SlideShare a Scribd company logo

Zipa

•
•
T
Tony Caden

This newsletter article profiles ECO-TEC, a fuel supply company that signed an exclusive contract with the government of Zanzibar to address frequent fuel shortages. It discusses how ECO-TEC proposed a new supply model to guarantee reliable fuel delivery and stabilize prices. Since beginning deliveries in 1995, Zanzibar has enjoyed uninterrupted supply and fuel prices have remained unchanged while tax revenues from fuel have increased substantially. ECO-TEC aims to continue its best services and investments that benefit Zanzibar's energy sector.

1 of 4
Download to read offline
ZANZIBAR INVESTMENT PROMOTION AGENCY ._.. A~quarterly News Letter 1 July - September 1997 Vol. 2 lssiieJNo: 9 . INSIDE: • Law Forum - Income Tax Regulations • Sponsor's Profile - ECO-TEC aims to continue L--~_ _ __p___r_o_v~ding best services to Zanzibar
A Quarterly News Letter July - September 1997 Vol. 2 Issue No. 9 SPONSOR'S PROFILE THE BEST FUEL SUPPLY MODEL By Steve Herbert ECO-TEC met with the Govern- ment of Zanzibar (GOZ) in 1994 to discuss possible solutions to the all too frequent fuel shortages in Zanzibar. With each supply disrup- tion came the associated problem of a black market, where products would be sold for many times their official price. The people of Zanzi- bar could not rely on the suppliers at that time to fulfil their obligations, and this uncertainty manifested itself in individuals storing products as security against the next short- age. The Government suffered by way of substantially reduced tax income from fuel imports, which combined with an inefficient collection system resulted in an unacceptably low level of revenue recovered from the fuel sector. Fuel is the life blood of any economy, so the supply disruptions and associated price volatility were fundamentally damaging to Zanzibar, not only in a physical sense - whereby business and individuals were unable to carry out their daily duties - but also in terms of inflation- ary pressure. Governments World- wide are intensely aware of the need to have a stable - and preferably low - level of inflation, in order to create the necessary level of confidence which precipitates investment and growth. At the end of our studies Eco-Tee proposed a supply model which would assist the Government in collecting the petroleum taxes and guaranteed fuel supplies at a fixed price, in order to create both consumer confidence and provide price stability. Eco-Tee began delivering petroleum productsto Zanzibar in July, 1995, since which time Zanzibar has enjoyed two years of unprec- edented supply reliability. Prices have remained unchanged - save for changes in the petroleum taxes, and consumers are now confident that the service stations will have fuel. All of this has been achieved during a period when only one of the three storage terminals at Mtoni has been continuously operational, thereby placing considerable strain The ChiefMinister Dr. Mohammed Gharib Bilal (left) discussing a point with ECO-TEC Management Team, Mr. Keith Stockman (right), Mr. Tonny Caden (second right) and the resident General Manager Mr. Soud H. Soud. in the supply logistics. Eco-Tee made the commitment to GOZ to use Zanzibar resources wherever possible. We worked closely with the Zanzibar Shipping Corporation (Shipco) to carry out the necessary work to their vessel M/T UHURU, in order that she could be used as the supply vessel. During the first year of supplies, we learned of the plight of the M/T UKOMBOZI, interned in Madagas- car. Although we were advised that several unsuccessful attempts had already been made to secure her release, we managed - with Shipco'ssupport - to negotiate a settlement with the Madagascan company SECREN, which would provide the necessary financial platform for her release. We then issued the US S2.3 million bank guarantee as the agreed security and paid USS l 00,000 for the necessary repair work to make her sea-worthy. There are currently five (5) taxes applicable to oil imports. Two (2) based on volumes delivered to the Marketers depots and three (3) based on off-take from the depots. Eco-Tee'ssupply model records every litre of oil - verified by an independent inspector - so that the associated tax revenue due is calculated to the last shilling. Eco- Tec works closely with the Revenue Department to ensure they have regular updates on the volumes of oil delivered to the marketers as well as stock positions at the depots which enables one to calculate the off-take. Eco-Tee understands that in 1994, approximately USS 375,000 was collected from petroleum imports. In the first year of Eco-Tee's supply, petroleum tax revenues increased to USS 2.6 million, and furthermore to USS 3.5 million in the second year. Eco-Tee has discussed
with GOZ, a pricing and supply schedule which is capable of earning up to US$ 8 million, at prices which would be below those in Mainland Tanzania. Eco-Tee's principal investments in Zanzibar include (l) the M/T UKOMBOZI, (2) Holding strategic stock in the event Zanzibar needs urgent supplies, (3) providing the Marketers with extended credit facilities. Another investment which we hope to conclude in the near future is the construction of our own strategic storage depot which would ensure that Zanzibar always has sufficient fuel, virtually irrespec- tive of the current problems associ- ated with Marketers under-ordering and the occasional delay at the loading port. Apart from Eco-Tee's contrac- tual responsibility to supply oil to Zanzibar. we have offered our services as oil consultants to GOZ, as our World-wide network of offices ECO-TEC AIMS TO CONTINUE PROVIDING BEST SERVICES TO ZANZIBAR For the last two years, Eco-Tee has been supplying fuel oils to Zanzibar. The Chairman ofEco-Tee Mr. Leslie Guillot, revisited the two years his company has been in operation and other issues in an exclusive Interview with our Editorial Board Member Nana Mwanjisi. Excerpts Nana ECO-TEC has signed an exclusive fuel supply contract with the Government of Zanzibar. Can you briefly give a profile of your Company? GUILLOT: Eco-Tee International (ET!) is a trust company specifically set up to identify commercial opportu- nities. In 1994, while working in Zanzibar on a fishing project, ETI was approached by the Ministry of Finance to try and find a solution to the frequent and often chronic fuel shortages suffered in Zanzibar. Once the Government of Zanzibar (GOZ) accepted ETl's proposal of a new supply model, Eco-Tee Zanzibar (ETZ) was formed to manage the contractual supply obligations. ETZ is a partnership of three entities that is Eco-Tee International, Masefield Ltd. both of the United Kingdom and the Government of Zanzibar. Nana Is your Company satisfied with the facilitating services being provided by ZIPA ? GUILLOT: We understand ZIPA's role as one of facilitating investment. We do feel however. that its success is encumbered by a legacy of Ministerial bureaucracy, which creates delays and inhibits the flow of information required for the relevant parties to understand what need to be done to achieve one's objective(s). Perhaps ZIPA needs a substantial improvement in au- tonomy to be able to service potential investors' needs. Nana In the past two years since the Government awarded ECO-TEC this supply contract, it is evident that there has been steady supply of fuel in the Islands. However. there are some people who are sceptical of your ability and even question ECO- TEC'scredibility. What is your re- action to this ? GUILLOT: One of the fundamental promises ET! made to GOZ, was to bring to an end, the frequent shortages suffered prior to July, 1995. As you indeed mention, we have achieved this with great success. For the past 2 years Zanzi- bar has experienced a period of unprecedented supply continuity, enables us to provide comprehen- sive advice on the energy sector. Eco-Tee constantly looks for oppor- tunities which may benefit Zanzibar. One example of this is the introduc- tion to GOZ, of the electricity company ESCOM, who are now compiling a report on how Zanzibar can have its own independent power supply. Steve Hbert is the Operations Manager of Eco-Tee based in London. • at fixed prices. Fuel prices in Zanzibar are now substantially below those in Mainland Tanzania, which is a situation we believe has never before been achieved. Our sceptics appear to have a rather short memory which conve- niently forgets the pre-1995 situation of shortages, black markets, price volatility and consumer uncertainty. We understand that some of the suppliers at that time , who were unable to deliver fuel on reliable basis, now wish to replicate ETZ's supply model. Perhaps the saying "a leopard never changes its sports" is an appropriate response. Can Zanzibar place any real trust in companies who were unable to perform when they had their chance to do so ? Nana How do you account for the sporadic shortages that have occurred even during this term of your Contractual obligations? GUILLOT: The process of purchasing, loading, shipping, and discharging petroleum products, is quite compli- cated. Although at the com- mencement of ETZ's deliveries to Zanzibar, there were 3 operational storage depots, problems with the quality of many of the tanks meant that significant improvements were required. The result was that for the continued to next page
A Quarterly News Letter July - September 1997 Vol. 2 Issue No. ~ · . . . d The ChiefMinister (centre) accompanied by the Minister for Commumcati~n an . Transport Hon. AmaniA. Karume being shown around MIT UK0'!1-BOZI. immedi- ately upon her return from Madagascar whereby it underwent ma1or repairs. last 12 months only British such we believe has gained the Petroleum's (BP) terminal has been Government's confidence in such a operational. This means that capacity. We have acted as Zanzibar had approximately only 15 advisors on many oil related mat- days storage capacity, which we ters, and as an example recently are sure you can appreciate introduced the South African placed substantial operational company ESCOM, who are now restrictions on Eco-Tee, preventing working with GOZ on a solution to us from loading at ports which were further than a few days away from Zanzibar, and leaving us exposed to any operational problem which occur from time to time in the oil world such as Refinery shutdowns, Mechanical problems with the supply vessel, and Loadport con- gestion. To compensate for the Land storage problem, Eco-Tee has held strategic stock on board of the MIT UKOMBOZI, and has been discussing with GOZ the idea of building land storage tanks for strategic storage purposes. Nana Is it correct to say that the contract empowers you to act as Agents of the Government in the collection of revenues? Have you performed your duty to the maxi- mum? GUILLOT: The Fuel supply contract does not empower Eco-Tee to act as agents of GOZ. ETI is always searching however, for opportunities which may benefit Zanzibar, and as Zanzibar's electricity shortfall. We work closely with the Shipping Corporation of Zanzibar, and make all of our shipping expertise within Ell's world wide group of offices available to them. This co-opera- tion, aligned with Ell's financial strength, enabled the release of the MIT UKOMBOZI from her internment in Madagascar, and continues in the form of repairing the vessel to international standards. Nana I understand that one of your contractual obligations isto build storage facilities in Zanzibar, which will act as supply base as well as a security against shortages. How far have you implemented this obliga- tion? GUILLOT: Absolutely not. ETZ was established to supply the Zanzibar marketers with products. ETZ is not a retail company, but the problems with storage capacity and Market- ers under-ordering on a regular basis, has prompted ETZ to construct land storage tanks to provide GOZ with autonomous strategic storage. We have concluded the necessary formalities and are now in a position to acquire our own storage. Nana Some people believe that the Government is loosing some revenues by not exercising control in bunkering activities for various vessels. Is this area excluded in your contract ? If it is inclusive, do you have any plans to begin bunkering? GUILLOT: It is correct that the Zanzibarian registered vessels are not bunkering in Zanzibar to any significant degree, which is surpris- ing given the GOZ discount which makes the local price very competi- tive in comparison with Dar-es- Salaam. What one has to appreci- ate is that International bunkers and local bunkers are very different, whereby International bunkers carry little or no taxes. We know that certain vessel owners are buying International bunkers in ports such as Mombassa, and transferring to other vessels in their fleet at sea in Tanzanian waters, to avoid paying taxes. This is illegal, and requires strong Government action to put an end to what is also a potentially dangerous operation, capable of causing substantial pollution. Nana Does Eco-Tee envisage to diversify and may be consider to invest in other areas ? GUILLOT: As discussed above, ETI constantly looks for new projects which could be commercially rewarding to both ETZ and Zanzibar. We are currently discussing some ideas with GOZ, although we must say that managing the supply of fuel to Zanzibar takes up much of our time. We are hopeful however, of progressing one or two ideas in the near future. •

More Related Content

Zipa

  • 1. ZANZIBAR INVESTMENT PROMOTION AGENCY ._.. A~quarterly News Letter 1 July - September 1997 Vol. 2 lssiieJNo: 9 . INSIDE: • Law Forum - Income Tax Regulations • Sponsor's Profile - ECO-TEC aims to continue L--~_ _ __p___r_o_v~ding best services to Zanzibar
  • 2. A Quarterly News Letter July - September 1997 Vol. 2 Issue No. 9 SPONSOR'S PROFILE THE BEST FUEL SUPPLY MODEL By Steve Herbert ECO-TEC met with the Govern- ment of Zanzibar (GOZ) in 1994 to discuss possible solutions to the all too frequent fuel shortages in Zanzibar. With each supply disrup- tion came the associated problem of a black market, where products would be sold for many times their official price. The people of Zanzi- bar could not rely on the suppliers at that time to fulfil their obligations, and this uncertainty manifested itself in individuals storing products as security against the next short- age. The Government suffered by way of substantially reduced tax income from fuel imports, which combined with an inefficient collection system resulted in an unacceptably low level of revenue recovered from the fuel sector. Fuel is the life blood of any economy, so the supply disruptions and associated price volatility were fundamentally damaging to Zanzibar, not only in a physical sense - whereby business and individuals were unable to carry out their daily duties - but also in terms of inflation- ary pressure. Governments World- wide are intensely aware of the need to have a stable - and preferably low - level of inflation, in order to create the necessary level of confidence which precipitates investment and growth. At the end of our studies Eco-Tee proposed a supply model which would assist the Government in collecting the petroleum taxes and guaranteed fuel supplies at a fixed price, in order to create both consumer confidence and provide price stability. Eco-Tee began delivering petroleum productsto Zanzibar in July, 1995, since which time Zanzibar has enjoyed two years of unprec- edented supply reliability. Prices have remained unchanged - save for changes in the petroleum taxes, and consumers are now confident that the service stations will have fuel. All of this has been achieved during a period when only one of the three storage terminals at Mtoni has been continuously operational, thereby placing considerable strain The ChiefMinister Dr. Mohammed Gharib Bilal (left) discussing a point with ECO-TEC Management Team, Mr. Keith Stockman (right), Mr. Tonny Caden (second right) and the resident General Manager Mr. Soud H. Soud. in the supply logistics. Eco-Tee made the commitment to GOZ to use Zanzibar resources wherever possible. We worked closely with the Zanzibar Shipping Corporation (Shipco) to carry out the necessary work to their vessel M/T UHURU, in order that she could be used as the supply vessel. During the first year of supplies, we learned of the plight of the M/T UKOMBOZI, interned in Madagas- car. Although we were advised that several unsuccessful attempts had already been made to secure her release, we managed - with Shipco'ssupport - to negotiate a settlement with the Madagascan company SECREN, which would provide the necessary financial platform for her release. We then issued the US S2.3 million bank guarantee as the agreed security and paid USS l 00,000 for the necessary repair work to make her sea-worthy. There are currently five (5) taxes applicable to oil imports. Two (2) based on volumes delivered to the Marketers depots and three (3) based on off-take from the depots. Eco-Tee'ssupply model records every litre of oil - verified by an independent inspector - so that the associated tax revenue due is calculated to the last shilling. Eco- Tec works closely with the Revenue Department to ensure they have regular updates on the volumes of oil delivered to the marketers as well as stock positions at the depots which enables one to calculate the off-take. Eco-Tee understands that in 1994, approximately USS 375,000 was collected from petroleum imports. In the first year of Eco-Tee's supply, petroleum tax revenues increased to USS 2.6 million, and furthermore to USS 3.5 million in the second year. Eco-Tee has discussed
  • 3. with GOZ, a pricing and supply schedule which is capable of earning up to US$ 8 million, at prices which would be below those in Mainland Tanzania. Eco-Tee's principal investments in Zanzibar include (l) the M/T UKOMBOZI, (2) Holding strategic stock in the event Zanzibar needs urgent supplies, (3) providing the Marketers with extended credit facilities. Another investment which we hope to conclude in the near future is the construction of our own strategic storage depot which would ensure that Zanzibar always has sufficient fuel, virtually irrespec- tive of the current problems associ- ated with Marketers under-ordering and the occasional delay at the loading port. Apart from Eco-Tee's contrac- tual responsibility to supply oil to Zanzibar. we have offered our services as oil consultants to GOZ, as our World-wide network of offices ECO-TEC AIMS TO CONTINUE PROVIDING BEST SERVICES TO ZANZIBAR For the last two years, Eco-Tee has been supplying fuel oils to Zanzibar. The Chairman ofEco-Tee Mr. Leslie Guillot, revisited the two years his company has been in operation and other issues in an exclusive Interview with our Editorial Board Member Nana Mwanjisi. Excerpts Nana ECO-TEC has signed an exclusive fuel supply contract with the Government of Zanzibar. Can you briefly give a profile of your Company? GUILLOT: Eco-Tee International (ET!) is a trust company specifically set up to identify commercial opportu- nities. In 1994, while working in Zanzibar on a fishing project, ETI was approached by the Ministry of Finance to try and find a solution to the frequent and often chronic fuel shortages suffered in Zanzibar. Once the Government of Zanzibar (GOZ) accepted ETl's proposal of a new supply model, Eco-Tee Zanzibar (ETZ) was formed to manage the contractual supply obligations. ETZ is a partnership of three entities that is Eco-Tee International, Masefield Ltd. both of the United Kingdom and the Government of Zanzibar. Nana Is your Company satisfied with the facilitating services being provided by ZIPA ? GUILLOT: We understand ZIPA's role as one of facilitating investment. We do feel however. that its success is encumbered by a legacy of Ministerial bureaucracy, which creates delays and inhibits the flow of information required for the relevant parties to understand what need to be done to achieve one's objective(s). Perhaps ZIPA needs a substantial improvement in au- tonomy to be able to service potential investors' needs. Nana In the past two years since the Government awarded ECO-TEC this supply contract, it is evident that there has been steady supply of fuel in the Islands. However. there are some people who are sceptical of your ability and even question ECO- TEC'scredibility. What is your re- action to this ? GUILLOT: One of the fundamental promises ET! made to GOZ, was to bring to an end, the frequent shortages suffered prior to July, 1995. As you indeed mention, we have achieved this with great success. For the past 2 years Zanzi- bar has experienced a period of unprecedented supply continuity, enables us to provide comprehen- sive advice on the energy sector. Eco-Tee constantly looks for oppor- tunities which may benefit Zanzibar. One example of this is the introduc- tion to GOZ, of the electricity company ESCOM, who are now compiling a report on how Zanzibar can have its own independent power supply. Steve Hbert is the Operations Manager of Eco-Tee based in London. • at fixed prices. Fuel prices in Zanzibar are now substantially below those in Mainland Tanzania, which is a situation we believe has never before been achieved. Our sceptics appear to have a rather short memory which conve- niently forgets the pre-1995 situation of shortages, black markets, price volatility and consumer uncertainty. We understand that some of the suppliers at that time , who were unable to deliver fuel on reliable basis, now wish to replicate ETZ's supply model. Perhaps the saying "a leopard never changes its sports" is an appropriate response. Can Zanzibar place any real trust in companies who were unable to perform when they had their chance to do so ? Nana How do you account for the sporadic shortages that have occurred even during this term of your Contractual obligations? GUILLOT: The process of purchasing, loading, shipping, and discharging petroleum products, is quite compli- cated. Although at the com- mencement of ETZ's deliveries to Zanzibar, there were 3 operational storage depots, problems with the quality of many of the tanks meant that significant improvements were required. The result was that for the continued to next page
  • 4. A Quarterly News Letter July - September 1997 Vol. 2 Issue No. ~ · . . . d The ChiefMinister (centre) accompanied by the Minister for Commumcati~n an . Transport Hon. AmaniA. Karume being shown around MIT UK0'!1-BOZI. immedi- ately upon her return from Madagascar whereby it underwent ma1or repairs. last 12 months only British such we believe has gained the Petroleum's (BP) terminal has been Government's confidence in such a operational. This means that capacity. We have acted as Zanzibar had approximately only 15 advisors on many oil related mat- days storage capacity, which we ters, and as an example recently are sure you can appreciate introduced the South African placed substantial operational company ESCOM, who are now restrictions on Eco-Tee, preventing working with GOZ on a solution to us from loading at ports which were further than a few days away from Zanzibar, and leaving us exposed to any operational problem which occur from time to time in the oil world such as Refinery shutdowns, Mechanical problems with the supply vessel, and Loadport con- gestion. To compensate for the Land storage problem, Eco-Tee has held strategic stock on board of the MIT UKOMBOZI, and has been discussing with GOZ the idea of building land storage tanks for strategic storage purposes. Nana Is it correct to say that the contract empowers you to act as Agents of the Government in the collection of revenues? Have you performed your duty to the maxi- mum? GUILLOT: The Fuel supply contract does not empower Eco-Tee to act as agents of GOZ. ETI is always searching however, for opportunities which may benefit Zanzibar, and as Zanzibar's electricity shortfall. We work closely with the Shipping Corporation of Zanzibar, and make all of our shipping expertise within Ell's world wide group of offices available to them. This co-opera- tion, aligned with Ell's financial strength, enabled the release of the MIT UKOMBOZI from her internment in Madagascar, and continues in the form of repairing the vessel to international standards. Nana I understand that one of your contractual obligations isto build storage facilities in Zanzibar, which will act as supply base as well as a security against shortages. How far have you implemented this obliga- tion? GUILLOT: Absolutely not. ETZ was established to supply the Zanzibar marketers with products. ETZ is not a retail company, but the problems with storage capacity and Market- ers under-ordering on a regular basis, has prompted ETZ to construct land storage tanks to provide GOZ with autonomous strategic storage. We have concluded the necessary formalities and are now in a position to acquire our own storage. Nana Some people believe that the Government is loosing some revenues by not exercising control in bunkering activities for various vessels. Is this area excluded in your contract ? If it is inclusive, do you have any plans to begin bunkering? GUILLOT: It is correct that the Zanzibarian registered vessels are not bunkering in Zanzibar to any significant degree, which is surpris- ing given the GOZ discount which makes the local price very competi- tive in comparison with Dar-es- Salaam. What one has to appreci- ate is that International bunkers and local bunkers are very different, whereby International bunkers carry little or no taxes. We know that certain vessel owners are buying International bunkers in ports such as Mombassa, and transferring to other vessels in their fleet at sea in Tanzanian waters, to avoid paying taxes. This is illegal, and requires strong Government action to put an end to what is also a potentially dangerous operation, capable of causing substantial pollution. Nana Does Eco-Tee envisage to diversify and may be consider to invest in other areas ? GUILLOT: As discussed above, ETI constantly looks for new projects which could be commercially rewarding to both ETZ and Zanzibar. We are currently discussing some ideas with GOZ, although we must say that managing the supply of fuel to Zanzibar takes up much of our time. We are hopeful however, of progressing one or two ideas in the near future. •