Short-term fuel structures causing fuel shortages

Zimbabwe is facing fuel shortages which have been attributed to the short nature of structured agreements between government and oil companies while other firms are offering conditions which are beyond government’s reach considering a number of priority areas that require foreign exchange.

It has emerged that Trafigura is the only company taking risks within the economy as they are now familiar with the operating economic environment opening a window of attack by other oil companies while also attracting anger from the opposition political party, MDC.
The move by Trafigura has left the company prone to attack by other oil companies and opposition political parties who want to push Trafigura out of the fuel industry to create anarchy as citizens would rise against government owing to unavailability of fuel.
Analysts in the energy sector said other oil firms have no capacity to give concessions to government demands.

“The reason why people attack Trafigura and Kuda Tagwirei is to push them out of the fuel industry though conditions being given by these other companies are onerous to government. Trafigura is the only company that can take government risk as they have a better understanding of the market. Pushing them out is what retrogressive forces in the country in cahoots with the opposition party members are working on to create anarchy within the economy,” he said.
Turning to fuel shortages, it has emerged that Independent Petroleum Group (IPG) has stopped supplying fuel after the exhaustion of the 40 million litres facility with government entered into last year.

Sources within the fuel industry say IPG entered into an agreement with government early last year with a view to supply 40 million litres of fuel and expectations were high that the company would receive payment after 30 days of supplying which government failed to meet owing to foreign currency constraints.

“Considering that foreign exchange was a challenge, when IPG met the agreed figures, the deal turned into a cash deal hence the decision to stop supplying fuel as they could not offer government another facility.”
The source said other Oil companies also expected payments in 30 days and at the end of the day they ended up waiting for confirmed Letters of Credit (LCs).

“Under the circumstances, Trafigura was the only company willing to work closely with government as they were aware of the risks associated with the operating business environment hence the company’s continued existence.

“There was a company by the name Gunvor which signed a contract with the national oil infrastructure company for the supply of 30 million litres on a 90 day facility on confirmed LCs and government felt they could not meet the demand. Government proposed to meet 50 percent of the confirmed LCs and the other 50 percent for unconfirmed LCs which Gunvor refused,” said the source in NOIC.

This prompted government to go to tender for the 30 million litres of fuel with 30 oil companies being invited to participate in the process.They went to tender for the 30 million litres, only 18 companies participated in the process and Trafigura accepted conditions set out by government.
In the same tender Trafigura was willing to prepay the pipeline to NOIC though government failed to get the 50 percent confirmed LCs and only allocated 100 percent unconfirmed LCS. It also emerged that Gunvor did not participate in the tender process. Trafigura’s price was five cents per litre cheaper than what Gunvor had offered. Gunvor chickened out of the tender process as they could not meet tender conditions,” said the source.

Sources in the fuel industry say after the introduction of purchasing of fuel in foreign currency, most direct fuel purchases are being done through Trafigura as they are the cheapest.