABDUEL KENGE about the oil industry in Tanzania, where 17 of the 43 oil marketing firms control 95 per cent of the market

You are taking over the chairmanship of the Tanzania Association of Oil Marketing Companies (TAOMC) at a time of swiftly rising fuel prices. What is your agenda on this?

There are various measures being taken to overcome the problems. We have had consultations and have come up with recommendations. One is the single flow-meter, which requires oil importers to being their oil through the Kurasini Oil Jetty in Dar – it has been implemented by the Tanzania Revenue Authority; the colour bio-coding of oil in tanks, and payment of taxes when the products enter the country rather than when they leave the depot. 

This has reduced fuel smuggling in the past 12 months, although it has not eradicated it altogether. We need more efforts in this area, because it creates an uneven playing field in the fuel industry.

What is the biggest issue for the fuel industry in Tanzania today? 

One of the major issues is that there isn’t a regulatory framework. It's like playing football without a referee. So, it is difficulty to come up with policies and do things accordingly. One of the chief things we need in place is rules and regulations. 

What can you do to ensure pump prices in Tanzania remain stable even as they fluctuate in the world market?

The 62 per cent price increase since January on the world market has had a big impact not just on Tanzania but on the economies of other countries as well. We view this with concern and we're watching it closely to see how it unfolds. We're trying to ensure that local pump prices remain as low as possible. Currently, Tanzanians are paying less than consumers in Kenya, and we will continue to maintain this.

TAOMC cannot control world prices, of course...

No, all we can do is control our own operational costs by keeping them as low as possible. And that we can do by increasing efficiency in transport. Instead of transporting loads of 25,000 litres, we can move 35,000 litres and economise on transport. The fuel industry has minute mark-ups on fuel. So, our contribution to the final price of a litre represents less than 0.5 per cent. That ensures that pump prices do not go shooting up. 

Has the government helped you in keeping the prices low?

We have had discussions with the government. It has fixed taxes on fuel except for the VAT option, which fluctuates when the prices go up. Both sides are aware of the impact of an increase in fuel prices on the economy. We are continuing our discussions taxes especially VAT.

The government previously said Dar es Salaam would be the only port of fuel entry in the country, but now it has allowed imports through Mwanza where there is no flow-meter. What do you have to say about that? 

We will be asking for flow meters to be installed at every single entry point of fuel in this country. You can’t have one entry point that is monitored while the rest of the country is not. We are asking the government to install flow-meters at all points where fuel enters Tanzania.

The government says that installing flow-meters is an expensive affair. Will TAOMC subsidise the initiative?

We have always made it clear that we are ready to help the government and, indirectly, we pay for everything that is done in this regard. Take fuel marking, for example, it is TAOMC and not the government that pays for it. When it comes to installation of flow-meters, we indirectly pay for it as we're subjected to a destination inspection scheme levy of 1.2 per cent of the value of our products. But inspection for fuel is done through flow-meters. So, we are paying for the flow-meter anyway. Our interest is to see this smuggling stopped, so we will continue to support the government as we have done with fuel marking.

How effective is the fuel flow-meter in Dar?

It is working well. But there are a few technical problems. When oil tankers discharge fuel, air is sucked in at the bottom of the ship. This a major area of concern.

There is a feeling that your association acts as a price-fixing cartel...

When you have 17 members, I think you are unlikely to develop a cartel. Secondly, the amount of margin that we can work with is only 0.5 per cent of the end cost of a litre. I don’t know if you can form a cartel with such a small margin.

What market share does TAOMC control?

I would estimate above 95 per cent of the market share, but it’s very difficult to know the exact figure because we are the only ones who exchange figures. There are 43 oil marketing companies registered in Tanzania, but the active companies are less than 20. Together, we import about 1.5 million tonnes of fuel annually.

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