via ‘Reforeignisation’ of fuel sector | The Herald November 8, 2013
THERE’S a scramble for investment in Zimbabwe’s fuel industry as foreigners, some of whom once had operations in the country, are being pulled into the country due to the lower risks associated with using the multi-currency and high fuel consumption levels.
Over the past five years, fuel consumption in Zimbabwe has risen driven by high imports of pre-owned vehicles. The increase in use of generators caused by electricity shortages has also raised fuel demand.
Information gathered by the Herald Business shows that there are a lot of companies who are interested in participating in the country’s petroleum sector mostly at a procurement level with little to no activity being recorded in the wholesale and retail sub-sectors.
The sector has been able to easily attract investment because fuel is a cash business, this means that the risks are quite low, especially if you can move volumes.
With the adoption of the multi-currency regime, Zimbabwe is also one of the less risky markets in the region in terms of currency exchange as the money comes in hard currency.
Zimbabwe’s fuel industry is largely dominated by three main players – Sakunda, Zuva Petroleum and Redan Petroleum. Redan Petroleum is currently in talks with international company Trafigura over a possible change of ownership. Well placed sources say Trafigura is set to gain control of Redan for a possible US$20 million, in what is seen as a forced sale. Valuations for Redan have put its value at between US$20 million and US$24 million.
International company Puma Energy is also in negotiations to come into the country. Puma has worldwide operations and is represented in all countries in Central and Southern Africa with the exception of Zimbabwe and Swaziland.
Engen is also planning to invest in the country in a big way. Recently the company announced it was undertaking first-phase revamp work on Beira Terminal, an import and storage facility in the Port of Beira, Mozambique. When complete, the terminal will be able to supply Mozambique, Zimbabwe, Zambia, Botswana and the southern Democratic Republic of Congo.
The first phase of the project is aimed at readying the facility for import and supply of petrol and diesel in Mozambique, which is 20 percent of the volume requirement, and in Zimbabwe, which is 80 percent of the project requirement. This will be done through the existing pipeline to Msasa Depot.
The terminal’s designed capacity of 18 million litres for diesel and seven million litres for petrol is expected to be sufficient for this purpose. Once Phase 1 projected product demand has been achieved, second phase construction will involve increasing tank and road-loading capacity, and the construction of a new rail-loading facility to cater for Engen’s other Southern African sister companies.
Sakunda Petroleum is understood to be in negotiations with some foreigners willing to acquire a significant stake in one of the country’s largest fuel retailers.
It is understood that the remaining shareholders of the company are working on spreading their risk by courting foreigner partners.
Multinational firm Glencore is also present in the country after it initially gave Masawara funding to buy former BP assets for US$30 million on the back of a supply agreement under a joint venture. After dis- agreements, Glencore provided a 10-year US$24 million facility to the John Mushayavanhu investment vehicle, Woble.
Renowned oil firm Shell has taken what are thought to be its first prodigal steps by contracting local firm Nungu Oil to distribute and market its lubricants. The company, which exited the country at the height of the hyperinflationary era, has indicated the possibility of re-entering the local fuel industry.
Analysts who spoke to this paper said the developments signal growing investor confidence in the country. Zimbabwe’s import bill of fuel averages around US$120 million per month or US$1,4 billion annualised with diesel, which is also used in production processes, at US$80 million and petrol at US$40 million.
To date the Zimbabwe Energy Regulatory Authority has licensed 36 importers, (10 players import the bulk of the fuel) while there are six wholesalers and about 400 retail sites countrywide.