Revealed: Ewura warned against fuel tender

Dar es Salaam. The saga involving a tender that will see Tanzanians dig deeper into their pockets to pay for what is seen as inflated oil importation tender took a new twist yesterday when it was established that the sector’s regulator had warned Petroleum Importation Coordinator (PIC) against the move.

The sum in question is a staggering $9,040,840.756 (about Sh19.3 billion at the prevailing rate) in additional $20.596 premium per metric tonne.

Energy and Water Utilities Regulatory Authority (Ewura) director general Felix Ngamlagosi wrote PIC on July 30, demanding the latter to follow the law with regard to the picking of a firm to import fuel under the Bulky Procurement Arrangement.

That came after PIC had informed Ewura on July 22 – through a letter addressed to the managing director for Augusta Energy SA and a copy of which was sent to the permanent secretary in the Ministry of Energy and Minerals – that the importation coordinator was handpicking Augusta for the job. “Reading from the letter, the Authority is concerned that your instructions to Augusta are in conflict with the applicable laws,” reads the letter Ewura wrote to PIC general manager.

The letter states that Regulation 4(1) of the Petroleum (Bulk Procurement) Regulations, 2013 requires that procurement of petroleum products must be conducted through an efficient manner, which is through competitive tendering.

“Further, Part IV of the above said regulation clearly outlines the procedures that need to be adhered to in the BPS tenders. Your instruction to Augusta doesn’t seem to abide by this requirement,” the letter reads.

But unknown to Ewura, its words fell on deaf ears of PIC as by the time the letter reached the importation coordinator, a Shipping and Supply Contract with Augusta had already been signed on July 29.

The contract in question was signed between PIC and Augusta Energy SA in July under the BPS, putting the Weighted Average Premium at $64.911 per metric tonne of petroleum products.

This was $20.596 more than the Weighted Average Premium of $44.315 per metric tonne which was signed by PIC and the very same Augusta Energy SA in the preceding Shipping and Supply Contract on July 3.

Industry experts say the Weighted Average Premium caters for the supplier’s freight costs and profit margins. Sources within the oil marketing sector have told The Citizen that marketers have ordered a total of 438,961 metric tonnes to be imported under the 29 July Shipping and Supply Contract. With an additional $20.596 premium per metric tonne, the 438,961 metric tonnes translates into a staggering Sh19.3 billion, which marketers will then transfer to final consumers for the benefit of people known only to PIC at the expense of millions of Tanzanian consumers who will have to pay through their noses to purchase petroleum products to compensate for the increase.

Augusta Energy SA country manager Orlando B’costa confirmed to The Citizen in Dar es Salaam yesterday that the tender was not advertised but that PIC was acting in the general good of making sure that the country has enough petroleum reserves during the election period.

“We were invited to give our offer and we did. We were invited back for negotiations, so we had to review them before we were offered the contract to sign,” Mr B’costa told The Citizen.

He said his company was to give its offer due to its track record. “We are probably the only company that has participated in all of PIC’s tenders since the BPS was introduced and we have always supplied the fuel as required,” he said noting that part of the petroleum products, imported for the month of September will start landing at the Port of Dar es Salaam early next week.

He said PIC might have decided to handpick them basing on the fact that if a tender were to be floated, any company may have won due to the amount offered. However, he said, there could be no assurance that a company which may have won after offering a lower price would deliver the products as required.

On the Weighted Average Premium of $64.911 per metric tonne of petroleum products, Mr B’costa said such a figure is arrived at after analyzing the market forces.

“You may be told a lot of stories but the fact is that Premiums are never constant. They vary depending on market forces. In fact, we have had much more than this during some of the past tenders,” he said.

Prior to the signing of the contract, PIC general manager Michael Mjinja is on record as having communicated with all the oil marketing companies to submit their requirements for the period prior to the General Election, during the elections and thereafter. Mr Mjinja is on record as having been quoted saying that the PIC was also undergoing restructuring, and they were fearing that the new structure was going to adversely affect fuel importation during the sensitive period as the country was preparing for the General Election hence the need for enough supplies during the period between August and November this year would be “transitional!”

Industry sources say with the upped premium, Tanzanians should expect another fuel price hike when Ewura announces new indicative prices early next month.

“You should not be surprised when Ewura puts the cap price for petrol at Sh2,500 in Dar es Salaam next month. There is a lot of politics in this business,” said a source privy to oil marketing who asked not to be named as he was not authorized to speak. This is happening at a time when global prices of petroleum products are still falling while the shilling is on a two-month break from its free-falling spree.

From 2010 until mid-2014, world oil prices were fairly stable, at around $110 a barrel. But since June prices have more than halved. Brent crude oil has averaged below $50 a barrel for the first time since May 2009 while the US crude is approaching the $40 a barrel mark. In Asia trading yesterday, crude extended losses to trade a hair’s breadth away from the psychologically-important $40 a barrel mark -- a level not seen since the height of the financial crisis in 2009.

US benchmark West Texas Intermediate (WTI) dipped 41 cents to $40.39 in afternoon trade, after falling sharply in New York to its lowest level since March 2009. Brent crude dropped 28 cents to $46.57 a barrel.

After a public outcry, Ewura reacted by slashing pump prices late last year. In February 2015, Ewura capped the price for petrol at Sh1,768 per litre in Dar es Salaam while that of diesel was capped at Sh1,708.

Tanzanians rejoiced further in March when the price of petrol went down further to Sh1,652 while that of diesel reached Sh1,563. With a falling local currency, Ewura started reviewing prices upwards. In January last year, the shilling traded at an average of 1,630 against the dollar. In February this year, it was trading at between Sh1,830 and Sh1,900 per dollar before depreciating to a historic level of Sh2,400 in June, sending the Bank of Tanzania (BoT) back to the drawing board that saw it (the shilling) bouncing back to hover around the Sh1,900 mark in early July 2015. It currently stands at an average of Sh2,150.