The department of Petroleum is responsible for the management and development of the petroleum industry in order to ensure security of supply of Petroleum Products.

The specific functions of the Department are to:

1. Manage the procurement of petroleum feedstock
2. Facilitate the management of petroleum strategic reserves both stock and infrastructur
3. Validation of claims and contributions under the uniform petroleum pricing mechanism in the country
4. Provide technical guidance and support to OMCs and stakeholder institutions on petroleum management and
5. Coordinate the development and implementation of national, bilateral and multilateral petroleum programmes

The department is organized into two Units namely;

1. Petroleum Supply Unit; and
2. Petroleum Management Unit

Petroleum products are an important source of fuel in any economy. Zambia has no known proven reserves of crude oil and has to depend entirely on the importation of petroleum products to satisfy her fuel needs for supporting economic activities. Therefore, the Ministry of Energy on behalf of the Government procures all petroleum products because it is capital intensive. Importation of petroleum products into the country is in two modes namely:

1. Commingled feedstock importation through the pipeline for refining at Indeni Refinery (REFINERY MODE) which accounts for 43 percent of national consumption; and
2. Importation of finished petroleum products (diesel and petrol) through road tankers which accounts for 57 percent.

The procurement is done through an international and national competitive bidding process. In the procurement process, the Department of Petroleum works in collaboration with the Procurement and Supplies unit (PSU) in advising on the specification and quantities of petroleum products required. To ensure security of supply, the daily national consumption of 1,300m3 petrol and 2,900m3 of diesel respectively is required to be met.

Refinery Mode

This supply mode involves the importation of feedstock through Tazama Pipeline for processing/refining at the Indeni Petroleum Refinery in Ndola. The petroleum feedstock imported is of a commingled type specifically tailored to the configuration of Indeni Refinery and is best suited to meeting the needs of the Zambian market. Feedstock is shipped in Very Large Crude Carriers (VLCC) to the port of Dar es Salaam where it is received at the Single Point Mooring (SPM), which handles cargoes of up to 100 000 Metric Tonnes. On arrival at the port of discharge, the feedstock is pumped into the TAZAMA tank farm in Kingamboni, Dar-es-salaam and later pumped through to the Indeni Petroleum Refinery in Ndola.

Finished Product Mode

Finished petroleum products are imported and transported from Tanzania, Mozambique or South Africa and distributed to various Government- owned fuel depots. This involves the importation of finished petroleum products through road tankers and rail wagons.

Finished Petroleum Products (Diesel and Petrol)

The Ministry has nine (9) running contracts with suppliers namely: ER Industries, Delta Energy, Dalbit International Limited, Sahara Energy Resources, Othniel Brooks International Limited, Trafigura PTE Limited, Gunvor SA, BB Energy and Hass Petroleum Zambia Limited to supply and deliver finished petroleum products at Government fuel depots.

Petroleum Products Pricing

The pricing of petroleum products in Zambia continues to be influenced by international oil prices and the exchange rate of the Kwacha to the United States Dollars.

Model of Pricing

The wholesale and pump prices of petroleum products are reviewed for each cargo of feedstock and finished products procured. The Energy Regulation Board determines the prices of petroleum products using the Cost-Plus Pricing Model. This model works on principle of cost recovery along the petroleum supply chain. The main factors that influence the domestic fuel prices are the

international oil price and the exchange rate of the Zambian kwacha against the United States Dollar.

 This model works on the principle of cost recovery along the petroleum supply chain. The wholesale and retail pump prices for feedstock and finished petroleum products are reviewed every sixty (60) days.  The current wholesale price is lower that the supplier landed cost, therefore, Government has intervened by providing subsidies.

Determinants of Petroleum Prices

The price of fuel in Zambia is mainly influenced by international oil prices and the exchange rate of the Kwacha to the United States Dollar. Any major movements in the two (2) factors could trigger a price adjustment. Other factors that could initiate a price adjustment are changes in levies and duties, charges such as Strategic Reserve Fund (SRF) fees, margins for transporters, Oil Marketing Companies (OMCs) or Dealers, changes in pumping or processing fees.

Financing of procurement of Petroleum Products

An Open Account System is currently being employed as a financing mechanism where the supplier of petroleum products delivers the product to Government using their own finances. The supplier is paid once the products are sold.

Uniform Petroleum Pricing

The Uniform Petroleum Pricing (UPP) programme commenced on 18th September 2010. This was in line with the 2008 National Energy Policy which aimed to improve petroleum pricing in rural areas through setting up an incentive mechanism to mitigate high petroleum prices in rural areas as well as encourage low cost petroleum retailing in rural areas. The aim of the programme in the long run is to stimulate economic development and thus lead to improvements in the standards of living for people. The impact of the UPP programme has seen the country having the same pricing for all the products regardless of location. It has stimulated fuel consumption in rural areas thus spurring economic growth/activity.

The UPP Mechanism is a self-financing model anchored on the cross subsidization of transportation costs. It is financed by the consumers with close proximity to the depots who contribute into the UPP Fund (UPP contribution) and the intended beneficiaries are consumers in the far-flung markets who claim transport deferential from the UPP Fund (UPP Claims). In order to ensure continuity of the programme, the Ministry engages a UPP Manager to manage the implementation of the UPP mechanism through the UPP Fund. The management of the UPP fund is done by the Energy Regulation Board.

Strategic Reserve Fund

The Strategic Reserve Fund (SRF) is a government programme introduced in 2005, specifically to finance the stabilizing price of fuel, manage, rehabilitate and construct petroleum storage facilities as well as emergencies in the petroleum sub-sector. The fund is managed by the Energy Regulation Board on behalf of the Ministry of Energy.

The SRF is financed by SRF fees, collected by the ERB through a cost line in the price build up for petroleum products. In 2021, the SRF fee is ZMW0.15/litre for petrol, Low Sulphur diesel, kerosene and Jet A-1, and ZMW0.15/kg for Heavy Fuel Oil (HFO) and Liquefied Petroleum Gas (LPG). The ERB collects the SRF fee through OMCs and has in place a monitoring mechanism to ensure that an appropriate amount is paid into the Fund by OMCs.

The SRF has been instrumental in facilitating the financing of the development of petroleum infrastructure such as fuel stabilization, fuel depots, road works around fuel storage depots; rehabilitation of fuel tanks at storage depots; and rehabilitation of infrastructure such as the bitumen plant at INDENI.

Construction of the Zambia-Angola Oil and Natural Gas Pipeline (AZOP)

• The Angola Zambia Oil and Gas Pipeline (AZOP) proposal was submitted to the Ministry of Energy in 2010 and over 10 years of negotiations have led to the Inter-Governmental Memorandum of Understanding being signed on 29th April, 2021 between the Government of the Republic of Zambia and the Government of the Republic of Angola via the respective ministries responsible for energy.
• In line with international best practice for risk mitigation, the project proponents, Basali Ba Liseli (BBLR) included the “Walvis Bay to Lusaka base case route option” as an alternative base case route option to the initial “Lobito bay to Lusaka corridor” that was proposed initially for the project.

Construction of New TAZAMA products pipeline

• In order to meet future demand for petroleum products in Zambia and Tanzania, a new finished product pipeline with a capacity of 4million Metric Tonnes (MT) per annum is planned to be constructed.