Clements B., Coady D., Fabrizio S., Gupta S., Alleyne T., Sdralevich C, 2013, “Energy Subsidy Reform, Lessons and Implications”, Washington DC: International Monetary Fund.
Parry I., Heine D., Shanjun L., 2014, “Getting Energy Prices Right: From Principle to Practice”, Washington DC: International Monetary Fund.
Prepared by Esther Palacio and Alex Segura-Ubiergo
This fuel procurement commission is in charge of reviewing the procurement process proposed by Imopetro (selected trader and financing entities), verifying the conformity of import prices, overseeing the implementation of the import fuel contract and helping mobilize foreign currency when necessary.
In addition, the formula for the conversion from barrels to metric tons was not clear, and some strategic changes in temperature at different moments of the importing process resulted in losses for Mozambique, as quantities received were lower than invoiced.
There is no universally accepted “optimal” system for fuel imports. In Sub-Saharan Africa there are five possible frameworks: (i) a liberalized system open to all market participants (e.g. Namibia, Mali and Botswana); (ii) a government monopoly, where fuel imports are controlled directly or through the state company (Angola, Niger, Sudan); (iii) an oligopoly of imports to fuel refineries (South Africa, Ivory Coast); (iv) a semi-liberalized system where imports are open to fuel distributors, but subject to government authorization (Congo DRC, Nigeria, and Chad), and (v) an open international tender system (Tanzania, Kenya).
This includes verification of the date of shipment in the bill of lading (which affects the determination of prices and is not always monitored), (ii) delivery delays (shipment can take up to three months to reach the country, which increases risk of changes in international prices and FX risk), and (iii) weak control of import of quantities at the origin and destination (which can generate leakage of fuel imports to neighboring countries).
For example, Petromoc has the most extensive network of fuel stations, including in remote areas where transportation costs are higher, and where other private sector distributors would have no incentive to operate. As a result, Petromoc incurs operational losses (due to the social objective of ensuring fuel availability throughout the country) that should be compensated to ensure that the company is managed with a commercial orientation. Best international practice is to record transparently these expected quasi-fiscal losses/activities in budget documents.
This reform would require strong government regulation and supervision to avoid market collusion and ensure quality, safety and regular access to fuel products in all areas of the country. The formula might have to be adjusted to replace actual cost of imports by a benchmark price based on the Platts and a mark-up reflecting the cost of an efficient supplier. Oil companies would have different import costs and import schedules, and transparent pricing would be key to avoid collusion in vertically integrated companies.
However, at the international prices prevailing in late October 2015, the current system did not generate any explicit subsidies (it actually involves a fairly modest negative subsidy). These market conditions provide a good opportunity for reform, even though the recent depreciation of the metical over the last two weeks of November may require another reassessment of the situation.