Zambia's Energy Sector Drives the Country's Industrial Base... as Petroleum Pushes Social Interaction

Times of Zambia, September 14, 2022

ENERGY is a key sector to Zambia's socio-economic development and is inextricably linked to, and exerts a strong influence on other sectors of the economy.

Agricultural and industrial production, mining, tourism, construction, social and administrative services all rely on energy to drive their growth.

Petroleum products being mainly petrol, diesel and kerosene are used to fuel industrial activities both at micro and macro level, a clear demonstration of its importance to economic development.

In addition, petroleum products are useful at domestic level to fuel tanks of automobiles use by majority of the middle class for convenience, especially in a setting where public transport sectors are not well developed.

Hence, a private sector led energy industry is critical in enhancing the much needed capital to boost the industry's contribution to the economy.

With real Gross Domestic Product (GDP) estimated at 3.1 per cent this year, the energy demand is expected to grow at significant pace as well.

Zambia is said to be on a rapid economic recovery, driven by mining, tourism and manufacturing industries.

This is underpinned by the various reforms undertaken to revive Zambia's economy, as well as stimulate investment in key productive sectors.

The structural reforms, particularly those in the energy (Petroleum) sector are all aimed at accelerating growth, attracting investments and creation of employment for the Zambia people.

Thus, Petroleum plays a pivotal role in the economic development of every developing country like Zambia.

Access to gas and petroleum play an additional role of stimulating development in less developed rural area.

It is said that once a filling station is opened in rural area, not only does it serve to provide the primary function of providing fuel, but it results in the escalating of other industries such as lodges, entertainment spots, shops or industries and employment opportunities for the local population to mention but a few.

Furthermore, local tourism may be enhanced as well as promotion of social interactions and without fuel many of the social amenities cannot be properly exploited.

Politically, petroleum and gas related issues have been known to usher in new governments and result in the exit of others.

For example, the former Patriotic Front government kept domestic prices artificially low-through price control, export or quantity restrictions, or political pressures put on oil to act as subsidies.

With the coming in of the United Party for National Development (UPND) administration in August 2021, they adopted the "Cost Reflective Price Regulation on Petroleum" doing away with the subsidies.

The cost Reflective Price Regulation implemented by the Energy Regulation Board (ERB) is said to reflect the actual pricing of the commodity on the international market.

However, debates on the current pricing structure rages on from industry players, suggesting that it is difficult for businesses or individually to plan due to the monthly fluctuation of peterolum products.

Considering that Zambia is an energy importer that relies on raw material imports from the Middle East to be refined locally at the country's state-owned refinery, Indeni Oil Refinery, whose business model will soon change to a blending oil storage facility.

As a result, energy industry requires huge investments to encourage private sectorpar ticipation in the industry such as setting up of storage facilities.

For instance, Harvest Group of Companies and Othniel Brooks International Limited last year sealed a deal worth US$310 million from African Import-Export Bank (Afreximbank) to help build the country's three strategic fuel reserves.

This will help reduce the cost of fuel in Zambia and create product security once the three strategic reserves are completed.

The project will be implemented in the following provinces, North-western in Solwezi, Southern in Choma and Central in Kabwe.

Its Group chief executive officer Pauline Adaoha Ugo-Ngadi was quoted last year saying that the project will build infrastructure development in Zambia for the downstream sector of the oil and gas.

The Group intends to tap into opportunities that lie in Zambia's energy sector by working with progressive Zambians to grow local capacity in response to emerging global opportunities.

Harvest Group of Companies Limited is expanding its capacity to become a respected player in Zambia's oil and gas industry through promoting local participation.

This is a clear demonstration that with the correct policies and business friendly environment, many other ventures like the ones being undertaken by Harvest Group of Companies and Othniel Brooks International Limited will help accelerate Zambia's economic development.

Energy Minister, Peter Kapala, commenting on the developments in the sector says Government adopted a new business model for Indeni Oil Refinery to make it more efficient and effective.

Mr Kapala says works on the new Tanzania-Zambia Refined Oils Pipeline project has already begun, with the building of the 700-kilometer (435-mile) segment on the Tanzania side.

Zambia and Tanzania already share the Tanzania- Zambia Mafuta (TAZAMA) Pipeline, a 1,710-kilometer (1,063-mile) pipeline that has been transporting raw crude oil material for refining from the port of Dar-es-Salaam in Tanzania to the Indeni Petroleum Refinery in

Ndola from the 1960s until last year.

"The old pipeline has suffered wear and tear and some of its equipment is obsolete. However, the TAZAMA pipeline will be rehabilitated, cleaned up and reconfigured to start pumping finished products instead of commingled crude," Mr Kapala states.

Despite these efforts, "our two sister nations recognise the need to supplement the old pipeline, saying that the modalities to operationalise the framework of these pipeline have been concluded".

The new pipeline will run alongside the existing TAZAMA pipeline and will be more modernised and made mostly subterranean for security reasons.

The two pipelines - in addition to those from Angola and indeed Namibia - will bring in low-sulphur diesel from the Tanzanian ports into Zambia for our industries' mines and domestic use.

This will consequently reduce transportation costs and hence sustainably reduce the pump price of diesel, which is currently at a record high.

Within months, the pipeline will start pumping diesel fuel into Zambia. On the Zambian side, phase one of the new 12-inch diameter pipeline will end in Mpika District in Northern Province.

"We are in the final stages of finalising the financing mechanism for and we shall soon go out to tender. Phase one will cost between US$250 million and US$300 million to complete.

Phase two will see the pipeline extended from Mpika into Ndola on the Copperbelt Province and lastly phase three will be connected to a new pipeline in Solwezi in the mining region of North-Western Province," Mr Kapala says.

The total project cost for the two countries will be around US$1.5 billion.

Mr Kapala indicates that the country needs to act and reduce the local prices irrespective of what happens with the war in Ukraine, stating that the construction of the pipeline from Namibia, Tanzania and Angola are they way forward.

Zambia imports most of its petroleum requirements from the Middle East through the port of Dar-es-Salaam in Tanzania.

These two pipelines from Dar-es-Salaam will ensure these imports get into Zambia seamlessly. The pipeline from Angola will allow Zambia to finally access Angolan oil whose transportation will be cheaper than petroleum from the Gulf Region.

This applies to the Namibian oil too, once that also is available.

Mr Kapala also says the Government has renewed talks with the Government of Saud Arabia for cheaper importation of oil which will help oil marketing companies (OMCs) procure large volumes of the commodity.

On growing stakeholders' demands to revert to the quarterly fuel review to stabilise businesses ,the Minister says:"We have no plans to revert to previous ways of adjusting fuel prices after months, as that makes it hard to manage the debts owed to oil marketing companies and does not make the pump price to be cost-reflective."

Zambia's daily fuel consumption averages at two million litres (530,000 gallons) of diesel, one million litres of petroleum, and 800,000 litres of kerosene.

The desire by the Government is to facilitate ethanol blending plants in all the country's 10 provinces, which will be a game changer in promoting renewable energy in the country.

Mr Kapala says Government will start constructing ethanol plants in provincial centres for blending fuel, as a measure and strategy to reduce the cost of petroleum in the country.

"Blending of fuel will reduce the pump-price of fuel, which will reduce the cost of doing business and also facilitate the creation of more jobs for the youths.

"The plan is that the blended fuel will use ethanol from cassava," Mr Kapala states. In response to the Minister plans, Economic Association of Zambia (EAZ) is of the view that Government should come up with more incentives to propel biofuel blending activities in thecountry as it plans to establish ethanol blending facilities in the 10 provinces.

EAZ Copperbelt chapter chairperson Mathews Muyembe says the country lagged behind in terms of fuel blending despite having one of the robust biofuel blueprints in the region.

"We need to start offering incentives to investors wanting to start fuel blending to encourage more investments in the energy sector," Mr Muyembe says.

In terms of the investment opportunities, the expanding mining sector and economic activities will continue creating demand for the petroleum products in the country.

Therefore, it is evidently clear that Zambia's energy sector is set to drive industrial base that will stimulate growth and job opportunities for the Zambian people.

Image: Zbynek Burival via Unsplash