Oil prices may be down globally…but fuel costs still up in Tanzania

Official figures from the state-run Energy and Water Utilities Regulatory Authority (EWURA) show that fuel is one of the most heavily-taxed products in Tanzania, with at least 17 different taxes and levies tied to every litre of petrol, diesel or kerosene that enters the country.

While the cost, insurance and freight (CIF) for the importation of 1 litre of petrol to Tanzania is 785.73 shillings, consumers end up paying Tshs 1,842 for the same at the pump in Dar es Salaam, according to the latest monthly fuel price caps issued by EWURA which take effect this month.

This means that over 1,000 shillings for every 1 litre of petrol goes to the taxman. Similarly, while it costs just 668.82 shillings to transport 1 litre of diesel to the Dar es Salaam port (CIF price), consumers end up paying 1,600 shillings at the pump.

On the other hand, kerosene, which is relatively less taxed compared to petrol and diesel, costs 823.50 shillings for 1 litre at CIF price, but final consumers pay 1,699 shillings per litre.

Government taxes from fuel imports include fuel levy (313 shillings per litre), excise duty (339 shillings per litre), and a petroleum fee (100 shillings per litre) for every litre of petrol.

That's not all. Fuel importers also pay 71.65 shillings per litre of petrol being costs payable to local authorities which include demurrage cost, regulatory levy, petroleum marking cost, customs processing fee, and weights and measures fee.

Additional charges payable to other local authorities and executive agencies amount to 18 shillings per litre of petrol. Local oil marketing companies, which have been roundly accused of profiteering from the low oil prices, pocket 110 shillings per litre of fuel, which covers their overheads and profit margins.

The latest Bank of Tanzania (BoT) monthly economic review shows that the cost of oil imports in the year ending November 2015 fell by 22 percent to $2.86 billion, largely as a result of plunging global crude oil prices.

But while Tanzanians are hoping the global oil price plunge will eventually translate into a drop in the cost of living, experts have also warned that the benefits of the tumbling prices may come with other hidden costs for the country.

On paper, cheaper crude oil prices mean that the country's balance of payments should improve by reducing the costs of oil imports, resulting in a boost for the battered local currency.

But on the downside, analysts warn that falling oil prices could instead have devastating consequences on the economy, which according to the Bank of Tanzania (BoT) is expected to grow at 7.2 per cent this year, up from 7.0 per cent in 2015.

“Very low oil prices will have both positive and negative effects for Tanzania,” said Manzi Rwegasira, head of strategy at the National Microfinance Bank (NMB), in an interview. The state-run Tanzania Petroleum Development Corporation (TPDC) has already reported a slowdown in oil and gas exploration activities in the country as a result of the global price plunge.

This is despite the fact that Tanzania recently emerged as a hotspot for hydrocarbon exploration after substantial deposits of natural gas were discovered, mostly in deep-sea areas off the coast of Mtwara region.

And while the government has at last acquired land for the site of a planned liquefied natural gas (LNG) plant in Lindi region, experts say this long-delayed $30billion project could be hit by further setbacks as a result of the oil price problem.

The country's natural gas reserves are estimated at more than 55 trillion cubic feet (tcf) and BoT believes 2 percentage points will be added to the annual economic growth index simply by starting work on the LNG plant.

"The delay (in starting the project) has already proved costly for the country in terms of time wasted as investors have been forced to push back the final investment decision (FID) target of 2016," said Ahmed Salim, senior associate at consultancy firm Teneo Intelligence, in a note to clients.

"With crude prices now touching a historic 12-year low, concerns about the long-term viability of the (LNG) project will persist," Salim added. (See special report on the impact of falling oil prices in Tanzania in the Smart Money business pullout)