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Introduction

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.
Petroleum prices in Zambia are determined through the Cost-Plus Pricing Model (CPM). This model
has been in effect since January 2008, after the Import Parity Pricing Model which had been in use
since 2004 was discontinued following concerns raised by stakeholders. The CPM is used to
determine prices for each cargo and provides for longer intervals of price stability. It therefore takes
into account all costs associated with the purchase of the feedstock as shown in the table below:
1

Cost of petroleum feedstock *


(Cost-Insurance-Freight at Dar-es-salaam)

Ocean loss at 0.3%

0.3%

Wharfage at 1.25%

1.25%

Handling fees

US$0.20/mt

US$0.75/mt

TIPER fees

Finance Charges

Collateral Manager

US$1/mt

TAZAMA Storage fee

US$2/mt

Pumping fee

US$39/mt

10

TAZAMA loss at 0.85%

11

Crude Oil Import Duty at 5%

12

Agency fee

13

Processing fee

14
15

2.95%

0.85%
5%
US$15/mt
US$61.10/mt
10%

Refinery loss
Terminal loss on finished petroleum products (0.30% & 0.50%)

*This cost varies and is dependant on the price of crude oil on the international market.
The total cost is converted into kwacha using a projected US$ to Kwacha exchange rate. The rate is
assumed to be the rate that will be in effect at the time that the buyer will need to purchase US dollars
for making payments to suppliers and service providers during the life of the petroleum feedstock
cargo.
The CPM therefore ensures that all costs incurred in the procurement of feedstock are recovered
through sales of petroleum products. This is necessary in order to collect all the funds incurred when
purchasing the particular cargo.
Further, because price changes are on a cargo by cargo basis and

Calculation of Pump price


a
1 WHOLESALE PRICE TO OMC
2Terminal Fee

K25,000/m

3Road Levy

7%;15%

4Excise Duty

21%

5Ex Refinery Gate

K/M3

6Transport Margin

K148/litre

7OMC Margin

K345/litre

K229/litre

c
d
E=(a+b+c+d)
f
g

I
J= (h +i)

10 PRICE TO DEALER
11 ERB Fees

0.70%

12 Strategic Reserves Fund

K/litre

k
l
m=(j+k+m)

13 Price before VAT


14 VAT

H=(e+f+g)

8TOTAL (Excl VAT)


9Dealer Margin

16%

15 BENCHMARK PUMP PRICE

K/litre

P=(m+n)