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  ECONOMIC REGULATION - Pricing of Petroleum Products


Zambia's total petroleum requirements are met through imports because the country does not have any proven reserves of crude oil. The petroleum industry in Zambia is made up of TAZAMA Pipelines, which is owned, by the Governments of Zambia and Tanzania, Indeni Refinery, which is jointly owned by the Government of Zambia and an international oil company, Total Outre mer and the Ndola Fuel Terminal, which is also owned by the Government of Zambia.

There are 18 Oil Marketing Companies (OMCs) involved in the distribution and retailing of petroleum products. The downstream is also made of various fuel transporters and dealers contracted by OMCs to transport fuel by road from the fuel terminal and operate service stations respectively.

The wholesale petroleum prices are regulated by the ERB due to the monopolistic nature of the industry. Indeni currently carries out the importation of feedstock. With respect to pump prices, the Government liberalized pump prices in June 2001 as part of its economic reforms. ERB therefore takes on an ex-post monitoring role for pump prices whilst regulating ex-refinery gate prices. There are established margins for OMCs, dealers and transporters and ERB ensures that prices remain in a reasonable band to ensure that the consumer is not overcharged.

Pricing of Petroleum Products

The pricing of these products was initially on a cost build-up (cost plus) basis. However this approach was not providing any incentive to the crude oil importer and refinery to improve efficiency. Therefore in June 2004, the Energy Regulation Board (ERB) introduced Import Parity Pricing (IPP) of petroleum products. The refinery's wholesale prices for petroleum products are benchmarked to the cost of buying a finished product on the world market and transporting it to the market in Zambia. In order to allow for fair comparability, it is assumed that the landed cost of the finished product would be calculated as the CIF price to the sea port (Dar-es-salaam) plus the equivalent cost of transportation using a combination of rail and road transportation (rail/rode mode). ). A discount factor is also applied to the determined IPP price. The purpose of this is to take account of the benefits of the country owning infrastructure, i.e. the TAZAMA pipeline. Read More..

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