Zambia seeks investor in Indeni refinery
Thursday, Jan 18, 2018
Zambian authorities are looking for an investor in the Indeni Oil Refinery to support future enhancement of the plant.

Local media reported that the Zambian Development Agency (ZDA) had issued an invitation to interested parties to take up a majority stake in the 25,000 bpd refinery, with the ultimate objective of upgrading the plant and improving the output and efficiency of its operations.

Indeni, which is operated by Indeni Petroleum Refinery Ltd (IPRL), was established in 1973 and is located in Ndola in the heart of the key copper-producing region of Zambia.

The plant is wholly owned by the state holding company, Industrial Development Corp. (IDC), after the Zambian Government bought out French super-major Total’s stake in 2009. Zambia has previously courted international investors, with authorities approving the sale of a 49% stake in the plant in 2013.

Much of the output from Indeni is supplied to the mining operators in the Copperbelt area. It is fed with crude oil by the 1,700-km Tazama pipeline, which connects Ndola to Dar-es-Salaam in Tanzania.

However, lack of investment in facilities at Indeni in recent years has reduced operating rates to around 21,000 bpd. Zambia has considered the construction of a new refinery to meet rising fuel needs, but this option has proved too costly, and the focus has now returned to the potential for renovating the existing plant.

The required funds for renovations have not been broken down, but would most likely be in the region of US$500 million.

ZDA may look to widen the slate of products sold by the refinery. For example, expanded output of bitumen to support major new roadbuilding initiatives in Zambia is expected, displacing imported bitumen from South Africa and Saudi Arabia. This process of import substitution would have spin-off benefits for Zambia’s foreign exchange position by cutting the cost of imported energy products.

The ZDA’s move echoes comments made by Zambian Energy Minister David Mabumba in December, and marks a further elevation of the ZDA into a more prominent figure in the Zambian energy market. The agency is also active in seeking inward investment in coal and power sectors, using innovative investment promotion and protection agreements (IPPAs) to offer assurance of stability of investments.

However, there will be potential hurdles. Mabumba has already attempted to head off fears that a more business-like approach to energy policy and towards the oil refining sector would have adverse effects. He told local media that jobs at Indeni would not at risk during the overhaul.

As well as political stability, the condition of oil pipeline infrastructure supplying the refinery will be crucial to promoting confidence among potential investors.

In relation to this, Mabumba acknowledged that the Tazama pipeline was in need of investment to ensure efficient functionality and crude oil supply security. Costs of feedstock supply may also become key considerations for investors in view of the recent rise in crude oil prices.

The next steps in the sale process will be for interested parties to scrutinise the position of Indeni against this backdrop, particularly to review the required future investment levels, costs of production and stability of supply of crude oil.

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