Industry experts fear the government-to-government (G2G) fuel procurement agreement set to make Nocma the sole importer will open a Pandora’s box like the “subsidised fertiliser project”..
Set to be fully operational by March 2025, it will see the State-owned National Oil Company of Malawi (Nocma) as the sole importer of the commodity.
Weekend Nation spoke with various stakeholders, including private sector players and members of the Malawi Institute of Procurement and Supply (Mips). Four of the five industry experts feared that single-sourcing, a key feature of the G2G arrangement, could be economically disastrous.
A member of Mips, Steven Manda, argued in an interview that the Liquid Fuels and Gas (Production and Supply) Act (Amendment) Bill, recently passed by Parliament to facilitate the transition to G2G procurement, should have outlined the failures of the previous system and how the new one would address the challenges.
Said Manda: “Under single sourcing, both the buyer and supplier have unlimited chances to collude on prices. This could lead to inflated costs.”
Agreeing with Manda, another Mips member Bonwell Grey Makuwira cautioned that suppliers might exploit the situation by charging higher prices.
He said: “The root cause of our fuel scarcity is forex. The G2G arrangement cannot be a solution. [Through this system] we are essentially taking on more debt to secure fuel, exacerbating our already high debt levels.”
Makuwira also noted the hidden costs associated with Malawi being landlocked, such as storing the product in other countries before bringing it in.
He also pointed out that the new arrangement favours international transporters under the Delivered at Place Unloaded (DPU) method, adding that this will negatively impact local transporters.
“This shift could sideline local businesses, further straining the domestic economy,” he said.
Another industry expert, speaking on condition of anonymity, pointed out that comparisons with Kenya which will facilitate Malawi’s deal are flawed due to the two countries’ different economic systems and revenue sources.
“Kenya benefits from exports, tourism, and diaspora income, which Malawi currently lacks,” argued the official.
He said the government should have allowed the private sector to import fuel to cover emergencies, such as delays in ship arrivals. He also argued that government should have continued to manage strategic fuel reserves while private companies handle imports.
A former Malawi Energy Regulatory Authority (Mera) board member, who requested anonymity, compared the current situation to the 2011 fuel crisis when the government proposed building a 60 million litres fuel storage facility to improve capacity.
“We now have the tanks, so where is the fuel? The unrest in Mozambique should not affect us. We are prescribing the wrong solutions to the wrong problems,” he said.
He attributed the current fuel shortage to authorities’ decision to hold prices without realignment.
Said the official: “Today, exchange losses are at K800 billion. How will we recover that? The private sector is holding K300 billion in levies collected on behalf of the government, money that could have gone to the Roads Authority for repairs.”
He described the new arrangement to take away the role of Mera’s board and place it under the Office of President and Cabinet (OPC) as the “last straw” of the problem.
“We have decided, through leadership, that fuel should become another subsidised fertiliser project. This is the most economically disastrous decision we have made,” he said.
But Mips member Fredrick Bonyonga said the G2G agreements are an alternative method, primarily bilateral in nature and, therefore, by virtue of his office, President Lazarus Chakwera is the most suitable person to finalise such agreements.
He explained that when attending meetings such as the recent one in UAE, it is customary to include technocrats, and an advance team is typically deployed to handle preliminary negotiations.
Said Bonyonga: “The President’s presence in these negotiations enhances the value of bilateral relations and underscores the significance of the agreements being made.”
Minister of Energy Ibrahim Matola did not respond to our questionnaire sent to him last week on the private sector’s comments.
But justifying the G2G arrangement, Matola said in an interview last week that Nocma will be procuring large quantities of oil from international companies such as Abu Dhabi National Oil Company (Adnoc) and Emirates National Oil Company (Enoc), both from UAE and from Aramco of Saudi Arabia.
The minister also said with Nocma alone applying for foreign exchange, the correct demand will be reflected, resulting in lower than what is in the current Open Tendering System.
He said: “The value of the local currency will, thus, either stabilise or it will appreciate under the G2G framework. The benefits of the G2G thus far will accrue although we are aware that fuel trading should ordinarily be left to the private sector.”
Malawi needs $600 million annually to bring in fuel, but generates about $1 billion in forex. In total, the country needs $3 billion for its import bill.
Currently, Section 37 of the Public Procurement and Disposal of Assets Act prescribes open tender as the preferred method, although it provides exceptions to use other methods such as restricted tendering and single sourcing.
Following the amendment, Section 5 (6) of the Liquid Fuels and Gas (Production and Supply) Act (Amendment) Bill now reads: “The Public Procurement and Disposal of Public Assets Act shall not apply to the Government-to-Government fuel supply arrangement.”
In a national address this week, Chakwera said UAE President Sheik Mohamed bin Zayed Al Nanyan will be sending a team to Malawi next month to finalise the technical aspects of the arrangement.
