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Malawi losing K12 billion annually in fuel deals

Denies transporters $21 million business

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Malawi is losing about $16.2 million (about K12 billion) annually through importing fuel using the Delivered Duty Unpaid (DDU) system being used by State-owned National Oil Company of Malawi (Nocma), investigations by Malawi News have shown.

The investigations conducted from the start of 2020 have revealed that by opting for the DDU system, the country’s transporters are being suffocated of $21 million (about K15.75 billion) worth of business which goes to foreign transporters.

The investigations revealed that the country could save millions of dollars by using ex-tank method of importing fuel which also gives the buyer the liberty to choose who brings the fuel into the country.

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Through DDU, the supplier of the fuel is responsible for the safe delivery of goods to a named destination, paying all transportation expenses and assuming all risks during transport. Once the goods arrive at the agreed-upon location, the buyer becomes responsible for paying import duties, as well as further transport costs.

On the other hand, in ex-tank scenario the supplier delivers fuel at the ports of Beira, Dar es Salam or Nacala on normal import terms of Free on Truck (FoT). FoT is where the buyer takes the responsibility for the transportation costs and risks when the goods are loaded on the truck.

In this arrangement, the Malawi Energy Regulatory Authority (Mera) fuel costing model allows for a 0.5 percent loss allowance and that any losses above 0.5 percent are deducted and paid for by the transporters.

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The investigations revealed that in Malawi, the ex-tank method is being practiced by Petroleum Importers Limited, Energem, Mount Meru and other oil marketing companies.

According to the findings, on the international oil market, refined petroleum products are sold by traders at world market prices, technically referred as platts. The traders add a premium to the price.

That is to say, during bidding processes, when countries want to sign contracts for supply of refined petroleum products, suppliers compete on premium only and the platts is determined as per current world oil prices.

Premium in this case is the monetary element which covers the suppliers’ margin, transport, handling at the port, storage at the port, jetty fees at the port, port fees, insurance and other operational costs.

As at April 2019, a one-year contract for supply of diesel at ex-tank was recorded at $48 per tonne in Dar es Salam and $74.50 per tonne in Beira Port for private oil marketing companies as at premium.

Regulated transport rates which cater for allowances, toll fees and other transport costs were seen at $90.26 per tonne from Beira to Blantyre and $150 per tonne from Dar es Salaam to Lilongwe.

That is to say under ex-tank, a tonne of diesel was landing in Blantyre from Beira at a premium of $174.75 and $208 in Lilongwe from Dar es Salaam.

But according to a DDU Commercial Invoice from Sahara Energy Resources DMCC to Nocma dated March 15, 2020 which we have seen, the supplier was charging $260.93 per tonne of diesel to Blantyre via the Beira route which is $85.93 higher per tonne.

Sahara was also charging $310.66 per tonne to supply diesel to Lilongwe via the Dar es Salaam route which was $100.66 higher than ex-tank.

That is to say, DDU was seen to be higher than an average of about $90 per tonne.

With Nocma importing an average of 180,000 metric tonnes of fuel per annum, the analysis revealed that Malawi was paying $16.2 million more per annum or K12 billion for opting DDU.

A transport analyst told Malawi News that apart from paying more, the country is also suffocating the local transporter by denying them business worth $21 million since DDU gives the liberty to the supplier to choose the transporter to haul the fuel into the country.

In recent months, Malawi has seen a series of strikes involving transporters and truck drivers making several demands, including the halt of dominance of Tanzanian trucks in the fuel haulage business into Malawi.

Nocma spokesperson, Telephorus Chigwenembe, could not respond to our questionnaire despite giving assurances that he would do so by Thursday.

Malawi Energy Regulatory Authority (Mera) spokesperson, Fitina Khonje, could also not respond to a Malawi News questionnaire despite demanding for one on Wednesday.

But Energy Minister, Newton Kambala, said he would appreciate if Malawi News shared its figures on the comparison between the two fuel importation models to help his ministry to make the right decision on matter.

“Please also note that 100 percent of DDU volume from Beira is moved by Malawian transporters. And 50 percent from Dar is done by Malawian transporters.

“You may also wish to know that the Malawian transporters are on average USD35/tonne more expensive than the foreign transporters,” Kambala said on Wednesday.

Transporters Association of Malawi Chairman, Layton Dzombe, recently indicated that the dominance of foreign transporters on the local scene was suffocating the local transport business.

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