Indeni Petroleum Products Limited Managing Director David Lungu says there seems to be a tag of war in the institutional relationship between the Industrial Development Corporation (IDC) and line ministries.
Speaking when he appeared before a parliamentary committee on parastatal bodies, Lungu also said the diesel that Indeni is processing is likely to be phased out by 2021 as the market demand more of low sulphur diesel, which the refinery is not producing.
“With regard to the challenges, most of the challenges that Indeni is facing now have been there even before the time of IDC. One of the challenges is the lack of capacity to finance capital intensive projects. Our capability only extends to supporting loans only to the extent of US$200 million. If we need financing beyond US$200 million, we find ourselves unable to finance that. That is where we feel that IDC must come in to help us in the case where we need projects that will take us beyond our current plans like going beyond the current capacity refinery, we will need additional financing,” Lungu said.
“I will also refer to the fact that we are not producing the low sulphur diesel as slowly the market is growing in terms of low sulphur diesel, Indeni diesel will eventually be phased out. And in fact there is a regulation that requires that by about 2021, we should be compliant of low sulphur diesel.”
Lungu also said that there were some unhelpful parallel reporting arrangements which he attributed to line ministries playing a role on the operations of State Owned Enterprises (SOEs).
“We believe that IDC must clearly define the reporting structure between all the players, IDC, SOEs, and line ministries. Line ministries have continued to play a role on operations of SOEs and this, for some time, has resulted in some parallel reporting arrangement which is not very helpful. For Indeni for example we feel that the issue that crude oil is procured under the Ministry of Energy and IDC is a company which we will have to report to, create that parallel reporting. Our activity is such that we will have to liaise with the ministry in terms of the operations, in terms of planning for the crude, in terms of reviews and even report basically to the ministry on the operational side,” he said.
“I just want to mention the institutional framework of IDC. IDC is a holding company in Zambia. All SOEs under IDC they report to IDC. IDC is focused on the commercial upbringing of these institutions while the line ministries under this SOEs are operating, they are responsible for the regulatory aspects of operation. Our observation with regards to this institutional framework is the fact that there seem to be some tag of war between the line ministries and IDC regarding the relationships. For example for Indeni, functionary we report to IDC but then when it comes to operational issues, you find that we have to deal with Ministry of Energy PS office. So this has sometimes created some conflict of interest and in terms of reporting, sometimes it has presented difficulties to me as CEO in terms of how to handle the reporting relationships.”
During question time, Namwala UPND member of parliament Moono Lubezhi later wanted to know if the involvement of the Ministry of Energy in the procurement of crude oil caused the commodity to be expensive.
In response, Lungu said Zambia’s location caused the cost of importing crude to be high.
“I would not say the involvement of the Ministry of Energy actually contributes to this high price of the crude. The crude is basically bought under a tendering process meaning that the best bidder is basically selected. The location of Zambia is actually one of the major contributors to the pricing of crude because its an inland refinery. If you look at other countries, there refineries are mostly in the see so that cuts out significantly a lot of the cost that goes into this material,” he explained.
“Coming to the issue of selling Indeni, I am not aware that we are trying to sell Indeni. All that I am aware of is that there is an arrangement to get an equity partner for Indeni. In my submission if you heard what I said, in the current capacity of the refinery in terms of financing, if the company went to get a loan of US$200 million and on the condition that IDC becomes the procurer of the crude, we would be able to pay back this loan based on the returns that the refinery is making.”
But Senanga UPND member of parliament Mukumbuta Mulowa asked Lungu to shade more light on the “equity partners”.
“My question is this equity partner, you are not selling but you are getting an equity partner. Is there any possibility that you can get that equity partner within the country and not outside the country. Or why don’t you just offload the shares to a common Zambian so that they can have a slight bite if you want funding than getting a partner outside the country? Mulowa asked.
And Lubezhi gave a rider question to find out how much shares Indeni was willing to offload to the equity partners.
“I must say that at MD level, in terms of the detail of what are the percentages and so on which are involved in the equity partner, I don’t have that detail. IDC has everything related to this equity partner arrangement. The only extent I am aware about is that its not actually a sale but that of an equity partner. And then the aspect of whether we can get this equity partner locally or not, I believe if you have seen the advert it doesn’t preclude anyone from participating, its an advert that is open to anyone who feels that they are able to provide the requirements of that tender,” said Lungu.