Editor's Choice Features

A $1.7 bn fuel market

JOHNSTONE CHIKWANDA
According to the Energy Regulation Board (ERB) petroleum industry statistics, Zambia’s total fuel consumption per annum as at end of 2015 was 1.7 billion litres. This implies that the fuel industry is worth approximately almost 1.7 billion dollars. There has been steady increase in consumption both in the retail and commercial segments and will continue to grow as the economy grows. Key drivers include the mines, construction, agriculture, and a robust informal and formal workforce.
There are several investment opportunities in the petroleum industry including opportunities which support the industry along the value chain. Opportunities include investment in the Oil and Gas Exploration activities. The Zambian government led by President Edgar Lungu have intensified efforts in this regard. Tullow, a leading UK exploration company is at the moment undertaking exploration works in Luapula, Northern and Muchinga provinces of Zambia. Tullow has had success in Ghana and other African countries. When Zambia hits the “black gold,” it will open a world of enormous opportunities and put the country on a completely different vector.
Other opportunities are in retail, logistics and storage. Zambia hasn’t got enough petrol stations. The number of petrol stations in the country is 308 compared to South Africa’s smallest province; Gauteng which has more than 1400 petrol stations. Running fuel business can be very challenging because it is a commodity on high demand. Trading in commodities such as fuel and base metals requires a lot of acumen, patience, passion and dedication. In commodity trading, not only do you walk on a knife edge but you actually sit on a knife edge. This means that the chances of being ruined are as high as the chances of becoming a multi-millionaire in any currency.
Fuel business all over the world whether at the upstream side or downstream side is a very sensitive business hence the geopolitical conflicts being witnessed in certain regions of the world. It is my considered view that smart partnerships which carter for local communities can assist to forestall potential conflict. It takes passion to make it successfully in this industry. Until your passion is strong enough, you cannot accomplish much in life. Before starting my PhD studies, I researched the downstream segment of the fuel value chain as part of my MBA studies. I interviewed about 300 fuel station dealers as part of the research in the Republic of South Africa.
These dealers were requested to choose from a list of several factors stating what made them successful or what should be making them successful, and failure factors. I also wanted to know the number of dealers that have run a particular station before. Not only that but I also wanted to know the years of relevant experience possessed by those who are successful or those who lost their investments or gave up. My aim was to establish why some fuel business dealers have become so wealthy while others have either given up, stagnated, become poorer or ruined. I got very interesting feedback. Is there a formula for success? Yes, there is one.
The battle for fuel business success is the battle for effective working capital management. You must calculate the correct size of working capital, return on your investment and defend the margin by all legal means. Fortunately, oil marketing companies and independent consultants are willing to assist potential dealers determine the size of working capital required depending on the size of business and to effectively deploy it. In all business ventures, one needs to protect the working capital. This is crucial in fuel business because the margins are small and risks relatively high. Not only are the risks high but their probability of happening is also high if not careful hence the need for proper preparation and mitigation. Until you are skilled, you can get killed in this industry because the money is too much.
Eyes must be on the ball all the time. If you do not have time and space to function in this arena and you are unable to hire competent partners or managers, I recommend you put on hold your plans before you lose your mind, money, time and effort. However, if well managed, fuel business can indeed be considered as the “black gold” that terminates squalor be it at individual or at corporate level.
So, if you want to participate in fuel business, you need to identify which segment of the supply chain you are interested in. You do not need to own a filling station to participate in fuel business. There are several businesses that work hand in hand with fuel business. For instance, you may want to be a specialised supplier of goods and services to the fuel business industry.  Look for opportunities. If they are not there, create some.
If your desire is owning a filling station, either approach different oil marketing companies and register with them as a potential filling station dealer or build one for yourself. Oil companies more often than not are looking for filling station dealers either for their expansion programmes or for their existing retail network. Whether, you want to join an existing oil company or build your own, I strongly recommend that you do a detailed due diligence before you take the plunge.
If you want to build your own, select a suitable location. Location is one of the major success factors in retail fuel business. Contact the council to find out if they can allow the construction of a filling station at the site you have selected. This is because you cannot build a filling station anywhere in Zambia. In addition, you will have to contact the Zambia Environmental Management Agency (ZEMA).  An environmental impact assessment has to be done.
Furthermore, you will have to contact what I call the “elephant in the house-” The Energy Regulation Board (ERB). The ERB is the licensing body. If you want to build a filling station, operate fuel tankers, operate a fuel depot or indeed build a small fuel refinery and bring in crude oil by road/rail, you will need to apply for a licence from the ERB.

If all this is too much for you, then find people who can assist you with all applications. Because the ERB is one of the best organised, professional and competent statutory bodies in Zambia, they will not allow you to make short cuts.
In case you have a suitable plot on prime land, you can also consider leasing the plot to an oil company. In this case, you don’t need a basket of licences other than title deeds for your plot. If you don’t know how to determine whether your plot is a prime location for fuel business, ask for help. There are many opportunities in Zambia’s petroleum industry. The opportunities will continue to grow because Zambia is an emerging ever growing economy. It is peaceful and politically stable.
The author is Energy Forum Zambia chairperson. – johnstone@energyforumzambia.com, j_chikwanda@yahoo.com

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