Zambia’s economic management has faced significant challenges since independence, largely due to two critical weaknesses: extreme shifts in policy and a lack of robust risk management strategies. The recent IMF-driven fuel reforms, in which the Zambian government has entirely disengaged from fuel procurement and financing, privatizing the petroleum sector, serve as the latest case in point. This shift is reminiscent of the Structural Adjustment Programme (SAP) implemented in the 1990s and 2000s, which ultimately led to disastrous consequences. With sporadic shortages already occurring in the petroleum market, the situation is growing increasingly precarious.
Zambia’s Petroleum Sector Reforms: A Work in Progress
In the last few years, Zambia has undertaken significant reforms in the petroleum sector, guided by the International Monetary Fund (IMF). These changes were intended to enhance efficiency, stability, and lower fuel prices while avoiding excessive debt accumulation. Key reforms include the transformation of the Indeni Oil Refinery into Indeni Energy Company Limited, as well as the repurposing of the Tanzania-Zambia Mafuta (TAZAMA) pipeline to transport finished products instead of crude oil. Additionally, a new mechanism for monthly fuel price revisions was introduced to reflect fluctuating market conditions, and the TAZAMA pipeline was liberalized to allow multinational oil companies to utilize it.
However, these reforms have already created significant disruptions. The country is experiencing volatile and rising fuel prices, which are placing additional burdens on the cost of living and business operations. Allegations of corruption have emerged, further eroding confidence in the sector’s transparency. The over-reliance on private-sector imports has fueled price instability, and the once-central Indeni Energy Company Limited has been marginalized in accessing the government-owned TAZAMA pipeline. As a result, Zambia faces increased vulnerability to supply disruptions and further economic strain.
The Role of Government in Petroleum Markets
Petroleum is a sensitive and strategic resource that plays a crucial role in a nation’s economic stability. Many governments, including those in neighboring African countries like South Africa, Nigeria, and Kenya, actively intervene in the petroleum sector to influence supply, pricing, and distribution. These actions are essential to guarantee energy security, protect national interests, and ensure fair competition within the market.
Governments are motivated to control their petroleum industries to safeguard against external market volatility, prevent monopolies, and maintain strategic fuel reserves to mitigate any future supply disruptions. For example, South Africa recently established the South African National Petroleum Company (SANPC) to drive energy security and innovation in the sector, demonstrating the importance of maintaining some level of state involvement.
Indeni’s Bid for TAZAMA Pipeline Access: A Question of Sovereignty
One of the most contentious aspects of Zambia’s IMF-driven reforms is the requirement for Indeni Energy Company Limited, a state-owned entity, to compete for access to the TAZAMA pipeline. Historically, Indeni was the exclusive user of the pipeline, but under IMF conditions, the government has opened it up to multinational corporations through a competitive tendering process.
The IMF’s insistence on “open access” to the pipeline is part of its broader economic reform program for Zambia. This policy is intended to increase efficiency and competition, but it has sparked concerns over the country’s sovereignty. Critics argue that forcing a Zambian-owned enterprise like Indeni to compete for use of a government asset compromises national interests and security. Zambia’s oil resources should ideally be under the control of the government to protect the nation’s economic stability and long-term strategic interests.
There are growing calls from within Zambia to reassess or renegotiate the IMF’s conditions. As evidenced by the increasing shortages of diesel and suspicions of hoarding by oil marketing companies, the privatization and deregulation of the petroleum sector have not yielded the expected results.
A Better Way Forward: Lessons from Kenya and Uganda
Zambia’s current approach to fuel procurement and the liberalization of the petroleum sector mirrors the failed experiences of other African nations, most notably Kenya. In 2023, Kenya abandoned the Open Tender System (OTS) in favor of direct government-to-government deals for fuel imports. This shift, particularly in agreements with Saudi Arabia and the United Arab Emirates (UAE), has stabilized Kenya’s currency and reduced fuel price volatility. Similarly, Uganda has embraced a government-controlled procurement model, with the Uganda National Oil Company (UNOC) handling fuel imports directly from suppliers like Vitol Bahrain E.C.
Zambia could benefit from adopting similar models. Indeni Energy Company Limited has long been offered an advantageous deal by the Abu Dhabi National Oil Company (ADNOC), which includes bulk fuel supply on credit, storage tanks, and pipeline modernization. However, this deal has yet to be finalized, largely due to Zambia’s reluctance to ensure Indeni’s unfettered access to the TAZAMA pipeline.
The current IMF-driven reforms in Zambia’s petroleum sector have not lived up to expectations and risk destabilizing the country’s economy. By relinquishing control over vital assets like the TAZAMA pipeline, the Zambian government is placing itself in a precarious position. As evidenced by the volatility in fuel prices, the disruptions in supply, and the potential for social unrest, Zambia must reconsider its path forward.
Drawing lessons from neighboring countries such as Kenya and Uganda, Zambia should focus on building a more stable and sovereign petroleum procurement system that aligns with national interests. By revisiting its relationship with the IMF and implementing a more sustainable, government-driven approach to fuel procurement, Zambia can ensure that its petroleum sector works in the best interest of the economy and its citizens. The risks of continuing down the current path are too great to ignore.
