A Presentationat the

Economics Association of Zambia meeting 30 Sept 2008

Lusaka, Zambia

by

Raphael SalasiniEmail: rsalasin@coppernet.zm

High Oil Prices and Possible Solutions for Zambia

Outline

1. World Oil Production

2. World Oil Prices

3. Definition of “Low Oil Prices”

4. The Petroleum Supply Chain in

Zambia

5. Petroleum Price Structure

6. Options to Reduce Prices

1 World Oil Production

Actual Projection

2 World Oil Prices

PricesProductionHave we reached the “Peak Oil”?

3 Definition of Low Petroleum Prices

Reduction in cost of petroleum products

is characterized by:

i. Supply: Steady, reliable and adequate

supply

ii. Prices: Competitive, stable and fair

prices

4 The Petroleum Supply Chain

GRZFeed stock cargo ship at Dar

Tazama tank farm at Dar

Tazama pipeline 1700km

Indeni refinery

Fuel terminal at Ndola

Filling station

Train

Road

Finished products from region

Petroleum Consumption by SectorSource:ERB

Transport53%

Mining27%

Com-merce & Industry

10%

Households6%

Govt & Service4%

Transport

Mining

Commerce & Indus-try

Households

Govt & Service

5 Petroleum Price Structure

REGIONAL COMPARISON Comparison of Diesel Prices in Southern Africa – Sept

2007Gasoil Pump Prices (US c/l)

-

20.0

40.0

60.0

80.0

100.0

120.0

140.0

Bots Les Mal Moc Nam RSA Swa Tan Zam Zim

Dealer Margin

Oil Company margin (rounded)

Govt. levies, duties, taxes

Transport, Service Differential.

Product Basic Cost

6 Options to Reduce PricesAny measures to

significantly reduce prices must address:

i. Government Taxes, Duties, & Levies

ii. Basic Cost

Basic Cost 40%

Transport10%

Govt. levies, duties, taxes42%

OMC margin4%

Dealer Margin3%

6.1 Govt Taxes, Duties & Levies

Taxes on petroleum products are very important and contribute significantly to Govt revenue

Reduction in taxes must therefore be a strategic policy decision:

“Direct immediate tax revenue” VERSUS

“Indirect future tax revenue”

Current Government taxes and duties i) Crude Oil Import Duty 5% (of Ndola

landed cost)

ii) Excise duty (of whole sale price to OMCs)

Petrol 36% Diesel 7% Kerosene 0%

iii) VAT 16% (applied on final price)

Iv) Other: ERB, SRF

Recent Reductions on Excise Duty on Petroleum Products

Before June 2008

June 2008

Sept 2008

PETROL 60% 45% 36%

DIESEL 30% 15% 7%

KEROSENE

15% 0% 0%

6.2 Petroleum Basic Cost

What can increase “Basic Cost”?i. Inefficient procurementii. Expensive financingiii. Poor feedstock cargo formulationiv. Inadequate national demand

forecasting and strategic planningv. Lack of adequate national strategic

reservesvi. Inefficient feedstock processing

7 Question

Q: Who is responsible for planning and coordination of operations of the Zambian electricity network? A: Zesco Ltd

Q: Who is responsible for planning and coordination of operations of the Zambian petroleum supply chain?

Thank You