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Controversy over fuel contracts

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The Parliamentary Committee on Natural Resources yesterday overstepped its mandate and ordered the National Oil Company (Nocma) to proceed awarding fuel importation contracts.

This was despite a strong objection by the Malawi Energy Regulatory Authority (Mera) on the cost of the deals. But Attorney General, Chikosa Silungwe, yesterday described the decision by the Committee as illegal and unprocedural.

Silungwe said the mandate to give Nocma a go-ahead to issue fuel importation contracts lies in the hands of Mera. Mera had earlier indicated that the fuel deals are $50 million (about K45 billion) more expensive and would trigger an increase in fuel pump prices if adopted.

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During a meeting held at Sunbird Nkopola in Mangochi yesterday, the committee said the standoff between Mera and Nocma on the matter had dragged on for too long. It said it was important to allow the deals to proceed to avert a fuel crisis.

That was despite Mera Board Chairperson, Leonnard Chikadya, assuring the Committee that the country could not plunge into a fuel crisis as the law provides for some short-term remedies for Malawi to continue importing fuel in the absence of the contracts.

But Natural Resources Committee of Parliament Chairperson, Werani Chilenga, said the Committee was tired of the disagreements between Mera and Nocma on the matter.

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“Based on the approval from Public Procurement and Disposal of Assets, Anti-Corruption Bureau, Government Contracting Unit and Ministry of Justice and having interacted with Nocma and Mera and considering that the process to procure fuel has taken over eight months instead of four months and the fear that the current bickering between Mera and Nocma has the potential to cause serious fuel shortages in the country, the Committee is of the strongest view that Nocma should proceed with the necessary administrative arrangements within the law to proceed with the procurement of fuel and for the committee to report the same fact and recommendation to the main House next week,” Chilenga said.

Nocma had opted to give a fuel importation contract to Lake Oil for the Northern Corridor under the Delivered Duty Unpaid (DDU) system and IPG on the Beira Route, despite the two quoting higher premiums.

In fuel importation business, premiums are markups that suppliers put above the ruling international fuel price.

That is say, with the international oil price being dictated by the international market, suppliers compete on premiums or mark-up.

The figures show that on the Dar Es Salam route on DDU, Lake Oil ranks on number 14 in as far as importation of petrol is concerned with a premium of $323.99 per tonne to supply the commodity into Malawi’s capital, Lilongwe.

On the other hand, the same Lake Oil ranks as the 11th expensive bidder in the supply of diesel on the Dar Es Salam route as it quoted a premium of $289.59 per tonne.

Nocma has opted for IPG on DDU on the Beira Route despite it not being the lowest bidder. Nocma has also opted for IPG to supply fuel on ex-tank system through the Northern Corridor, despite the firm not bidding on the route.

At the meeting yesterday, Chikadya said Mera’s interest is to ensure that Malawians purchase fuel at reasonable prices as well as to ensure security of supply so that there is no shortage of fuel in Malawi. According to Chikadya, in January 2021 the Board of Mera declined to approve Nocma’s application for approval of prices for suppliers selected by Nocma in its tender process.

Chikadya said after this decline, the Chairman of Mera met with the Chairman of Nocma on 25th January 2021 after which Mera wrote Nocma on 3rd February 2021.

“In that letter Mera expressed its expectation that Nocma would commit to transparently reevaluate the bids and identify the lower preferred bidders on top of which two more suppliers of Nocma’s choice would be identified and requested to match the lowest evaluated and selected bidders.

“This should have been done taking into account the desire to maintain competitive pump prices to protect consumer interests,” Chikadya told the meeting.

He added: “Mera sincerely wants to approve competitive prices that Nocma may submit, and conclude this issue. However, this can be done only if Nocma responds to Mera’s letter of 3rd February 2021.”

Chikadya said it is for this reason that Mera requested for a meeting with the Board of Nocma to resolve this issue before meeting the Parliamentary Committee on Natural Resources and Climate Change.

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