Zimbabwe Review

Reflections on Zimbabwe

Would a pullout of Shell Oil from Zimbabwe amount to anything?

Posted by CM on July 7, 2008

From the recycled-news-as-new-news department: Shell was considering pulling out of Zimbabwe amid claims that President Robert Mugabe was reserving the distribution of fuel at petrol pumps for party supporters.

According to The Observer, a source at the oil giant said it was looking at a plan to halt activities in the country, which are overseen in a joint deal with BP. One option being canvassed is for Shell to sell its stake to a third party.

Shell and BP supply 74 independent petrol stations in Zimbabwe. Supplies are piped from Mozambique and stored at four oil terminals. Both companies have bitter memories of the hostility they drew during the apartheid era in South Africa and minority rule in Rhodesia.

The political instability since last month’s rigged presidential election was one factor under consideration by Shell, the source said. ‘We have withdrawn from countries in the past where the situation was delicate,’ he said. ‘We are actively looking for a new solution.’

Y-a-w-n! Where is the beef in this story? Where is the news?

Favouritism in fuel allocations has been the order of the day for the eight years that Zimbabwe has been experiencing shortages. As someone who, like most other Zimbabwean motorists, has bitter memories of hours, and sometimes whole nights at service stations including Shells’, only for the fuel to allegedly “run out” just before one’s turn at the pump, I am offended at the suggestion that the reserving of fuel for ‘special customers’ is anything new discovered by the crack newspaper The Observer. Please!

If Shell is indeed mulling pulling out of Zimbabwe, it is out of viability concerns or the increased sanctions pressure since Mugabe’s awkward one-man re-election, not because of any governance concerns. My ass, the situation in Zimbabwe has been “delicate” for many years in which Shell held on very tightly to its investments, hoping for better times.

And I stand to be corrected, but the last time I checked, the pipeline that used to deliver oil from the port of Beira in Mozambique to storage facilities in Zimbabwe has not been operational for many years. I’m reasonably confident that all of Zimbabwe’s oil is now trucked in from Mozambique or South Africa. So The Observer’s report is misguided/false on that basis as well. Plain sloppy journalism, or propaganda targeted at readers the paper knows do not know enough about the facts of the situation being reported to question anything?

Selling off to third parties is something many of the multinational oil companies that once completely dominated that sector have done over several years. As a result, in less than ten years this sector now has substantial black participation whereas before, bringing in and peddling oil somehow had the false mystique of being a terribly sophisticated business that only the big multinational companies could do.

When the oil sector was liberalised at some point in the last eight years, the messy politics and the difficult economic operating environment meant the big oil companies no longer had a competitive advantage over the many smaller indigenous players who suddenly got into the industry. This was partly because the “liberalization” was limited, only opening up the possibility of oil importation to more players. But the selling price was still controlled, usually to below the cost of procurement!

These price controls meant that even with the forex ‘shortages’ that had begun to plague the economy, big companies like Shell with access to plenty of hard currency outside the country did not find that it made sense to use it to bring in oil into the country, only to sell it at a loss. This shifted the oil procurement advantage to the politically well connected who were able to access hard currency from the central bank at ridiculously low rates, so that even if they sold the oil at the ridiculously low controlled prices, they stood more chance of making profits than would companies like Shell that had to more or less do (or be seen to be doing) straight business.

Besides, the new operators (and many of the old ones as well) would get around the issue of unviable imposed selling prices by selling a little at the offiical prices, quickly claiming the fuel had “run out,” then selling the rest at much higher prices at night or in containers off the filling station, the infamous and thriving “black market.”

Because of all the problems and confusion with forex rates  and controlled selling prices, there was a time when all fuel vendors including Shell sourced their fuel not by direct exports, but from the state’s fuel then- monopoly, NOCZIM, which could afford to continue importing fuel because it had access to cheap “political” forex from the central bank that few others had access to. At some point it was far cheaper for the oil distribution companies to just wait for the ocassional allocation of cheap fuel from NOCZIM (‘occasional’ because the arrangement was so economically unrealistic and even the central bank’s cheap forex so hard to come by that it could not work to supply the country all the fuel it needed) than to buy forex on the expensive open market (or use offshore forex) and then be forced to sell it at unrealistically low ‘political’ retail prices.

All these things have eroded the dominance and advantage of companies like Shell in Zimbabwe’s oil sector. Additionally, at some point the not completely stupid Mugabe government realised that having the country’s oil supply be completely dependent on foreign companies based in nations hostile to it was strategically dangerous. So there was also a political dimension to having indigenous business people beholden to the ruling party having more control over fuel importation and distribution.

As sanctions talk from the EU and the US increases, that decision may be looked back on as prophetically brilliant, even though open sanctions will mean where even the new players can source oil from will be limited. But then again, for several years Zimbabwe has not been able to get oil on short term credit terms from the usual big world suppliers because of its known hard currency problems and poor payment record. So the oil trickles in from the few remaining friendly countries like Libya and Iran, and even then they often demand to be paid up front. All this is part of why there is a continuing fuel crisis. Under these difficult conditions it has simply not been possible to regularly and reliably bring in as much fuel as the country needs or to build a significant reserve.

Apart from most of the big oil companies selling off a lot of their stations to new independent operators, these new operators have in the main been the only ones building new storage infrastructure. This did not have to be huge because there has simply not been much fuel entering the country at any one time. Most fuel stations are usually empty now, with most of the country’s fuel being sold in various “off-court” ways.

I have to believe that Shell and other companies like it have held on not because their Zimbabwe enterprises were still hugely profitable, if at all, but in the hope that ‘regime change’ could happen at any time and that things would get back to fairly normal for them soon thereafter. It must be obvious after Mugabe’s recent election ‘win’ that change might not be any time soon!

The Observer could not be expected to know all these details about the big changes that have taken place in Zimbabwe’s fuel sector in recent years. They can therefore be forgiven for the naive belief that the pullout of companies like Shell will suddenly bring Mugabe’s regime to its knees. It won’t.

The uninformed twaddle of The Observer’s non-story may excite some of its readers into believing that a pullout would represent “doing something” against the Mugabe regime, but the situation in Zimbabwe has changed so much in the last few years that such a pullout would probably mean nothing at all.

Next excited Zimbabwe non-story please!

One Response to “Would a pullout of Shell Oil from Zimbabwe amount to anything?”

  1. […] In a recent post I asked: Would a pullout of Shell Oil from Zimbabwe amount to anything? […]

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