ENERGY expert Johnstone Chikwanda says the energy sector is very capital intensive hence low participation by local entrepreneurs.
In an interview, Chikwanda noted that indigenous Zambians found it difficult to have access to finances compared to foreign nationals who had dominated the petroleum sector for many years.
“The energy sector is capital intensive both on the electricity side and on the petroleum sector. To establish a basic fuelling station, you are going to spend in the range of about US$300,000 and if the station is bigger, you are required to spend even US$500,000. So you need on average K10 million to K15 million to build a reasonable and bigger fueling station like some of these you see around. So it is capital intensive and also the access to capital that you actually find is what hinders the participation of local entrepreneurs in the petroleum sector,” he said.
“There is also the regulation that is cumbersome which takes time. You have to be quite patient with regulations because you have to go through ZEMA which are standard requirements, to go through the council, approvals, to go through the Energy Regulation Board. So those journeys discourage some people. The regulation itself, because when you are in the fuel business you are not in control of the margins your margins are regulated and so the more stations you have, the better the return on your investment.”
He said local entrepreneurs could not compete with bigger players in the sector because of the strong balance sheet they had.
“The bigger players whom you are competing with already have a strong balance sheet, they are able to bring money from their parent companies, they are able to get easily funded by the financial institutions because of the strong balance sheet which a local person does not have. There is a need to change the model in the country so that we can allow for more participation of the indigenous people including the youth in the energy sector,” he said.
“In regulated industries, it is easy to intervene and ensure that a certain portion of business is guaranteed for the local people. For instance, certain volumes of fuel will be allocated to Zambians, it is easy then to ensure funding is unlocked because as you know, fuel is a consumption and so if you are one of the few that have been nominated to import, it is easier to get funding for it. So to improve the participation of the local sector in this sector there is a need for the government to intervene.”
Chikwanda observed the need for the government to intervene in selected parts of the sector as a way to allow for more local participation.
“The current structure in which the industry has been lying needs to be relooked at so that each multinational company is franchising a number of their stations. Some of them they do but others are not franchising, they are running the fueling stations themselves. You will find they are the wholesalers and you will also find they are the retailer. If the retail segment is at least encouraging the indigenous people to have them there instead of also just giving them to a certain type of people. So targeted interventions are needed in the sector in order to improve the participation of the local people,” said Chikwanda.