Fire hits economy

Published: 01-NOV-99

The fire which paralysed Zambia's only oil refinery has sent the economy into a downward spiral and affected neighbouring countries, writes CALVIN KALEYI in Lusaka

The torching of Zambia's sole oil refinery, Indeni, on May 17 this year has had major repercussions for the Zambian economy and on some of its neighbours.

The incident, which is still being investigated by the government, has had a knock-on effect into the manufacturing, agricultural, transport and mining sectors in particular and is likely to contribute to lower growth in the economy in general.

Fuel is now being imported from South Africa, Zimbabwe and the Middle East which is expensive to bring into the country because of punitive duties which the government has refused to back down on even in the face of the crisis.

The problem has affected industry in the Democratic Republic of Congo which relies on Zambia for the bulk of its fuel needs.

Mining production at Gecamines, the copper and cobalt parastatal in the Democratic Republic of Congo, has been hit by the shortage of fuel supplies.

The refinery, which normally receives crude oil via a pipeline from Dar es Salaam, is only expected to be operational again around February next year. More than half of the Tazama's pipeline's 250-strong workforce in Tanzania and Zambia have been sent on indefinite leave pending the completion of repairs to the refinery.

Zambian economists and spokesmen from the Ministry of Finance and the central bank fear that successive fuel increases - the first saw fuel go up by 15 percent in June and barely three weeks later by another 13 percent - will derail the targeted 15 percent inflation rate by the year end from its current band of 27-30 percent. Before the gutting of Indeni, inflation stood at 19.5 percent.

There have been several incidents at the refinery, which was built in 1973, over the past eleven years, several of which have been accompanied by major fuel price hikes.

In February 1988, fire broke out at the vacuum furnace. The cause was not ascertained and it led the refinery to be closed down for nearly three months. In April, 1989, a fire caused by an oil leak was put out and the refinery continued operating. In October 1994, two employees were burned trying to restore power to the plant following an electrical fault which caused a fire. This was followed by fuel imports and a sharp hike in pump prices.

This year's fire, however, was serious enough to render the refinery inoperable.

A team of investigators from the Zambia State Insurance Corporation has drawn up a report and given it to the government, although its contents have not been made public. However, repair work has stalled as government is awaiting part funding from an Italian company to facilitate reconstruction of the damaged area.

Zambians so far have reacted mildly to the repercussions of the fire, although this is likely to change as the trickle down effect of successive fuel price increases affects their budgets.

Despite the serious fuel crisis, the government remains adamant about keeping in place its 25 percent duty on imported fuel, 17.5 percent VAT on imports and 60 percent sales tax.

Total Zambia, the sole importer of fuel, is exempt from paying any form of duty. Authorising a single dealer to import fuel is the government's attempt to avoid any form of illegal dealings that multiple suppliers might introduce. Despite this, smuggling of fuel into Zambia is rampant.

The government, through the Zambia National Oil Company, previously cut out middlemen in order to cut costs. However, it is now also buying through middlemen.

Indeni has no facility to break up fuels up into kerosene, petrol and diesel. This means that even when the refinery is working, Zambia cannot import fuel in its crudest form which pushes up the cost of fuel it can bring in.

The Zambia Chamber of Commerce and Industry has been vocal, to no avail no far, that relaxing duties and other costs on the importation of fuel would help to cushion the current effect on the economy of the fuel crisis.

With fuel prices currently at around $2 per litre of diesel, the mining sector is expected to be worst hit as it consumes millions of litres of diesel a month. However, in terms of supplies, it has received priority attention.

Nchanga and Nkana mines, the remaining assets of the privatisation of Zambia Consolidated Copper Mines, together consume more than 300,000 litres a day. The mines, which account for 80 percent of the country's foreign exchange earnings, are already losing the country an estimated $20 million a month because of delays in their privatisation.

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