EWURA Report - Final Revised Draft Report

Review of Petroleum Wholesalers &
Retailers Margins SANITISED Draft

Report
Energy and Water Utilities Regulation Authority
(EWURA
13 September 2013

EY i

13 September 2013

Reliance Restricted
Director General
EWURA
Harbour View Towers
Samora Avenue/Mission Street
5th Floor, Room No. 517
P.O.Box 72175
Dar es Salaam
Tanzania

Establishment of the Wholesalers and Retailers Margins in
the Tanzania Petroleum Downstream Industry

In accordance with your instructions, we have performed the work set out in our contract
dated 1 June 2013 in connection with the Establishment of the Wholesalers and Retailers
Margins in the Tanzania Downstream Petroleum Industry.
Scope and nature of our work
Our work in connection with this assignment is different from investigation or audit and our
report is based on compilation, review of secondary data available in the public domain, third
parties and analysis applied to the data provided to us. We need to reiterate that we have
only done limited reviews of the data from the Oil Marketing Companies (OMCs) mainly by
comparing the information received to the audited financial statements where available.
Basis of our work and limitations
We have reported broadly on matters which we have found and as per our engagement letter
and the limited time available for the assignment and our review might not have revealed all
matters which would have been identified by more detailed primary research covering a more
in depth detail.
Our report
Our report comprises of two parts; the Executive Summary, where we summarise our key
findings and conclusions, and the rest of the report, where we discuss in more detail overview
of the sector, wholesale operations, retail operations, other key issues affecting the Oil
Marketing Companies (OMCs) margins, summary of the findings and recommendations and
conclusions and next steps.
While each part of the report addresses different aspects of the work we have agreed to
perform, the entire report should be read in its totality for a full understanding.
Please note that this is a draft report and summarises our draft findings provided solely to
inform you of our findings identified to date and facilitate discussions between us. It is
subject to revision as further work is performed or further information is received. Our final
report will record our definitive findings and reliance should be placed only on that report.
Purpose of our report and restrictions in use
This report was prepared on the specific instructions of EWURA solely for the purpose of
evaluating the downstream wholesale and retail margins for the petroleum sector and should
not be quoted, referred to or shown to any other parties (except as

Ernst & Young
Utalii House, 36 Laibon Road, Oysterbay,
P.O Box 2475,
Dar es Salaam, Tanzania.

Tel: +255 22 2667227/2667368
Fax: +255 22 2666948/2666869
www.ey.com

EY ii

provided in our engagement letter and provided that we assume no responsibility or liability
whatsoever to the third parties in the respect of the contents) unless so required by court
order or a regulatory authority without our prior consent in writing.
EY assumes no responsibility whatsoever in respect of or arising out of or in connection with
the contents of this report to the parties other than EWURA. If others choose to rely in any
way on the contents of this report they do so entirely at their own risk.
Sensitive information
This report contains sensitive market information to various OMCs that should be treated
confidentially. EWURA should therefore review the report for sensitivities before sharing it
with a wider audience. OMCs names have been distinguished in this report to guard some of
the more sensitive investment and cost data.
We wish to record our appreciation to EWURA, the OMCs and other stakeholders we met for
the support they provided us in completing this report. We would be pleased to provide any
clarification that may be required.
Yours faithfully

Julius Ngonga
Partner, Transaction Advisory Services and Infrastructure
Ernst & Young ASA East Region

Contents
EY i
Contents
1. Executive Summary ................................................................................................... 2
1.1 Introduction and background ......................................................................................................................... 2
1.2 Approach and methodology .......................................................................................................................... 2
1.3 Summary findings and recommendations .................................................................................................... 3
1.4 Conclusions ................................................................................................................................................... 5
1.5 Next Steps ..................................................................................................................................................... 6
2. Introduction and background .................................................................................... 7
2.1 Objectives of the assignment ........................................................................................................................ 8
2.2 Our approach and methodology ................................................................................................................... 9
2.2.1 Overview 9
2.2.2 Primary data collection and review approach................................................................................ 10
2.2.3 Methodology for determining the wholesalers and the retail margins .......................................... 11
2.2.4 Reviewing the allowable investment and operating costs ............................................................ 12
3. Overview of the sector ............................................................................................. 14
3.1 Sector organisation and structure ............................................................................................................... 14
3.1.1 Key market players ......................................................................................................................... 14
3.1.2 Structure of the industry and competition ...................................................................................... 17
3.2 The Need for Regulation ............................................................................................................................. 23
3.3 The Current Pricing Formula ....................................................................................................................... 23
3.3.1 Overview of petroleum pricing formula .......................................................................................... 23
3.3.2 Application of the Price Formula .................................................................................................... 26
3.3.3 Current Margins .............................................................................................................................. 26
4. Wholesale operations .............................................................................................. 27
4.1 Overview of the wholesale operations ........................................................................................................ 27
4.1.1 Types of Licensed Wholesalers ..................................................................................................... 27
4.1.2 Market Size and Share ................................................................................................................... 28
4.1.3 Wholesale Business Activities. ...................................................................................................... 28
4.1.4 Licensing Criteria for Wholesalers ................................................................................................. 29
4.2 Infrastructure investments ........................................................................................................................... 30
4.2.1 Regulation Requirements ............................................................................................................... 30
4.2.2 Comment on the existing storage facilities and their adequacy vis a vis demand ....................... 30
4.2.3 Infrastructure investment costs for depots..................................................................................... 33
4.3 Working capital requirements...................................................................................................................... 36
4.4 Operating costs for a depot ......................................................................................................................... 36
4.5 Financing costs and required return ........................................................................................................... 37
4.6 Summary margin calculations of wholesale operations ............................................................................. 37
4.7 Comparison with the current margins ......................................................................................................... 40
5. Retailers operations ................................................................................................. 41
5.1 Overview of the retailers operations ........................................................................................................... 41
5.1.1 Types of petroleum dealerships ..................................................................................................... 41
5.1.2 Types of retail stations. .................................................................................................................. 41
5.2 Infrastructure investments ........................................................................................................................... 41
5.2.1 Regulation Requirements ............................................................................................................... 41
5.2.2 Comment on the existing retail outlets .......................................................................................... 42
5.2.3 Infrastructure costs for retail outlets ............................................................................................... 43
5.3 Working capital requirements...................................................................................................................... 45
5.4 Operating costs for a standard retail outlet................................................................................................. 46
5.5 Financing costs and required return ........................................................................................................... 47
5.6 Margin calculations of retail operations ...................................................................................................... 47
5.7 Comparison with the current margins ......................................................................................................... 49
6. Other key issues affecting OMCs margins ............................................................. 50
6.1 Demurrage ................................................................................................................................................... 50
6.2 Evaporation and pilferage ........................................................................................................................... 50
6.3 Infrastructure control.................................................................................................................................... 50
6.4 Transit products and localising export products ......................................................................................... 50
6.5 Taxes and levies .......................................................................................................................................... 51
6.6 Other OMCs concerns ................................................................................................................................ 52
7. Summary findings and next steps ........................................................................... 54
7.1 Margin recommendations ............................................................................................................................ 54
7.2 Frequency of review and need for indexation ............................................................................................ 54
7.3 Conclusions and way forward ..................................................................................................................... 55
Contents
EY ii
8. Appendices .............................................................................................................. 56

Contents
EY i
Abbreviations
AGO Automotive Gas Oil
BPS Bulk Procurement System
CAGR Compound Annual Growth Rate
CIF Cost Insurance & Freight
COCO Company Owned Company Operated
CODO Company Owned Dealer Operated
DAP Delivered At Place
DODO Dealer Owned Dealer Operated
EHSE Environment Health and Safety and Environment
EWURA Energy and Water Utilities Regulatory Authority
FIFO First In First Out
FOB Free on Board
HFO Heavy Fuel (furnace) Oil
JET A1 Jet Aviation Turbine Fuel
KOJ Kurasini Oil Jetty
LPG Liquefied Petroleum Gas
Ltr Litre
M3 Cubic Meters
O&M Operations and Maintenance
OMC Oil Marketing Company
PIC Petroleum Importation Coordinator
PMSG Premium Motor SpiritGasoline
SPM Single Point Mooring
SUMATRA Surface and Marine Transport Regulatory Authority
TBS Tanzania Bureau of Standards
TIPER Tanzanian and Italian Petroleum Refining Company Limited
TOR Terms of Reference
TPA Tanzania Ports Authority
TPDC Tanzania Petroleum Development Corporation
TRA Tanzania Revenue Authority
TShs Tanzanian Shillings
USD United States Dollars

Executive Summary
Draft Report: Review of wholesalers and retailers margins for the downstream petroleum sector EY 2
1. Executive Summary
1.1 Introduction and background
Tanzanias petroleum subsector can be divided into two activities i.e.
upstream and downstream. Upstream activities involve exploration and
production of hydro carbons, while downstream currently includes
importation, storage, transit transportation, wholesale and retail
distribution of the refined petroleum products including liquefied petroleum
gas.
The petroleum downstream sub-sector was liberalized in 2000 enabling
Oil Marketing Companies (OMCs) to procure and trade petroleum
products in accordance with their market requirements. As a result there
are over 60 licensed OMCs and more than 1,000 retail outlets making the
sector very competitive particularly the whole sale business where there
is evidence for discounting to retain and win new customers.
The Energy and Water Utilities Regulatory Authority (EWURA) is an
autonomous multi sector regulatory authority established by the EWURA
Act Cap 414 and is responsible for regulating the energy sector while the
Ministry of Energy and Minerals, promulgates the policy for the sector.
EWURA started publishing cap prices for petroleum downstream products
in 2009 to discourage profiteering by the OMCs and stabilise the
petroleum retail pricing. It subsequently released a formula that among
other guidelines, capped the whole sale and retail margins for the
downstream petroleum industry.
While publishing the pricing formula, the regulator acknowledged that
more studies were required to determine the actual costs of whole sale
and retail operations for the petroleum downstream business. It is against
this backdrop that EWURA hired EY to undertake the costing study to
establish wholesale and retailers margins in the Tanzania petroleum
downstream industry.
1.2 Approach and methodology
Our understanding of the overall objective of the assignment is that
EWURA wishes to see consumers purchase petroleum products at fair
and reasonable prices and promote fair competition among the players.
This will, at the same time, help foster investment in the downstream
business by giving fair returns to the OMCs that have invested in the
sector and thereby, to the extent possible, ensure security of supply. The
assignment therefore seeks to develop an appropriate methodology for
determination of Wholesalers and Dealers margins.
Our approach to the assignment reflects our understanding of EWURAs
needs. The overall approach involved:
Collecting actual investment and operating costs incurred by the
OMCs in each of the two segments, whole sale and retail, of the
downstream petroleum business;
Reviewing the data presented by the OMCs to determine the
allowable investment and operating costs for each of the segments;
and
Developing an appropriate approach and methodology to determine
the margins for each of the segments.
Executive Summary
To establish the level of the investment and operating costs, a survey for
the main OMCs in relation to the minimum licensing requirements was
carried out through questionnaires, interviews and review of information
available from OMCs, EWURA and other sources. In this regard, varied
data was collected from the OMCs to review their investment and
operating costs. It is not possible within the duration of this study to
complete 100% enumeration of actual investment and operating costs
data from OMCs. Therefore data collection was carried out on a sample
basis:
To cover 85% of the whole sale market and
100 of 1074 retail outlets based on various stratifications covering the
type of station - whether Company Owned Company Operated
(COCO), Dealer Owned Dealer Operated (DODO), and Company
Owned Dealer Operated (CODO), the location (rural or urban) and the
OMC affiliation.
An exercise to validate the data was then carried out, through
corroborating to independent records such as audited financial
statements, industry information on construction and operations of the
facilities and our own knowledge of the industry. For each of the
segments, data on the most recent infrastructure investments was
obtained both for depots and for retail outlets. These were used as
benchmarks to evaluate the costs in addition to comparing it with data
from other regional countries and our knowledge of the sector.
Lastly margin calculations were carried out for the wholesalers and the
retailers. This was then compared with the current published margins and
empirical evidence sought to support the conclusions. The calculations
were geared toward achieving equity and fairness and cost recovery on
the part of the OMCs and the dealers. The calculations therefore
considered asset replacements costs, operating and maintenance as well
as return on capital for the infrastructure investments and working capital
for each of the market segments.
1.3 Summary findings and recommendations
The table below summarises the results of margin calculations for the
whole sale components as explained above.
Table 1: Summary cost per unit
Cost Component TShs/Ltr
Depot direct operating cost 29
Other company overheads 26
Depreciation 8
Financing cost 21
Return on investment 23
Total 107
Source: EY Analysis
The above calculations compare well with the current margins for the
wholesalers at TShs 124 (including transition costs) per litre.
This is also consistent with discussions with OMCs. There was an
underlying acknowledgement that the wholesale margins were largely
adequate, save for the other additional taxes such as municipal turnover
taxes and levies on money transfers that are squeezing in the margins
and that have not been factored in the above calculations nor in the
pricing calculations. The calculations also seem to indicate the reasons
Executive Summary
why some OMCs are able to offer discounts on the maximum
recommended prices.
The workings suggest that the current whole sale margins should
therefore be maintained, but EWURA should consider including the
additional taxes that are not currently captured by the pricing formula. In
an unregulated market, investors would pass additional taxes through to
consumers.
On the contrary, the calculations for the retail segment show that the
current retail margins are unlikely to be covering the total costs as shown
in the table below.
Table 2 : Summary of the retail margin
Cost Item TShs/ Ltr
Operating Cost per Ltr 36
Financing Costs per Ltr 3
Depreciation 16
Return on Investment 35
Total margin 90
Source: EY Analysis

The above results show a higher per litre margin for retailers than the
current cap margin of TShs 64 per litre. This is also collaborates
discussions with OMCs where most felt that the retail business segment
has been loss making. It is anticipated that the independent dealers have
remained in the business by reducing their costs to the bare minimum and
therefore reducing the quality of service to consumers.
It should be noted that the calculations above are based on submissions
from OMCs. Although some validation has been done, to countercheck
the data, in absence of a complete audit, it is difficult to give complete
representation on the data presented. For this reason, the outliers were
excluded from the calculations and further validation may be required in
some cases.
In addition there are other factors that affect the margin calculations and
that are of concern to the OMCs. These include:
Demurrage - The oil companies, while appreciating the way EWURA
is now using actual demurrage in the price calculation, expressed
concerns regarding the unrecovered demurrages since the BPS was
introduced. In future EWURA should assign unjustifiable demurrage
to the parties responsible and only incorporate the demurrage from
common factors like infrastructure into the cap prices.
Unusual evaporation losses that is not captured in the pricing formula.
Data of a January 2013 AGO ship showed there was a loss of 0.18%
through the SBM system. This appears high for such a short distance
and for a newly commissioned facility. EWURA should investigate the
cause of such losses and take necessary corrective actions.
Theoretical losses for TIPPER and custody of the SBM and TPA
manifold that may be contributing to unexplained losses. EWURA
Executive Summary
should investigate the cause for these unusual losses and take
measures to ensure that the facilities are secured.
Non payment of wharfage costs for the localised products that
promotes unfair competition. TRA should be authorized to collect the
top up fees on behalf of TPA (or Government) for any localized when
Petroleum products are localized.
New taxes and levies that are not captured by the pricing formula that
needs to be considered in the pricing formula.
Concerns on the treatment of the exchange differences where
EWURA only relies on BOT exchange rates while the importers
source some or bulk of the foreign currency needs from the open
market. Since data for actual importation and projection is available,
EWURA should use this information while calculating the average
prices.
These assertions were as a result of discussions with the OMCs and
needs to be validated. EWURA therefore needs to examine the issues in
more detail and develop regulations on how they should be handled.
1.4 Conclusions
From the analysis above, the draft conclusions indicate that the wholesale
margins are perhaps adequate at the current levels. Our estimates show
a margin of TShs 107 per litre against the recommended margin of TShs
124 per litre (including transition costs). This is consistent with the finding
that most of the OMCs were discounting their products to maintain market
share. The margin should therefore be maintained at the current levels.
It should however be noted that it is difficult to generalise the margin
calculations across different operators and some operators may find it
difficult to operate within the set margins. However, as the regulator,
EWURA should drive sector efficiency.
For the retailers, the findings are that these do not entirely cover the
investment and operating costs. The calculations result in estimates of
TShs 90 per litre compared to a maximum margin of TShs 64 per litre.
These finding are consistent with discussions with dealers and OMCs that
reflected a general feeling that the retailers margins are not adequate for
sustainable operations. This may be the reason why most of stations do
not meet the minimum licensing standards and that independent dealers,
that operate most of the stations, have side businesses to make ends
meet.
There is also merit in considering whether the retailers margin can be
further disaggregated. There were concerns from some dealers and
OMCs that the lump-sum margin given for this component brings some
confusion as to which party should get what, more so for the CODO
outlets. This is because of the dealers view that they are entitled to the
entire retailers margin. However OMCs have made the infrastructure
investments as well as incurring other costs that they need to recoup an
there are arguments that the margin should be shared. However there is
no guidance on how this could be shared.
EWURA however needs to be careful so that it does not end up over-
regulating the sector and strictly has no business in interfering with the
private arrangements between the dealers and the OMCs. If the dealers
or OMCs are not happy, they should be free to discontinue with the
business relationships strictly in the tenets of a free market.
Executive Summary
1.5 Next Steps
This is a draft report produced for EWURA for comments and to engage in
further discussions. The consultants expect to further engage EWURA on
the detailed findings and to further conduct any further data validation that
may be required to support the findings.
The consultants are aware that the OMCs and the stakeholders are
eagerly expecting the findings of this report. It may be necessary for
EWURA to present sanitised findings to the key stakeholders. The
sanitised findings need not include data attributable to particular OMCs.

Introduction and background
2. Introduction and background
Tanzanias petroleum subsector can be divided into upstream and
downstream activities. Upstream activities involve exploration and
production of hydrocarbon, while downstream activities currently includes
importation, storage, transit and transportation, wholesale and retail
distribution of the refined petroleum products including liquefied petroleum
gas.
The petroleum downstream sub-sector was liberalized in 2000 enabling
Oil Marketing Companies (OMCs) to procure and trade petroleum
products in accordance with their market requirements. As a result there
are over 60 licensed petroleum OMCs and more than 1,000 retail outlets
making the sector very competitive.
Tanzania consumes about 2.6 million cubic metres per annum of
petroleum products wholly imported from the refining centres in the
Arabian Gulf and the West Coat of India.
The Energy and Water Utilities Regulatory Authority (EWURA) is an
autonomous multi sector regulatory authority established by the EWURA
Act Cap 414 and is responsible for technical and economical regulation of
electricity, petroleum, natural gas and water sector. EWURA is
responsible for technical, economical and safety regulation of petroleum
supply operations. The petroleum supply operations include all operations
and activities for or in connection with the importation, landing, loading,
transformation, transportation, storage, distribution, wholesale or retail
trade of petroleum and petroleum products, including the operations of
industrial consumer who buy their products directly from wholesalers.
SUMATRA issues wholesale, retail, storage installations, refinery, and
pipeline transportation licences. In addition, EWURA provides approvals
for the construction of petroleum facilities such as petrol stations, deport
and pipeline construction.
In exercising its mandate of regulating pump prices in the country,
EWURA issues monthly cap pump prices for all districts in Tanzania. The
pump prices are based on the petroleum pricing formula that was first
published in 2009 and subsequently amended and published in 2011.
While publishing the pricing formula, the regulator acknowledged that
more studies were required to determine the actual costs of whole sale
and retail operations for the petroleum downstream business. In
particular, the regulator noted that the level and timing of the investments
and overhead cost structure differ substantially among players in the
subsector. As a result, setting up a standard overhead recovery and
operating margin for all OMCs is difficult.
In this regard, EWURA undertook to conduct a review of the actual cost of
marketing the petroleum products that would help validate the wholesalers
and the retailers margin currently stated in the pricing formula.
It is against this backdrop that EWURA hired EY to undertake the costing
study to establish wholesale and retailers margins in the Tanzania
petroleum downstream industry and development of a methodology which
will include a financial model for determination of wholesale and retail
margins.
2.1 Objectives of the assignment
As indicated above, EWURA introduced the capping of prices for
petroleum downstream products in 2009 to discourage profiteering by the
OMCs and stabilise the petroleum retail pricing. The current formula has
capped margins for both wholesalers and retailers operations. The
current margins including a temporary Transition cost allowance are
capped at TShs 124.00 and TShs 64.00 per litre respectively.
There have been concerns that the current allowed margins do not cover
the costs of their operations. As discussed above, while introducing the
pricing formula, EWURA undertook to carry out a detailed review of the
margins and hence this study.
EWURA wishes to see consumers purchase petroleum products at fair
and reasonable prices and promote fair competition among the players
while at the same time helping foster investment in the downstream
business by giving a fair returns to the OMCs that have invested in the
sector and thereby to the extent possible, ensure security of supply.
The assignment therefore seeks to develop an appropriate methodology
for determination of Wholesalers and Dealers margins. The underlying
objectives of the assignment include:
Understand the costing of downstream petroleum industry in the
region and Tanzania.
Develop a financial model for determination of wholesalers and retail
margins based on recommended methodology.
The scope of the work therefore includes the following:
establishing the level of investments in the wholesale segment of the
petroleum supply chain in relation to the minimum licensing
requirements for petroleum depots;
establishing the level of investment in the retailers segment of the
petroleum supply chain in relation to the minimum licensing
requirements for petroleum retail stations;
commenting on adequacy of the installed infrastructure in the
wholesale and retail segments of the supply chain in relation to the
available market
determining the average annual operating and maintenance costs
including remuneration of staff, electricity, water, etc for wholesalers
and retailers;
determining the average annual statutory payments made by
wholesalers and retailers;
developing a model for determination of wholesale and retail margins
based on recommended methodology; and
computing applicable margins for wholesalers and retailers margins
based on the developed financial model and recommend frequency of
review, if any.

2.2 Approach and methodology
2.2.1 Overview
The approach to the assignment reflects the consultants understanding of
EWURAs needs and draws on our ability to bring on board a
multidisciplinary team whose experience is backed with proven and
flexible methodologies to address your specific needs.
The overall approach was hinged on three key tasks.
Firstly, the collection of the actual investment and operating costs
incurred by the OMCs in each of the two segments, whole sale and
retail, of the downstream petroleum business
Review of the data presented by the OMCs to determine the
allowable investment and operating costs for each of the segments
Developing an appropriate approach and methodology to determine
the margins for each of the retail segments
The diagram below shows our overall approach to the assignment.

The review of the cost has been based on the actual investment and
operating costs being currently incurred by the OMCs in each segment of
the market. This means that data collection strategy had to be devised to
gather data from 15 consulted OMCs that command more than 85% of the
market as well as other sources as follows.
EWURA: This covers information about demand and supply, number
of OMCs and retail operators, ownership of the OMCs and retail
operators, etc
OMCs : Information regarding their level of investment, operating
costs and volume of petroleum products that the company has
imported over the past five years
Tanzania Port Authority: Information about the Authoritys role in ship
discharge operations, storage and distribution of the petroleum
products to the OMCs or TIPER infrastructure.
Tanzania Revenue Authority: Type and collection process for various
taxes administered by the Authority.
TIPER: Information on their operating costs, state of the physical
storage facility, etc
Industry information including sector organization and studies and
benchmarking data available etc.
Task 4 - Recommending an appropriate
methodology for determining fair margins
Task 3 Determining
the level of annual
operating costs
Task 1
Review of investment and operating
costs
Task 4.5
Recommendi
ng frequency
of review
Task 4.3
Calculating
the
appropriate
margins
Task 4.2 -
Cost and fair
return
modelling
Task 4.1 -
Conceptualisi
ng an
appropriate
method
Task 3.2-
Determine
the average
annual
statutory
payments
Task 3.1
Determine
the annual
operating
costs
Task 2.3:
Comment on
the adequacy
of the
installed
Infrastructure
Task 2.2
Determine
the
investment
and retail
operators
cost
components
Task 2.1
Determine
the
investment
and
wholesalers
cost
components
Task 1
Mobilisation,
Planning &
Inception
Reporting
Final
Report

2.2.2 Primary data collection and review approach
The first activity was to review and understand the petroleum supply chain
in Mainland Tanzania. The diagram below outlines the broad petroleum
product marketing value chain in Tanzania.
Figure 1: The downstream petroleum value chain

The landed cost of refined product into the countrys coastal receiving
depots is centrally tendered and procured through the Bulk Procurement
System (BPS).
This study reviewed the handling and distribution costs subsequent to the
importation ie the investment and cost requirements incurred upon
evacuation of the products from the central marine facilities at TPA and
TIPER into the various licensees storage facilities. Petroleum
wholesalers are largely responsible for the evacuation and storage of the
petroleum products from the central marine terminals (or from the
importer) and transportation of the product to their individual storage
facilities and finally to the bulk buyers and to the retailers premises.
To establish the level of the investment and operating costs, a survey was
carried out on the main OMCs in relation to the minimum licensing
requirements through questionnaires, interviews and review of information
available from OMCs, EWURA and other sources.
As a result, significant and varied data was sought from the OMCs. It
should be noted that there are many OMCs in Tanzania, with wholesale
and retail operations spread across Tanzania mainland. It was therefore
not possible or cost effective and within the duration of this assignment to
collect 100% (complete enumeration) of data from all retail and whole sale
outlets. Therefore a sample from the population of the wholesalers and
retailers was taken.
The sample surveys were designed to operate on selected subsets of the
target population and using a number of assumptions regarding the
distribution of the population to provide estimates of the parameters under
study. It should be noted that as well as the sample error, sample-based
surveys involve uncertainties as to the correctness of the various
assumptions used. However, a well-designed sampling survey can often
produce accurate and reliable estimates at a cost much lower than that of
complete enumeration.
The sampling strategy therefore considered the nature of the many
variables from the wholesalers and retail operations (for example, size,
location, age, level of investment). For the wholesalers operations data
from OMCs that control more than 85% of the market was collected. For
the retail operations, data collection a targeted 100 of the 1074 stations
with retail operations in mainland Tanzania.
Sampling can lead to bias and unbalanced results. This can occur if, for
example, data collectors choose operators located in a certain area, or
operators of a certain size when sampling. The simplest theoretical way
to avoid bias is to use random sampling. Under this scheme it is ensured
that all operators within a stratum have an equal chance of being selected.
In practice, this is often difficult to achieve. Therefore a systematic
sampling scheme, which guards against the worst forms of bias, was
undertaken.
However, it should be noted that most analytical methods assume random
sampling, and therefore the possible effects of other sampling
methodologies need to be considered in interpreting the results.
Some form of data stratification was also necessary. This was particularly
so as different regions have different costs associated with them
particularly land and installation. Presence of significant cost differential
was also considered more so whether there are significant cost
differentials in other costs, such as labour or establishment costs that
needs to be factored.
Stratification reduces the error in sample estimates by systematically
removing as much as possible of the data variability through the sampling
design. This is achieved by dividing the sample population into groups or
strata; where as much as possible of the variability in the population is
represented in differences between the groups. For instance, each region
was treated as separate stratum when selecting retail outlets since across
the operators; this division marks a clear divide in many variables.
Affiliation to OMCs was also considered to ensure a representative
sample across the OMCs divide.
2.2.3 Methodology for determining the wholesalers and the
retail margins
Regulating prices of consumer products is a complex matter and needs to
be implemented and administered properly. The regulatory process
should balance between fairness in consumer pricing and reasonable
financial returns to the OMCs and to retailer or resellers.
For margin calculation to be able to meet the objectives set above, they
need to have certain characteristics:
Equity and fairness Equity simply means that the margins needs to
similar OMCs, retailers and customers in the same situation needs to
be treated equally.
Cost recovery the margins needs to be able to provide needed
revenue to support the OMCs operations, maintenance, capital costs
and debt service
Ease of implementation A margin calculation formula needs to be
easy to explain, understand and implement.
Acceptability the results of the margin calculation needs to be
acceptable to the stakeholders.. This may require the margins to
conform to perceptions of fairness, often quite different from equity. A
successful margin design is one that is not controversial, nor should it
become a focus of public criticism of the industry players.
These objectives have been considered in reviewing the wholesalers and
retailers margins.
Successful regulatory approaches base margin calculations on the
reasonable cost of service. The reasonable cost of service determines
the total revenues that are required for the OMCs and retailers to cover
their costs. Determination of full cost recovery includes:
Identifying the components of the total revenue requirement for both
wholesalers and retailers that includes operations and maintenance
(O&M) and investments costs including an element of return on
invested capital
Using appropriate accounting approach (cash based or accrual
approach)
Determining the reasonable cost of services (eg eliminating
inefficiencies of the OMCs in the provision of the service)
Calculating the return on investments including working capital
elements
As a general rule, the revenue required by a regulated entity in a defined
period is determined by two essential cost components: O&M expenses
and the capital component. On this basis, two main approaches have
been used for estimating revenue requirements: the Cash Needs method
and the Accounting Approach. Both approaches conclude that the
revenue requirements to be built in the margin calculations model include
an operating component plus a capital component as follows:
i. For Cash Needs = O&M costs + Debt service
ii. For Accounting Approach = O&M costs + Depreciation + Return on
investment
For this report the accounting approach has been adopted because
different OMCs will have different financing structures (ie mix of debt and
equity) and hence different levels of debt service obligations. For this, the
same level of regulated return for all the OMCs was assumed. This is
essentially what the current formula tries to achieve by capping the level
of margins for both the wholesale and retail part of the supply chain.
2.2.4 Reviewing the allowable investment and operating costs
Different OMCs will have different level of investments and operating costs
both for the whole sale and the retail segments of the markets. For
example, our review shows that investment in storage tanks range from
USD $ 3500-4200 per m3. Likewise, station investment range widely:
from USD 1.5 million for the large ones to about USD 500,000 for the
small to medium outlets. This is similar to investments levels which have
been experienced in Kenya and Uganda recently for similar facilities.
While some variations in investments costs are simply due to location
factors with varying cost of land, labour and other inputs other costs
are due to the additional facilities, more so in the retail stations that are
not necessarily part of core business, such as shops. Though there are
arguments that these may be necessary to attract more customers, they
ideally should be excluded from margin calculations the investors would
receive compensation from the increased trade and volumes and margins
from those side businesses.
It is therefore challenging to standardise and apply a single margin across
the value chain. However, it would cumbersome and potentially difficult to
justify and to regulate if different margins existed for different OMCs. The
study therefore sought to establish reasonable investment and operating
costs for both the whole sale and the retail outlets.
The study relies on the consultants research and discussions with various
stakeholders to establish reasonable investment and operating costs for a
model storage facility and a model retail outlet as documented in section
4 and 5 of this report.

Overview of the sector
3. Overview of the sector
3.1 Sector organisation and structure
3.1.1 Key market players
The Ministry of Energy and Minerals
The petroleum sector falls under the Ministry of Energy and Minerals that
promulgates policy decisions for the sector. The petroleum subsector is
divided into upstream and downstream activities. The upstream activities
are coordinated through the Tanzania Petroleum Development
Corporation (TPDC).
The Energy and Water Utilities Regulatory Authority (EWURA)
The downstream petroleum sector is regulated by the Energy and Water
Utilities Regulatory Authority (EWURA), an autonomous multi-sectoral
regulatory authority established by the Energy and Water Utilities
Regulatory Authority Act, Cap 414 of the laws of Tanzania. It is
responsible for technical and economic regulation of the electricity,
petroleum, natural gas and water sectors in Tanzania pursuant to Cap 414
and sector legislation. EWURA issues licences for most activities in the
downstream industry. It also monitors petroleum quality and standards.
EWURA also sets a recommended and maximum price cap for a number
of petroleum products on a regular basis.
EWURA also monitors the provision of third party services such as
storage hospitality. This involves OMCs with spare capacity at their
depots providing storage capacity for other OMCs.
The functions of EWURA include among others, licensing, tariff review,
monitoring performance and standards with regards to quality, safety,
health and environment. EWURA is also responsible for promoting
effective competition and economic efficiency, protecting the interests of
consumers and promoting the availability of regulated services to all
consumers including low income, rural and disadvantaged consumers in
the regulated sectors.
Tanzania Ports Authority (TPA)
Tanzania Ports Authority (TPA) provides tugs, pilot vessels and berth
space for importing vessels to unload at. They also own the pipelines,
and manifolds in the port area. Their obligation is to provide safe port
operations and a safe berth so that the product can be off-loaded to the
OMCs.
Currently TPA schedule vessels for berthing on the basis that the earlier of
the vessels requiring a specific berth to arrive at the port, is the first to
berth or first in first out basis (FIFO).
Other facilities under TPA include KOJ and SPM. Scheduling for Bulk
Procurement System vessels will need to be on the basis that such a
vessel has an agreed arrival date range of say three days and if the
vessel arrives at the port in that date range then it is given priority over all
others to use the berth. There is no reason why such a managed system
could not be extended to cover all vessels using the KOJ. This sort of
system is in common use at oil handling berths throughout the world.

Kurasini Oil jetty (KOJ)
The Kurasini Oil Jetty (KOJ) is the main import facility in the country.. The
facility has two jetties to handle marine and coastal vessels. The jetty
handling the marine vessels (KOJ 1) caters for petroleum products as well
as vegetable oils. The other jetty KOJ 2 mainly handles LPG. There is
provision to offload Liquefied Petroleum Gas (LPG) at KOJ 1 but the lines
are corroded and cannot be used.
KOJ 1 has a jetty manifold with dedicated product lines. The jetty head
had three marine loading /offloading arms but they are not in use and are
said to have been damaged during the Tsunami. Hoses are used for
loading and offloading of products. There are steel pipes running on steel
racks up to the metering station.
KOJ 2 has a jetty manifold that mainly handles LPG (both liquid and
vapour lines). The draught at this jetty is less than KOJ 1 and caters for
small coastal vessels only. The pipes from the jetty head run to the
metering station.
Single Point Mooring (SPM)
The New Offshore Single Point Mooring (SPM) for crude oil and petroleum
products which was completed in 2012 makes it possible for the large
quantities to be delivered to the storage facilities connected to SPM.
Tanzania Revenue Authority (TRA)
Tanzania Revenue Authority (TRA) is responsible for levying and
collecting import customs charges on imported petroleum products. It
also monitors the duty-free transportation of product to other countries.
Petroleum Importation Coordinator (PIC)
The Petroleum Importation Coordinator was established by the Petroleum
(Bulk Procurement) Regulations of 2011. The current operations of the
PIC are guided by the Regulations of 2011 as amended from time to time,
the Bulk Procurement System Manual; and Supply and Shipping Contract
between PIC and the Supplier. The PIC as a coordinator has the
responsibility of administering the importation and supply of petroleum
products in the country. The PIC is responsible for the following functions.
Collecting the procurement requirements of petroleum and petroleum
products in respect of members;
Concluding and administering contracts with a supplier and between
the PIC and OMCs;
Conducting International Competitive Bidding for the procurement of a
bulk petroleum products through either CIF or DAP as the case may
be from time to time;
Reporting to the Authority on its activities on a monthly basis or as
may be required by the Authority ;
Preparing plans and a budget to cover its operations;
Relaying information, in a timely manner, related to the petroleum and
petroleum business to all relevant parties
Forecasting supply and demand of petroleum and petroleum products
in consultation with the Oil Marketing Companies;
Coordinating diligent receipt by OMCs of petroleum and petroleum
products from the delivery vessels;
Maintaining records of the shipment and performance
Coordinating invoicing and collection of payments for the respective
shares of petroleum products imported by the OMCs; and
Appointing, jointly with a supplier, an independent inspector at the
load-port and discharge-port to ensure delivery of acceptable quantity
and quality of petroleum products;
Where so decided by the Authority in consultation with stakeholders,
appointing a lead bank through which payments for procurement of
petroleum products will be made by OMCs.
Retailers or dealers
These are service station operators under any of the three ownership
structure discussed earlier. The retailers supply petroleum products
available to the end user (final consumers) when fuel is pumped out to
vehicles, motorcycles and others.
Tanzania International Petroleum Reserve Limited (TIPER)
The TIPER operates a facility that was initially a refinery, but later
revamped for use as a fully fledged bulk petroleum storage facility. The
facility is currently used as an intermediate storage facility between KOJ
and the OMC storage facilities. It is by far the largest single storage
facility with a capacity of about 140,000 cubic meters. It does not have a
truck loading facility.
Oil Marketing Companies (OMCs) and wholesale activities
There are a number of OMCs that are involved in the downstream
petroleum industry in Tanzania: These can be grouped into the following
groups:
Multinationals e.g TOTAL, PUMA, etc
Regional e.g Kobil, Engen,Gapco, Oilcom, etc
Indigenous Tanzanian companies Mount Meru. HASS,etc
Sector players under the industry structure and demand have been
discussed below.

3.1.2 Structure of the industry and competition
Petroleum products demand in the country
Demand for petroleum products in Tanzania has been increasing over the
last few years with about 2.6 million cubic meters (m3) expected to be
locally consumed in 2013 as shown in the table below.
Table 3: Demand (sales) for Petroleum Products
Volume in
Litres 2011 2012 2013
AGO 1,182,020,112 1,432,553,950 1,577,298,749
PMS 534,364,776 623,065,998 695,323,486
OTHERS 347,171,403 387,186,254 399,767,045
TOTAL 2,063,556,291 2,442,806,202 2,672,389,280
Source:EWURA

The graph below provides the demand (based on sales up to June each
year) growth from 2010 to 2013
Figure 2: Petroleum product demand

Source: EWURA

Storage depots/facilities
The analysis estimated that the country has storage capacity of about
900,000 cubic meters for various petroleum products. The distribution of
the storage facilities per our survey is shown in the table below. It
appears that most of the storage facilities are concentrated around
Dar es Salaam area.
Table 4:Storage Facilities in m3
Petrol Diesel Kerosene Others Subtotal
Camel Oil 6,000 18,000 - 12,000 36,000
Engen 6,800 16,300 4,400 - 27,500
GAPCO 26,419 67,501 10,313 6,036 110,269
GBP 17,574 38,499 13,470 - 69,543
Hass
Petroleum
10,000 14,000 - - 24,000
Kobil
Tanzania
15,600 15,600 - - 31,200
Lake Oil 3,987 20,974 - - 24,961
Mogas 12,000 20,000 8,000 - 40,000
Mount
Meru
500 1,485 875 85 2,945
National
Oil
8,000 17,900 1,000 - 26,900
Oilcom 15,200 42,900 8,300 15,500 81,900
Oryx
Energies
7,396 13,398 1,333 4,643 26,770
Petrofuel - 289 - - 289
Puma
Energy
8,496 41,066 508 40,820 90,890
Total
Tanzania
3,018 12,177 6,536 14,981 36,712
World Oil 8,963 26,936 - - 35,899
NSK 300 1,300 9434 - 11,034
Mansoor 5,500 4,500 5500 - 15,500
Star Oil 12,400 24,800 - - 37,200
Malawi
Cargo
12,166 14,887 392 - 27,445
Tanga
Petroleum
- 7,200 - - 7,200
TIPER 21,566 94,386 9,599 12,101 137,652
TOTAL 201,885 514,098 79,660 106,166 901,809
Source (OMCs,TIPER and EWURA)


As seen from the table above, the largest storage facilities are held by
TIPER, GAPCO, PUMA and OILCOM and GBP that make up more than
half the bulk storage available. Most of the storage facilities are for
Diesel, a reflection of the product demand structure discussed above.

Figure 3: Storage capacity

Source: EWURA, OMC, TIPPER and EY analysis
Retail outlets
As at the end of May 2013 there were a total of 1074 petrol stations
operating in the country. These petrol stations are of varying sizes and
different ownership structures including Company Owned Company
Operated (COCO), Company Owned Dealer Operated (CODO), and
Dealer Owned Dealer Operated (DODO).
a) Regional distribution
Most of the petrol stations are located in cities and big towns. Dar es
salaam leads with 147 Petrol stations, followed by Arusha 86 and Mwanza
82. A complete list of petrol stations and regions in the country is provided
in the table below:

Table 5 ; Petrol Stations locations in the country.
Region
Number of Petrol
Stations %
Arusha 86 8%
Coast 71 7%
Dar es salaam 147 14%
Dodoma 26 2%
Iringa 43 4%
Kagera 53 5%
Kigoma 27 3%
Kilimanjaro 73 7%
Lindi 25 2%
Manyara 33 3%
Mara 48 4%
Mbeya 65 6%
Region
Number of Petrol
Stations %
Morogoro 72 7%
Mtwara 24 2%
Mwanza 82 8%
Rukwa 14 1%
Ruvuma 21 2%
Shinyanga 62 6%
Singida 18 2%
Tabora 22 2%
Tanga 62 6%
TOTAL 1,074 100%
Source: EWURA
b) Ownership
As per information provided by EWURA, most of the petrol stations are
Dealer Owned Dealer Operated as shown on the diagram below.

Figure 4; Petrol stations Ownership and operating models

Industry Structure and competition
An industry structure captures that set of characteristics governing the
nature of competition among buyers and sellers at each level of trade.
The relevant characteristics defining industry structure are:
Industry concentration the number and relative size of buyers and
sellers provides an indication of market power or price-setting ability.
An industry composed of a few large firms ordinarily has more market
power than one featuring many relatively small firms.
Buyer-seller relationships formal and informal links between buyers
and sellers that limit independence affect price levels and the speed
with which prices change in response to changes in market
conditions. The stronger these ties are, the less competitive the
industry.
Entry and exit conditions these are fundamental indicators of a
competitive industry. Presence of barriers (eg, financial,
technological, regulatory, knowledge, access to supply, etc.) means
prospective firms face challenges entering the industry even when it
appears profitable to do so.
Of course, an industry does not exist in isolation from wider economic
forces outside its market area. Tanzanias market is heavily influenced by
international factors such as refined products prices and supply and
demand for petroleum products within the region. The local OMCs can do
little about these conditions. The Tanzania market is therefore a price
taker for the import prices from the global oil market.
The wholesale sector consists of 62 licensed companies supplying the
countrys 1074 retail outlets. Most of the wholesalers participate in the
importation of the petroleum product under the BPS discussed below
while some resellers obtain petroleum products directly from larger
wholesalers and supply their dealers from bulk storage tanks.
Some OMCs takes their petroleum products directly from the KOJor the
SPM directly to their storage facilities. Those OMCs who are not
connected to SPM can receive petroleum products from TIPER.
Petroleum products from the OMCs facilities are usually trucked to
stations throughout the mainland Tanzania or smaller inland storage
facilities within the country for regional distribution by dealers.
The local demand for bulk operations is very competitive due to the many
players in the industry. Entry and exit is easy due to not too stringent
licensing criteria, combined with the relative ease of entry to the market:
the excess storage capacity, as discussed later in our report, means
OMCs can obtain, at cheaper rates, hospitality services. This means
more OMCs can play in the bulk supply market. From our discussions
with the market players and observations, the hospitality rates ranges
from USD 5 to USD 11m3. Most of the OMCs choose to play in this
market and there is evidence of strong competition within the market
players. Indeed most of the OMCs are selling their products below the
recommended cap prices by EWURA to secure the market. Whereas this
is because of the relative low entry barrier, compared to the retail
operations where capital investments and complexities of running retail
outlets is required, it is also a pointer, as discussed and demonstrated
later in our margin calculations, that the whole sale margins are perhaps
adequate for normal profits within the industry.
This competitiveness is also supported by the fact that most retail outlets
do not have formal affiliations to particular OMCs. As discussed above,
67.3% of the retail outlets are DODO with COCO and CODO representing
only 32.7%. Whereas you would expect the independents to have some
form of agreements to guarantee supply of products, in reality the barriers
to switching to a different bulk supplier are lower.
It is difficult to gauge the competitiveness of the downstream retail
operations. Our research showed that most of the retail outlets are selling
the products at the maximum recommended retail prices. Further, there is
no discernible product differentiation to lull customers from one outlet to
another.

Recent developments in the sector
The petroleum sector in Tanzania has been going through restructuring
and streamlining spearheaded by the industry regulator, EWURA. Some
of the recent changes within the industry include the following:
BPS introduction
EWURA carried out a study in 2008 which revealed that there
were problems in the petroleum supply chain including
fragmentation of the imports resulting to higher costs and
congestion at the unloading facilities adding to demurrage cost.
Other includes lack of information in the downstream subsector,
adulteration of the products and inefficiencies. As a result of this,
A consultant was engaged to advise EWURA on the BPS
implementation after which BPS Rules, Manuals and Regulations
were prepared.
The Minister for Energy and Minerals with authority to issue
regulation for BPS, issued an order to directing all OMCs to import
all their products through the Bulk Procurement System (BPS).
BPS eventually started working in January 2012 and there is an
appreciation among players that all stakeholders and the
economy at large are benefiting from the system.
The following are some of the areas where the benefits of the
BPS can clearly be seem:
Decrease in the premium and freight costs due to the ability to
benefit from economies of scale by importing larger parcels.
Reduction in the demurrage charges because of importing in
a few large parcels rather than many small parcels and better
coordination of the import jetties.

More reliable and accurate data capture for the regulator for
the purpose of fixing the Cap Price.
Improved quality of petroleum products supplied in the
country (as the winner of the tender is given specific
conditions including the quality of the product to be imported).
Improved revenue collected from fuel imports and pump
prices as taxes are now assessed at one point (as opposed to
the previous system where there would be many smaller
carriers for each of the OMCs).
Single Point Mooring (SPM)
Tanzania Ports Authority (TPA) launched a new Single Point
Mooring (SPM) in 2012. The first tanker offloaded diesel through
the SPM in the south-eastern portion of the Port of Dar es Salaam
around November 2012. This makes it possible for delivery of
large quantities of petroleum products to the bulk storage
facilities.

3.2 The Need for Regulation
Tanzania imports all its requirements of liquid petroleum products, mainly
from the refineries in the Arabian Gulf and the west coast of India. Petrol,
Diesel 500ppm, and Kerosene are imported through the Bulk Procurement
System.
The study to introduce the BPS started in 2008 and the first cargo through
BPS arrived in the country in January 2012.
The domestic wholesale and pump prices of petroleum products in
Tanzania are therefore highly influenced by the international prices of
refined products and the rate of exchanging Tanzanian shillings into US
Dollars. The international prices are governed by the rules of supply and
demand and other international developments. The frequency and
magnitude of the changes of the international prices are outside the
control of any oil importing nation.
In the past the OMCs effected upward adjustment of local wholesale and
pump prices immediately there was news that international prices had
risen even though no imports had been landed in Tanzania at the higher
prices. When international prices fell the OMCs would affect local price
reductions over a long period. In summary the petroleum dealers would
be quick to adjust prices upwards following increase in input costs, say
prices of imported refined product and slow to response reduction in
prices when the upward trend reverses.
This inconsistency in the procedure of making price adjustment created
consumer anxiety and concerns that the OMCs were undertaking unfair
practices to make high profits. Regulating margins will therefore ensure
that the oil marketers earn capped returns that shield consumers from sky
rocketing and downward price stickiness of pump prices.
3.3 The Current Pricing Formula
3.3.1 Overview of petroleum pricing formula
Under Special Gazette Supplement No.1 to the Gazette of the United
Republic of Tanzania No. 2 Vol. 90 dated 9th January 2009, EWURA
issued Gazette Notice No. 5: The Energy and Water Utilities Regulatory
Authority (Petroleum Products Price Setting) Rules, 2009. These Rules
were issued in accordance with Sections 40(1) (c), (d) and (j) of the
EWURA Act. Rule 4(1) that gives EWURA powers to intervene for
purposes of regulating wholesale price or pump price while Rule 5(1)
mandates the authority to determine appropriate wholesale price and
pump price in accordance with a Pricing Formula Specified in the
Schedule.
Under the Rules, EWURA issued a Schedule of the Petroleum Products
Pricing Formula for Petrol, Diesel 500ppm and Kerosene. Arising out of
consultations among stakeholders during the implementation period, the
original formula was revised per Government Notice No. 454 of 23rd
December 2011.
The workings of the current formula, as applied to determine the prices
effective July 2013 are described below:

Table 6: Cap Prices July 2013
Cost Item UNIT Petrol Diesel Kerosene Average
COST CIF DAR 1,178.27 1,211.41 1,229.04 1,206.24
LOCAL COSTS PAYABLES TO OTHER
AUTHORITIES

Wharfage Tshs/Ltr 14.12 15.99 15.09 15.07
Customs Processing Fees Tshs/Ltr 4.80 4.80 4.80 4.80
Weights & Measures Fee Tshs/Ltr 1.00 1.00 1.00 1.00
TBS Fees Tshs/Ltr 1.24 1.24 1.24 1.24
TIPPER Fee Tshs/Ltr 0.20 0.20 0.20 0.20
Actual Demurage Cost Tshs/Ltr 3.43 3.89 3.67 3.66
Actual Ocean Losses Tshs/Ltr
Surveyors Cost Tshs/Ltr 0.07 0.03 0.12 0.07
Financing Cost Tshs/Ltr 11.78 12.11 12.29 12.06
Regulatory Levy Tshs/Ltr 6.10 6.80 3.50 5.47
Overporation Losses Tshs/Ltr 5.89 3.63 3.69 4.40
Petroleum Marking Cost Tshs/Ltr 6.33 6.33 6.33 6.33
TOTAL LOCAL COST 54.96 56.02 51.93 54.30
GOVERNMENT TAXES
Fuel Levy Tshs/Ltr 263.00 263.00 263.00
Excise Duty Tshs/Ltr 339.00 215.00 425.00 326.33
Petroleum Levy Tshs/Ltr 50.00 50.00 50.00 50.00
TOTAL GOVERNMENT TAXES Tshs/Ltr 652.00 528.00 475.00 551.67
Transion Costs Coverage to OMCs Tshs/Ltr 13.00 13.00 13.00 13.00
OMC Overheads and Margins Tshs/Ltr 111.00 111.00 111.00 111.00
WHOLESALE CAP Tshs/Ltr 2,009.23 1,919.43 1,879.97 1,936.21
Dealers Margin Tshs/Ltr 57.50 57.50 57.50 57.50
Transport Charges Tshs/Ltr 10.00 10.00 10.00 10.00
Transion Costs to Dealers Tshs/Ltr 6.50 6.50 6.50 6.50
PUMP Price CAP (DSM) Tshs/Ltr 2,083 1,993 1,954 2,010.21

The Pricing Formula is based on a cost-plus principal. The cost
parameters for importing the products to Tanzania are considered, then
the costs incurred in the local importation facilities and the different taxies
and levies by various government agencies are added. Finally allowances
for wholesale and retail margins are added to arrive at the cap prices in
Dar es Salaam. The published prices also include the pump prices for
140 towns spread all over the country.

The current input parameters for the price cap formula are as follows:
1. Free On Board (FOB) Price - the price at the loading port and is
the largest component in the price build up. The formula uses the
weighted average of the actual prices for the cargoes received in
the previous month for the different products and references as
specified in the BPS procedures.
For Premium Motor Spirit (PMS) the reference FOB is the Mean of
Platts quotation for Premium Unleaded FOB basis Italy; 5 days
around the Bill of Lading (as published in Platts European
Marketscan).
For Automotive Gas Oil (AGO) the reference is the Mean of Platts
quotation for Gasoil( 0.25%S) FOB Arab Gulf; 5 days around the
Bill of Lading ( as published in Platts European Marketscan).
For Aviation Turbine Fuel/Illuminating Kerosene the reference is
the Mean of Platts quotation for Kerosene FOB Arab Gulf, 5days
around the Bill of Lading (Published in Platts European
Marketscan).
2. For Freight, Insurance and Premium the formula uses the
actual as quoted by the winning bidder in the BPS.
3. The following local costs incurred during the importation
process are included were captured in the formula for the price
cap effective July 1, 2013 as actually charged by the various
agencies:
Wharfage: USD 10.00 per ton +18% VAT.
Customs Processing Fees: TShs 4.80 per litre.
Weights and Measures Fee: TShs 1.00 per litre.
TBS Charge Tzs1.24 per litre.
Regulatory Levy: Petrol TShs 6.10/l,
Diesel TShs 6.80/l and
Kerosene Tzs3.50/l.
4. The following local costs have determined been through a
tendering process for the procuring of these specialized
services:
Surveyors costs: Petrol USD 0.114 per M3,
Diesel USD 0.048 per M3 and
Kerosene USD 0.187 per M3.
Petroleum Marking Costs: USD 3.3 per M3 + VAT.
5. The following local financing and operational costs are also
included:
Financing Costs at 1.00% of CIF:
TIPER Fee at USD 0.15/MT+ 18% VAT:
Local evaporation Losses (MSP 0.5%.AGO/IK-0.30%).
6. After the above parameters, taxes, wholesale and dealer
margins and local transport costs are added to come up with
the cap prices. The wholesale margins are currently set up an
TShs 124 while the dealers margins is set at TShs 64 both
inclusive of the transition costs. These are discussed in section
on margins below. The transportation costs are benchmarked and
kilometre based. The transportation costs largely account for the
price differentials between at the various dealer outlets within the
country.
3.3.2 Application of the Price Formula
The principle purpose of the formula is to set the indicative maximum
wholesale and pump prices allowed within the country for Petrol,, Diesel
500ppm and kerosene. The prices of the other petroleum products in the
market, (Liquefied Petroleum Gas, Jet Fuel and Furnace Oil) are set by
the oil marketing companies.
Between 2009 and July 2011, the calculations were done at the beginning
and the middle of each month and the cap prices issued for the next two
weeks. However from August 2011, new price caps are set once a month
for the next 30 days from the day they become effective.
This is believed to be reasonable given that the overriding change in price
factors is due to importation costs for petroleum products and the FOB
prices that are influenced by international prices. Given that importation is
usually not done more than once in a month and can be argued that the
factors that influence prices significantly do not vary materially before the
next importation.
3.3.3 Current Margins
Both the oil marketing companies and the retail station dealers have
previously made presentations to EWURA the effect that the approved
gross margins are low and therefore not adequate for the recovery of
actual expenses incurred in their businesses and give a fair return on their
investments. To partly address these concerns, EWURA has approved
and converted the previous pricing margin spread as additional
Transitional Costs coverage as a temporary measure until a full study
of the margins is undertaken.
The current allowances for wholesalers overheads and margins are TShs
111.00 per litre plus a Transition Costs Coverage of TShs 13 per litre. The
same allowances for retail station dealers are TShs 57.50 per litre and
TShs 6.50 per litre respectively. Using the price caps set on July 1, 2013,
the total overheads and margins for wholesalers as percentages of cost
are 6.58% for Petrol, 6.9% for Diesel and 7.06% for Kerosene while
similar percentages for the retail station dealers are 3.17%, 3.32% and
3.38% for Petrol, Diesel and Kerosene respectively.
Sections 4 and 5 below review these margins in more details based on
actual OMCs and dealers costs.
Wholesale operations
4. Wholesale operations
4.1 Overview of the wholesale operations
4.1.1 Types of Licensed Wholesalers
There were 62 companies licensed to wholesale petroleum products in
Tanzania as at July 2013. This number is
rather large for a market the size of Tanzania.
However the market is dominated by about 13
companies that control about 85-90% of the
market share as shown opposite. The main
reason for such a large number is partly
explained by the low entry barrier for obtaining
the wholesale licences.
In addition there are additional companies who
are licensed to undertake wholesale business
only in specialized petroleum products such as
bitumen, bunkering, lubricants and Liquefied
Petroleum Gas.
The operations of the licensed Wholesale
companies in Tanzania are very varied. They
can be broadly classified in four groups:
i. OMCs who own only storage terminals in
Dar es Salaam and some storage depots
in upcountry towns.
ii. OMCs who own storage terminals in Dar
es Salaam only.
iii. OMCs who own storage facilities in Dar es Salaam, storage depots in
up county locations and also retail stations throughout the country.
iv. OMCs who have not invested in any storage terminals or depots
anywhere in the country and depend on hospitality arrangements with
the owners of such facilities.
Figure 5: Petroleum product demand
share July 2012-June 2013


4.1.2 Market Size and Share
The demand for petroleum products in Tanzania has been rising in the last
several years and is likely to continue growing as the overall country
economy grows. As shown in table 2, demand grew by 14% CAGR from
June 2011 to June 2013. In the short run, the demand is expected to
grow driven by economic activities like gas exploration in the southern part
of Tanzania and on going mining activities in the northern part of Tanzania
The market share of the different companies shows a lot of variations over
time although GAPCO, PUMA, ORYX, OILCOM, TOTAL and MOGAS
continue to dominate as shown in Table 7 below.
Table 7: Market Share Trends
Company % Market Shares
2011 2012 2013
GAPCO 16.2 12.1 8.6
BP/PUMA 11.9 12.2 12.7
ORYX 8.6 11.1 11.5
OILCOM 7.6 5.9 7.7
NATOIL 6.1 4.4 3.4
CAMEL 6 6.3 6.4
GULF
BULK
5.9 1.4 1.8
TOTAL 5.7 7.5 7.3
ACER 5.5 5 4.5
MOGAS 5.5 5.1 6.6
LAKE OIL 3.7 3.8 4.8
KOBIL 3.7 4.3 3.6
HASS 2.1 2.1 2.2
ENGEN 6.8 5.3 5.5
ALL
OTHERS
4.7 13.5 13.4
TOTALS 100 100 100
Source: EWURA

4.1.3 Wholesale Business Activities.
The licensed wholesalers obtain their requirements for PMS,, Diesel
500ppm, Jet Fuel and Kerosene through the Bulk Procurement System
(BPS). Importation of Furnace Oil and Liquefied Petroleum Gas are
arranged separately by the companies marketing those products.
The main wholesale operations involve selling bulk petroleum products
directly to:
i. Businesses for own use such as in mining activities, industries,
transportation, agriculture etc.
ii. Own company owned retail outlets.
iii. Independent retail station dealers.
iv. Independent resellers (also licensed as wholesalers) who in turn sell
to their customers. Such customers could be either per bullet (i), and
(iii) above.
v. To a lesser extent, other licensed wholesalers to meet unplanned
supply and demand distortions.
Due to the large number of licensed wholesalers and the ability to procure
supplies through the BPS there is heavy competition in the wholesale
business, as discussed earlier under structure of the sector, as the OMCs
compete for market share. There is evidence of heavy discounting
(selling below the capped maximum whole sale prices) in these activities
and also investments by the OMCs at customer sites to ensure long term
commercial relationships.
4.1.4 Licensing Criteria for Wholesalers
The current Minimum Wholesale Criteria used by EWURA for licensing of
wholesalers considers some technical and financial parameters in a very
broad way.
The technical parameters are:
Certificate of Registration;
Ownership of a storage depot or a hospitality agreement with another
licensee.
Adequate skilled personnel.
EIA Certificate for a new depot.
Business Plan;
Tax Identification Certificate.
Land ownership details and layout plans
List of facilities.
The Financial parameters are to prove financial capability by either:
i. A bank guarantee of not less than one billion and five hundred million
Tanzania Shillings, or;
ii. A bank statement showing a balance of not less than one billion and
five hundred million Tanzania Shillings, or:
iii. An equivocal letter of comfort from a financial institution or a bank that
confirms that the bank or financial institution shall extend a loan to the
applicant for the amount not less than one billion and five hundred
million Tanzania shillings, provided that the letter shall be signed by
the chief executive officer of the financial institution or bank.
The Consultants view is that the second and third financial parameters are
too weak and partly explain why there are many licensed wholesalers,
many of who do not have the financial capacity to meet their obligations,
particularly under the current BPS arrangements. A bank statement only
reflects a period and does not prove that the resources are applied for the
petroleum business. An equivocal letter from the financial institution or
bank is only an intention and not proof of financial strength.
4.2 Infrastructure investments
4.2.1 Regulation Requirements
The Tanzania Bureau of Standards, (TBS) has developed standards for
petroleum depots. However under Section 5 of the Petroleum Act,
Cap 392 EWURA has powers for the technical regulation of the petroleum
sector.
In this regard EWURA has prepared Rules governing wholesale
operations and Retail Operations, through which the Bulk Installations
(Technical Considerations) and Retail Stations (Technical Considerations)
construction has to be factored in building the respective facilities.
The Above Ground Bulk Installation Checklist is used for evaluating new
facilities before they are licensed and also for inspection of existing
licensees. The checklist follows the requirements in the standard and is a
useful tool for capturing data such as location, types and capacities of the
installations in addition to undertaking inspections to ensure compliance
with minimum Health Safety and Environmental (HSE) requirements.
These regulatory requirements were considered in evaluating standard
depot facility and standard retail outlet for evaluation of acceptable whole
sale and retail margins.
4.2.2 Comment on the existing storage facilities and their
adequacy vis a vis demand
Depot facilities available in the country
The current Tanzania International Petroleum Reserves Limited started as
Tanzanian and Italian Petroleum Refining Company (TIPER) in the 18
May 1963. The main objective of the Company was to carry on the
business of importers, exporters, stores, suppliers and distributors, buyers
and sellers, refiners of petroleum and petroleum products in all its
branches.

On 19 June, 1963, the Government of Tanganyika together with
ANIC6.P.A of 72, Viale Dell'arte, Rome, Italy; Hydrocarbons Holding
Company A.G of Zurich, Switzerland and Tanganyika and Italian
Petroleum Refinery Company Limited (TIPER) signed a 30-year
Participation Agreement to construct and run an oil refinery at Dar ss
Salaam. The Agreement provided that the Government shall nominate
the Chairman of the Board of Directors and ANIC Group shall nominate
the manager for the refinery.

The Tanzanian and Italian Petroleum Refining Co Ltd (TIPER) was a
refinery with a distillation capacity of 875k tonnes per annum (17,500 bpd)
but was generally operating at approximately 60% of rated capacity. In
the year 1991 the refinery went through rehabilitation and modernization
in order to increase its efficiency, safety standards and output. The
rehabilitation was intended to restore output to its nominal capacity.
In October 1999, AGIP Group (successor of ANIC Group) sold its shares
to Oryx Oil and Gas Ltd a subsidiary of Addax BV from Switzerland.

On the 20 October 2009 the Companys name was changed to Tanzania
International Petroleum Reserves Company Limited (TIPER) under
certificate number 3142. In 2000, TIPER refinery was changed to a
petroleum depot. To date TIPER's main business activity is to store
petroleum products.
In total, TIPER has 37 tanks that as of now have a storage capacity of
137,652 M3. This represents about 17% of the total storage capacity
available in Tanzania.
The other depot facilities, as discussed under section 3 above are spread
across the various OMCs with the key players as Total, MOGAS, GBP,
Oilcom, PUMA and GAPCO as the key players as shown in the diagram
opposite.
Depot distribution within the country
Most of these storage facilities (more than 80%) are located in
Dar es salaam. This is mainly due to the fact that Dar es salaam is the
largest commercial /business city in Tanzania and also the entry point for
Petroleum products consignments to the neighbouring landlocked
countries like Zambia, DRC and Rwanda.
In addition the largest facilities are within the larger towns, due to the
higher demand in the urban centres than the rural areas. However, there
has been an increase in the demand for petroleum following the rapid
increase in motorcycles (Boda Boda) and three wheelers (Bajaj) as means
of transportation in rural areas. However the overall demand is far from
adequate to persuade OMCs to put storage tanks in rural areas, but there
is certain a health safety case for EWURA to encourage OMCs to set up
more retail outlets to reduce the risky peddling of 5 litres, 2 Litres and 1
Litres containers.
The table below provides spread of the storage facilities across the
country.
Table 8: Distribution of the storage facilities in the country
Region Capacity M3 %
Dar es Salaam 791,316 87.75%
Kigoma 17,632 1.96%
Arusha
5,043 0.56%
Bukoba
890 0.10%
Moshi
7,846 0.87%
Musoma
755 0.08%
Mwanza
11,473 1.27%
Tanga
33,999 3.77%
Tabora
790 0.09%
Mtwara
4,800 0.53%
Isaka
7,500 0.83%
Zanzibar
2,261 0.25%
Shinyanga
17,504 1.94%
901,809 100.00%

Source: OMCs, TIPER and EWURA

Age profiling of the storage facilities
An analysis of the age profile of the storage capacity in the country shows
an average age of 19 years. Going with the assumption that the lifespan
of the storage facility is 15-25 years, on average the storage facilities in
Tanzania are fairly old.
However, in practice and with proper maintenance, storage facilities can
last much longer than 25 years.
The table below provides the average age for depots in Tanzania
Table 9:Average Age of storage facilities in the country
OMC
Number
of Depot
Average
Age Weighting
Weighted
Average age
Camel Oil 1 7 0.04 0.31
Engen 2 18 0.03 0.62
GAPCO 8 0.14 -
GBP 5 9 0.09 0.81
Hass Petroleum 1 3 0.03 0.09
Kobil Tanzania 1 0.04 -
Lake Oil 1 3 0.03 0.09
Mogas 1 0.05 -
Mount Meru 1 0.00 -
National Oil 1 18 0.03 0.60
Oilcom 6 9 0.10 0.92
Oryx Energies 4 0.03 -
Petrofuel - 0.00 -
Puma Energy 4 61 0.11 6.94
Total Tanzania 4 20 0.05 0.91
World Oil 1 3 0.04 0.13
TIPER 1 45 0.17 7.71
TOTAL 42 18 1.00 19.14
Source: OMCs and TIPER


Hospitality
Most storage facilities provide hospitality (store oil products) for other
OMCs operating within the country as well as the ones exporting to the
neighbouring countries. Discussions with the OMCs and research shows
that the rates for hospitality vary from USD 2.3 per M3 per month to USD
11 M3 as provided in the table below.
Table 10: Hospitality charge rates
Storage
Company Fees
Company 1
$ 2.34 - $ 7.5
Company 2
$ 5 - $ 11
Company 3
$ 6 -$ 8
Company 4
$ 5 - $ 8
Company 5
$ 5 - $ 10
Source: OMCs and TIPER
TIPER provides the most competitive rates for storage.
Using the 2012 Tanzania market demand i.e excluding the transit volumes
and the existing tankage capacity in the country the number of days the
tanks can cover the demand are as follows:

Table 11: Market Demand Vs Existing Tankage Capacity
Petrol Diesel Kerosene
Annual Demand (m3) 623,066 1,236,953 102,297
Tankage (m3) 171,517 461,411 64,334
Coverage (Days) 100 136 230
Source: EY Analysis
If it is assumed that two and half months tankage cover is adequate, then
it can be concluded that there is excess tankage in the country. Indeed,
using the existing storage capacity gives a product turnover of just over 4
times per annum.
This further suggests that the country currently has excess storage given
the level of demand. During the visits to the oil installations, there was
some evidence of both competitive hospitality charges and underutilization
of the depots. This is further evidence of the existence of excess tankage
capacity.
However further analysis would need to be undertaken to include the
required tankage to serve the transit market and also take into account the
future evolution of demand.
4.2.3 Infrastructure investment costs for depots
Investment in a storage facility (depot) varies depending on the location
(driven by the cost of land) and the time when the investment was done
(the most recent depot being more expensive due to increased cost of
construction).
The table below shows the total investment costs, analysed from the
financial information for the storage facilities for various companies is
provided in the table below. The names have been substituted for the
sensitivity of the information.
Table 12: Investment in storage facility
Capacity
Range (M3) OMC
Capacity
(M3) Total Investment
Investment per
M3 (TShs)
Investment
per M3
(USD)
Less than
30,000
Company H

130,131

68,723,348,069
571,260 365
Company K 153,231 98
Company A 962,779 616
Company I 368,363 236
Company C 563,845 361
Between
30,000 and
50,000
Company J
149,082 151,830,001,460
527,845 338
Company D 1,595,631 1,020
Company E 883,226 565
Company B 1,064,930 681
Above
50,000
Company L
352,602 168,753,018,211
220,135 141
Company M 891,566 570
Company F 74,433 48
Company G 668,000 427
Source: OMCs and EWURA
This shows that the investments costs range from just USD 48/m3 to
about USD 1020/m3. These numbers are perhaps not comparable as the
various facilities have been constructed at different times and therefore
have different age profiles. For example, low investment per M3 for one
of the OMC is mainly due to the fact that the facilities were constructed
more than 60 years ago at a substantially lower cost compared to newer
depots that are on average 7 years old.
In addition, the numbers have been influenced by the respective
accounting treatments in each of the OMCs financial books. For example,
some companies carry the investment costs at book values while others
have carried the same at revalued amounts. Using these as the typical
investment costs for new tanks may therefore be misleading.
The graph below shows unit cost per unit for various companies.
Figure 6: Investment per M3

From the figure above, Company F, Company K and Company L are
outliers given the age of their facilities, while Company D costs do seem
quite out of range and perhaps there are special circumstances that led to
the high per unit costs. Excluding these gives an adjusted industry
average of about TShs 670,000/m3 as investment costs.
To try and validate these numbers, construction and investment costs
have been compared with detailed costs from the most recent storage
facility. The costs of a recently completed storage facilities by one of the
OMCs came to about TShs 530,000/m3, which is lower than the sanitised
industry average as shown below.
Table 13: Investment Current Vs Average cost
Item Recently completed Industry Average
Land 2,000,000,000
Buildings and Structure 14,949,093,089 30,697,053,629
Pipeline and Others 2,000,000,000
Total Investment 18,949,093,089 30,697,053,629
Capacity 35,899 45,902
Investment per M3 527,845 668,748
Source: OMCs and EY Analysis
Higher investment per M3 for the industry compared to one for the OMCs
is mainly due to higher cost associated with new (additional) investment
by some of the OMCs.
Going forward, this analysis will use the Industry average investment per
storage facility for calculating investment in the storage facilities
Cost Recovery
Assuming an average remaining useful life of 15 years, cost amortization
per the capacity utilization can be calculated based on the throughput
volumes recorded by the various OMCs. Our calculations show that on
average investment cost recovery per litre ie depreciation and before
return would range between TShs 4.21 per litre and TShs 21.26/litre with
a weighted average of TShs 8.84/litre.
Table 14: Investment per Volume
Annual Volume range OMC
Throughput
Volume
(M3)
Total Investment
in TShs
Depreciation
TShs /Ltr
Less than 200,000
Company L
263,185 41,611,778,971
7.43
Company I 8.66
Company K 21.26
Between 200,000
and 230,000
Company B
878,863 114,922,015,192
13.36
Company H 4.21
Company E 9.95
Company A 7.5
Above 230,000
Company C
1,143,630 146,608,145,648
4.48
Company D 13.48
Company F 7.81
Average
8.84
Source: EY analysis
4.3 Working capital requirements
Under the law, each OMC is obligated to maintain at least 15 days of
stock as countrys emergence reserves. In essence OMCs are required to
finance and keep this stock so long as they are in business.
To estimate the required stock, the 2012 trading volumes has been used
and the recent costing prices, just before the margin calculations for the
whole sellers.
Except for this stock, most of the other trading activities are done on cash
basis: per local industry practice it is expected OMCs pay their products in
advance and in cash and also collect from the customers upon product
evacuation. Therefore no debtors or creditors have been built in the
working capital requirements.
4.4 Operating costs for a depot
There are large variations in the types of depots in Tanzania. It is
therefore not easy to describe a typical or standard depot. The existing
depots differ in age, size, standards of construction, facilities provided and
the technical and operating conditions.
The costs of operating depots are therefore specific to each facility.
However the cost incurred per unit throughput volume can be calculated
and comparisons made for different depots.
Typical depot costs will include the following:
Employee Salaries and Benefits
Utilities-electricity, water and communication
Operational losses
Maintenance and Repairs
Insurances and
Licenses
Comparing actual depot costs, as submitted by the oil companies give a
unit depot cost ranging from TShs 4,500/m3 to TShs 29,000/m3
depending on the depot throughput.
The result of applying the depot volumes gives a weighted average cost of
TShs 14.266 per litre. At an average exchange rate of TShs 1,564 per
dollar, the unit cost is equivalent to USD 9.1/m3.
4.5 Financing costs and required return
The average commercial lending rates in Tanzania are between 15% and
20% for reputable corporate clients. Therefore a financing rate at 17.5%
has been assumed for the industry. It has been assumed that the working
capital is debt financed and therefore applied this rate for the working
capital requirement as calculated above.
In addition, investors in Tanzania usually seek returns of between 15%
and 25% on the capital investment In this particular case 18% return on
investments has been assumed.
4.6 Summary margin calculations of wholesale
operations
The following factors have therefore been considered as discussed under,
the overall approach under section 2, in working out the appropriate
margins for both the wholesalers and the dealers.
Reimbursement of reasonable operating costs
Asset replacement costs
Return on investment that considered reasonable compensation for
o working capital employed and
o infrastructure costs incurred in constructing the deport
Therefore the summary margin calculations has been undertaken to be
the compensation for the four subsets as follows:
i. Operating costs
ii. Asset replacement costs
iii. Working capital
iv. Return on Investment costs
These costs are based on the actual investment and operating costs
based on the information from the questionnaires and the financial
information received from the OMCs audited financial statements to
assess the reasonableness of the data provided.
i. Depot Operating costs
Actual operating costs per unit (M3) from the OMCs (2012) were used in
to calculate the operating cost per M3. The OMCs were requested to
include operating cost relating directly to the depot including the following:
Utilities
Maintenance and repairs
Employees costs and benefits
Licences
Leases
Depot operating losses
Other depot specific expenses
Cost per unit M3 for the OMC varies from Tshs 4,500 per M3 to Tshs
56,000 as shown on the graph below;
Figure 7: Operating cost per M3

As shown on the figure 7 above, Company G and H have very low
operating cost per unit. Additional validation needs to be carried out to
understand why these figures are low. Both companies has been excluded
from the analysis below as they are considered to be outliers
The following table shows operating cost summarised from the OMCs
returns.
Table 15: Depot operating cost per unit
Volume Range OMC
Annual
Volume Total cost Cost per M3 Cost per Ltr
Less than 200,000
Company L

507,703

18,088,372,724
23,141 23.14
Company I 56,000 56.00
Company M 37,000 37.00
Company N 28,016 28.02
Between 200,000 and
230,000
Company E

443,199

11,049,723,827
29,080 29.08
Company F 20,838 20.84
Above 230,000
Company C

514,714

13,454,445,544
16,336 16.34
Company D 34,092 34.09
Source: OMC and EY Analysis
The resulting adjusted operating cost per unit is TShs 29,061/m3 (USD
18.6/m3).
In addition, our review of the submitted audited financial statements from
OMCs indicate that on average OMCs are incurring TShs 25 per litre on
other administrative overheads related to the bulk oil operations (other
than expenses that are directly related to the depots).

There is varying opinion as to how long a depot infrastructure should last
and most of the OMCs have applied different amortisation rates ranging
from 10 years to 25 years A conservative 15 years has been taken as a
replacement cycle for a depot. Using a standardised average investment
cost and 2012 throughput volume results into a replacement cost of TShs
8.34 per litter.
iii. Working Capital
OMCs have been assumed to be able to maintain at least 15 days of
stock per the regulatory requirements. We have assumed an extra 5 days
buffer for smooth operations. No additional form of capital has been
assume pretty all the other costs and revenues would be on cash basis. It
has been assumed that the working capital is financed through debt at
local borrowing rates.
The following formula has been used to estimate the annualised costs
related to the working capital:
Stock holding days X cost per unit X interest rate
(365-52)*
*unlike retail outlets, it has been assumed that depots operate on a 6 day
week
Whereas the cost per unit is taken as the all-in cost but before the
margin calculations as published in the latest pricing guidelines and the
interest rates is the average bank lending rates for a reputable corporate
in Tanzania. This cost was TShs 1886 (per July Prices) per litre and
average lending rates are about 15%-20%, with most reputable corporate
getting loans at about 17.5%
Applying the above formula results in a working capital cost of
TShs 21.1 per litre.
iv. Return on investment
As explained earlier, it has been assumed that investors in Tanzania will
seek returns of between 15% - 25% for their investments. Given that
average lending rates are at about 15-20% it is expected the majority of
investors will have a slightly higher cost of equity to debt. Therefore an
average return of 18% has been assumed. Applying the required return
on the typical infrastructure investment, and using the 2012 throughput
results in a required return of TShs 23 per litre.
v. Summary of the margin calculations
The table below summarises the margin calculations for each of the whole
sale components as explained above.
Table 16: Summary cost per unit
Depot direct operating cost 29
Other company overheads 26
Depreciation 8
Financing cost 21
Return on investment 23
Total 107
Source: EY Analysis
4.7 Comparison with the current margins
The above calculations compare well with the current margins of
TShs 124 per litre that includes the transition costs. This also consistent
with discussions with OMCs that perhaps the margins for the whole sale
are adequate, save for the other additional taxes such as municipal
turnover taxes and levies on money transfers that are squeezing in the
margins and that have not been factored in the above calculations nor in
the pricing calculations. The calculations also seem to indicate the
reasons some OMCs are able to offer discounts on the maximum
recommended prices although there were submissions that they are
squeezing dealer margins.
Note that these calculations based on submissions from OMCs and
although some validation has been done to countercheck the data, in
absence of a complete audit, it is difficult to give representation on
whether the data presented is consistent. In addition, a uniform rate of
return of 18% has been assumed it is possible that some OMCs would
require a higher return than the amount assumed in these calculations.
Retailers operations
5. Retailers operations
5.1 Overview of the retailers operations
5.1.1 Types of petroleum dealerships
The retail operations in Tanzania entail the on-selling of petroleum
products from a retail outlet or a service station to the final customer.
There are three different types of petrol station ownership and operation in
the country, namely;
i. Company Owned/Company Operated (COCO): In this
arrangement the licensed oil company has constructed the station
and also manages the business of running the station including
meeting all the operating cost.
ii. Company Owned/Dealer Operated (CODO). This is the
situation where the oil company has constructed the station but
has leased the facility to an independent business entity/person.
The oil company charges the dealer a rental fee, meets the
maintenance and repair costs and ensures that the dealer buys all
the petroleum requirements from the company.
iii. Dealer Owned/Dealer Operated (DODO). This refers to petrol
stations build by independent business persons who also operate
them. The investors are able to procure their petroleum products
from the suppliers of their choice.
.
5.1.2 Types of retail stations.
As of July 2013, there were about 1074 retail outlets in Tanzania of
different sizes and offering different services. They range from simple
filling outlets with one or a few pumps to modern service stations which
include service bays, mini shops and fast food facilities.
5.2 Infrastructure investments
5.2.1 Regulation Requirements
The Tanzania Bureau of Standards, (TBS) has developed standards for
constructing a petrol station while EWURA has prepared Rules governing
Retail Operations as well as developed a Petroleum Products Retail
License Evaluation Checklist that is used to evaluate new stations for
licensing and for periodic inspections.
The checklist facilitates capturing of site specific data in addition to
assessing whether the site meets the technical and Health Safety and
Environmental (HSE) requirements per the Standard
The industry players acknowledge that there are many stations in the
country that do not meet the minimum requirements. This is particularly
so in many upcountry towns and commercial centres. EWURA has issued
closure notices to retailers who will not adhere to the stipulated licensing
regulations within a set period. However rural stations would still struggle
to meet the set deadline as the demand for products within some areas
may not justify the additional investments. Some retailers may move to
close the stations to the detriment of the rural population. EWURA may
therefore need to work out mechanisms of ensuring that these stations
adhere to the regulations over some duration.
However, a number of the big retailers are of the view that allowing these
outlets to continue operating is encouraging unfair competition.
5.2.2 Comment on the existing retail outlets
Distribution
As of December 2012, Tanzania Mainland had 1074 retail outlets. Most of
these were concentrated in the large urban centres of Dar es salaam,
Arusha, Mwanza, Kilimanjaro and Morogoro, with rural areas of Rukwa,
Singida and Ruvuma with fewer stations.
Figure 8 : Distribution within Tanzania Mainland

The concentration in urban areas is purely demand and profit driven. The
demand in the rural areas, although growing as discussed earlier, is way
below to support, say a 200,000 litres per month petro station. It is also
for the same reason that these operate in below standard infrastructure
facilities.
The ownership structure has slowly evolved following the sector
liberalization with the oil majors choosing to exit the retail business and
leaving the retail scene to more aggressive independent dealers who have
thinner cost structures. It is therefore not surprising that more than 67.3%
of all retail outlets are DODO. The independent dealers have more
latitude for operating their stations and in sourcing the products. For this
reason, the larger OMCs concentrate on bulk operations and inherently
supply these independents with the needed petroleum products. Indeed
OMCs like World Oil do not have retail outlets and are happy to service
the independent resellers.
I was indicated earlier that there is no significant product differentiation,
except additional installations such as malls, shops and eatery joints that
may attract customers to a particular petrol station. For this reason most
of the stations were selling their products at the recommended maximum
prices. Most dealers for DODO and CODO indicated that the retail
margins allowed by the OMCs are below the operating costs

Data collection from Retail Station.
As discussed under the approach section, given the duration of the
assignment, it was not possible to obtain investment and cost data for all
the retail outlets. 100 petrol stations were sampled out of the 1074 petrol
stations.
The sampled petrol stations are from all the regions in Tanzania mainland
and represented the existing ownership structures operating models in
the country (i.e COCO, CODO, DODO). A systematic approach was used
in sampling to make sure that all regions are presented in the sample.
The table below provides the regional distribution of the sampled petrol
stations.
Figure 9: Distribution of Sampled Petrol Stations

Out of the 1074 registered dealers in the country 27% are located in rural
areas to reflect the demand characteristics discussed above. Form these
retail outlets, data on the cost of constructing and running the outlets was
sought. This was done through a questionnaire and supplemented
through discussions with the oil markers and dealers and site visits.
5.2.3 Infrastructure costs for retail outlets
Investment for a retail outlet vary from one location to another (mainly
driven by the cost of land) and from one owner to another (driven by
company specific standards, etc). Dealer owned retail stations tend to
cost less compared to OMC owned stations as the later has to comply
with company safety standards in addition to the minimum EWURA
standards.
Interviews with the senior OMC executives revealed that a standard petrol
station will cost between USD500,000 and USD 1,500,000 depending on
the location (which will determine the cost of land) and investment in other
facilities (car service bay, car wash, coffee shop, etc).
Indeed, the total investment for the sampled petrol stations ranged from
TShs 3.2 millions (USD 2,000) to TShs 2.5 billions (USD 1.500,000).. The
lower end bracket represented the cheaper rural area stations and doubt
whether it meets the minimum standards.
The variance among investment in the petrol stations depends on a
number of factors including the following:
The year the investment was made Old petrol stations will have a
lower investment figure compared to the current ones
Location Stations located in cities and major towns will have a
higher investment figure (mainly driven cost of land)
Ownership OMC owned companies tend to have higher investment
cost compared to Dealers Owned companies as Company Owned
Companies will have to adhere to the company specific standards in
addition to the EWURA minimum standards
Understandably, the largest chunk of investment for petrol stations within
the urban centres more so in Dar es salaam and other major towns goes
into the cost of land. The graph below provides the cost composition for 4
petrol station with the highest investment among the sampled stations.
Figure 10:Cost composition Stations with the highest investment

Source: EY Analysis
Excluding the very cheap stations for the simple reason that they appear
not have all the necessary infrastructure to meet the safety standards and
excluding the costs of the more expensive station that have included costs
of other facilities such as shops and eateries that strictly could be
excluded from a standard petrol station, the average costs range for
building a station was TShs 500millon (USD 0.35 million) TShs 1.500
billion (USD 1million).
The average investment in the petrol station from the sampled petrol
stations was then compared with the actual costs of the recently build
petrol station within the coast region of Tanzania. The table below
provides the comparison between average petrol station (from the
sample) and actual cost from the recently build petrol station expected to
handle about 200,000 - 300,000 litres per month.
Table 17: Investment in the Petrol Station

Average Investment
(Sampled stations)
Actual Investment (Recent
Petrol Station)
Land 183,416,667 146,000,000
Office Value 162,429,051 163,715,560
Dispensing pumps 70,444,147 52,500,000
Underground Tanks 41,188,925 40,614,000
Piece of compressor 2,428,190 15,181,880
Shade Canopy of
P/Station
66,149,753 90,597,946
Generators 9,671,647 24,435,440
Others (unspecified) 164,385,232 345,828,497
Total Investment 700,113,612 878,873,323
Source: Dealers, OMC and EY analysis
Other than land and other unspecified investment costs, the costs per
category are fairly comparable.
Unspecified costs includes upgrading the petrol station to meet EWURA
Standards and others
The table below provides visual representation of showing investment per
M3 for the two options.
Figure 11: Investment per unit

Source: EY Analysis

5.3 Working capital requirements
It is assumed that a petrol station would need about 3 days stock and be
able to receive two deliveries a week. Like for the wholesale operations, it
has been assumed that dealers will not advance credit to their customers
and that they will purchase their stock in cash from the OMCs. All other
suppliers are considered insignificant and have when compared to the
cost of fuel and have therefore been ignored in working out the working
capital requirements.
5.4 Operating costs for a standard retail outlet
Irrespective of the ownership and operating mode of a service station,
most of their expenses are similar in nature but their magnitudes vary with
the facilities on offer. Also the parties responsible for the different costs
are different. In the CODO type of stations, the oil companies undertake
maintenance and repairs to ensure brand protection even if an
independent party is running the business.
However the unit costs are heavily dependent on the volume throughputs.
The main expenses items for petrol stations are:
Rents and Dealership fees
Maintenance and Repairs
Salaries and Benefits
Electricity and Water
Station Operating losses
Interest expenses
Bank Charges
Security
Stationery and other supplies.
Interviews with the Dealers revealed that in an ideal situation for a
200,000-300,000 per month station throughput, there will be 11
employees dedicated to the retail operations excluding service bay, car
wash and other services not related to fuel handling - as follows:
Manager- 1
Supervisors 2
Pump operators 7
Cleaner 1
In most cases, security services is outsourced to security firm, but needs
to be factored, together with the utility costs, water and electricity, when
considering the operating costs for a retail outlet.
The annual operating costs for a petrol station vary from one petrol station
to another. The main drivers of the costs are the size (volume handled)
and other facilities (service bay, shop and car wash)
Total operating costs for the all the sampled petrol stations ranged from
TShs 6.6 million to TShs 444.8 million.
From our analysis the average annual costs for a standard station ranged
from TShs 39.9 per litre to TShs 66 per litre, the latter being the running
costs for the recently constructed petrol station. Note that the actual
volumes of the latter have not yet picked due to the fact that it is new. It is
anticipated that once the volumes picks up, the costs would be far lower.
Indeed applying an adjusted volume shows the operational costs to range
between TShs 30-36 per litre.
The table below provides annual operating cost for the average petrol
station (250,000 litres per month) and the new petrol station (110,000
litres per month):
Table 18: Petrol operating cost

Sample Recent Station
Currency: Tshs000
Average
Operating
Cost
Average
Operating
Cost per ltr
Recent
Station
Average
Operating
Cost per
M3
Rent and Dealership fees 1,430,535
0
- -
Maintenance and repairs 10,490,565
4
10,520,160 8
Salaries and benefits 27,357,302
9
13,525,200 10
Electricity and water 4,534,819
2
6,621,600 5
Stations Operations Losses 14,279,913
5
19,872,008 15
Interest expenses 6,334,007
2
- -
Bank charges 2,596,521
1
3,348,000 2
Licenses & Permits 3,475,500
1
2,400,000 2
Security 3,906,667
1
10,800,000 8
Stationary and suppliers 6,068,476
2
12,600,000 9
All other Expenses 37,734,757
13
8,160,614 6
Total Operating cost 118,209,061 40 87,847,582 66
Source: EY Analysis

5.5 Financing costs and required return
As discussed earlier, the average commercial lending rates in Tanzania
are between 15% and 20% for reputable corporate clients and have
assumed a financing rate at 17.5% for the industry. The analysis also
assumes that the working capital is debt financed and therefore applied
this rate for the working capital requirement as calculated above.
The same return requirements of between 15% and 25% has been used
on the capital investment.

5.6 Margin calculations of retail operations
The same approach as that of calculating the margins for the wholesale
operations has been assumed and as discussed under section 2 of this
report. The following has been considered in working out the appropriate
margins for both the wholesalers and the dealers.
Reimbursement of reasonable operating costs
Asset replacement costs
Return on investment that considered reasonable compensation for
o working capital employed and
o infrastructure costs incurred in constructing the deport
The summary calculations are therefore laid in similar manner like for the
wholesalers in the four subsets as follows:
ii. Operating costs
iii. Asset replacement costs
iv. Working capital and
v. Return on Investment costs
These costs are based on the actual investment and operating costs
based on the information from the questionnaires and the financial
information received from the OMCs audited financial statements to
assess the reasonableness of the data provided.
i. Retail Outlet Operating costs
The retail costs composition above has been discussed and concluded
that the average operating costs of a standard petro station appears to be
in range of TShs 30-40 with an adjusted midpoint of TShs 36 per litre.
Just like depot, different companies have used different amortisation rates
ranging from 10 years to 25 years. There is however more consensus
that the station installations, like pumps and canopies would on average
last between 5- 15. Factoring the other lifecycle of the other installations,
a 15 year life cycle has been assumed. This gives standardised average
investment cost using the throughput volume discussed above of TShs 16
per litter.
iii. Working Capital
Three day stock requirement has been discussed for the retail outlets
assuming that the retailers would be able to receive stock deliveries at
least twice a week. A similar formula used for the wholesalers but
adjusted the operating days as retailers are expected to operate for 365
days in a year:
Stock holding days X cost per unit X interest rate
365
Whereas the cost per unit is taken as the all-in cost but before the
margin calculations for the retailers as published in the latest pricing
guidelines and the interest rates is the average bank lending rates for a
reputable corporate in Tanzania. Using an average cost of TShs 2009 per
litre and borrowing rate of 17.5% results in working capital cost of TShs 3
per litre
vi. Return on investment
As explained earlier, it has been assumed that investors in Tanzania will
seek returns of between 15% - 25% for their investments. Given that
average lending rates are at about 15-20% it is expected that the majority
of investors have a higher cost of equity to debt. Therefore an average
return of 18% has been assumed. Applying the return on the typical
infrastructure investment, and using the 2012 throughput results in a
required return of TShs 35 per litre.
vii. Summary of the margin calculations
The table below summarises the margin calculations for each of the retail
components as explained above.
Table 19 : Summary of the margin calculation

Cost Item TShs/ Ltr
Operating Cost per Ltr 36
Financing Costs per Ltr 3
Depreciation 16
Return on Investment 35
Total margin 90

5.7 Comparison with the current margins
The above results into a higher per litre margin for retailers than the
maximum recommended of TShs 64 per litre. This is also consistent with
discussions with OMCs who indicated that the retail business segment
has been loss making. It is anticipated that the independent dealers have
remained in the business by reducing their costs to the bare minimum and
therefore reduced the quality of service to consumers
Note that this is based on submissions from OMCs and although some
validation have been done, to countercheck the data, in absence of a
complete audit, it is difficult to give opinions on whether the data
presented is consistent. That is one of the reasons that exclusion of
outliers from the calculations has been sought..
In addition, a uniform rate of return of 18% has been assumed it is
possible that some OMCs would require a higher return than the amount
assumed in these calculations.
Other key issues affecting OMCs margins
6. Other key issues affecting OMCs margins
There are a number of other issues that affect the wholesale and retailers
margin that list below and that require further review by EWURA.
6.1 Demurrage
The oil companies, while appreciating the way EWURA is now using
actual demurrage in the price calculation expressed concerns regarding
the unrecovered demurrages since the BPS was introduced.
There were also suggestions that factors causing demurrage should be
properly identified in each case so that some portions of demurrage are
allocated to the specific company causing it rather than sharing all of it
among the companies. This may also result is some reductions in the cap
prices but will require fair enforcement of the rules and procedures.
6.2 Evaporation and pilferage
There have been some unusually large product losses in the import
receiving facilities.
Data from TIPER indicate that out of 683,896 m3 of AGO ship figure from
January this year, there was a loss of 1,220 m3 or 0.18% through the
SBM system. This is a high loss for such a short distance and for a newly
commissioned facility. In addition, this is not captured in the formula.
EWURA needs to take steps to arrest or appropriately attribute the
unusual losses to the relevant party.
6.3 Infrastructure control
TIPER
TIPER charges a theoretical loss for products received in their facilities.
Therefore any difference between the theoretical loss and actual loss
could accumulate or deplete their stocks.
It would be desirable if TIPER were to charge based on the actual losses
subject to a maximum allowance with a time period for reconciliation. This
will eliminate unaccountable stock accumulation and encourage efficient
operations.
SBM/TPA Manifold.
Many oil companies expressed concern regarding the custody of the line
contents between the ship manifolds and the TPA/TIPER manifolds.
There are concerns that given the inadequate custody, it is possible that
these lines are not always packed with dead stock or products which
would result in the unusual losses experienced between the ship figures
and the receiving depots.
6.4 Transit products and localising export products
Transit products are charged a lower wharfage of USD 3.00/MT compared
to USD 10/MT for local products. However TRA regulations require that
after 30 days, any transit product in the Tanzania should be localised and
appropriate taxes paid. Localisation has also occurred in other
circumstances where the country products are depleted because of
unforeseen problems.
There appears to be incomplete coordination between TRA and TPA to
ensure that the additional wharfage is paid for localised stocks. Because
of the lower wharfage, the localised products are therefore cheaper than
other products which lead to situations of unfair competition.
It is suggested that the additional wharfage be collected at the point of
duty and tax payments, preferably by TRA.
6.5 Taxes and levies
There are varied taxes paid for the petroleum products and that are
collected at different times by either TRA or the respective local
governments.
Taxes and levied payable to the TRA
a) Excise duty

The Excise (Management and Tariff) Act, 2006 imposes excise duty on
petroleum products as outlined in the table below:

Table 20; Excise duty for Petroleum Products
Type of fuel Duty in TSHS per litre
Petroleum TSHS 339
Diesel TSHS 215
Kerosene TSHS 425

b) VAT

Most of the petroleum products are exempted from VAT. This exemption
is provided for under the Second Schedule to the VAT Act 1997.
Petroleum products covered under the exemption are petrol (MSP and
MSR), diesel (GO), kerosene (IK), heavy furnace oil (HFO), industrial
diesel oil (IDO) and AV gas. Others includes aviation spirit and aviation
fuel (Jet-A1) and bitumen.
On this basis no VAT is charged on most of fuel products in Tanzania.
Note that all other products that are not covered under the exemption list
are subject to VAT.
c) Road and Fuel Tolls levy

The Road and Fuel Toll Act, 1986 (as amended) imposes road and fuel toll
levy. This levy is payable upon purchase locally or on importation of fuel
and effective from 1 July 2013 the tax rate is TSHS 263 per litre; this is in
accordance with the Finance Act 2013.
Levies payable to the local government

a) City Service Levy

Public Finance Act imposes service levies on business operation in certain
municipalities or districts. This levy is generally chargeable on
turnover/revenue generated in the respective municipal or district
exclusive of excise duty and VAT.
Note that in the downstream sector, city service levy is charged based
on pre-agreed rates that may differ between municipals or districts.

The current rate is 0.3% on turnover payable quarterly.

6.6 Other OMCs concerns-
Below are other concerns raised by the OMCs that include the following:
The 2013 Finance Bill introduces excise duty on money transfer of
0.15% on the amount of wire transfers. Most of the OMCs business
transactions are done through money transfers and effectively has
reduced the company margins. Although the tax targets all
businesses, the unregulated markets would simply pass this cost
through to the customers. However, being regulated, the petroleum
players do not have this latitude. There is therefore some merit in
EWURA exploring the issue further. Ideally additional taxes, except
corporate taxes should be incorporated in the pricing model.
The petroleum imports are paid by foreign currency. In the past
demand by for foreign currency by the importing OMCs used to cause
a shift in exchange rates. Through intervention by EWURA the OMCs
were allowed to apply for foreign currency allocations, based on their
import quotas, to the Bank of Tanzania, that give better exchange
rates than the open market and in a bid to reduce the overall cost of
landed products. However OMCs complained that they do not receive
adequate allocations and end up sourcing substantial portions, at
higher rates, from the open market. Whereas this is not a problem to
the OMCs per se EWURA uses the BOT rate while calculating the
landed cost and theoretically results into lower than actual landed
costs. From our observations, EWURA needs to review the
mechanisms of OMCs receiving the foreign currency allocations.
Using the BOT figures, it is possible to reconcile the OMC allocations
versus the CIF cost to avoid any potential system abuse.
Margin should differentiate those dealing with deports and wholesale
business with those whos mainly business is hospitality in terms of
operating costs.
Definition of the OMC needs to be reviewed to prevent briefcase
companies undercutting in the market. Factors to be considered
should include storage capacity, minimum turnover etc
Concern over the product quality brought in, there has been a case of
off spec product
Wholesaler margin should consider tender for each product i.e. jet oil,
transit product BPS on transit etc
PIC role should be streamlined
Given the same margin across the country is not proper since
operating costs in marginal or rural area is cheaper.
Concern whether other players in the market are paying taxes or are
adhering to safety standards
Dealer margin is not enough, some are selling at wholesalers price to
retailers and some of those bring in their product illegally e.g. through
ports that are not official for instance Tanga port.
Quality of service station: Provision of time to implement the new
requirements check all station for adherence to minimum
requirements.
Losses: There are loss between oil at ship and what is received at
KOJ manifold and another loss between jetty head and depot.

Summary findings and next steps
7. Summary findings and next steps
7.1 Margin recommendations
From the analysis above, the draft conclusions indicate that the wholesale
margins are perhaps adequate at the current levels. The estimates shows
TShs 107 per litre against the recommended margin of TShs 124 per litre
(including transition costs). This is consistent with the finding that most of
the OMCs were discounting their products to maintain market share. The
current margins should therefore be retained.
It should be noted that it is difficult to generalise the margin calculations
across different operators and some operators may find it difficult to
operate within the set margins. However, as the regulator, EWURA
should drive sector efficiency.
For the retailers, our findings are that these do not entirely cover the
investment and operating costs and give a return to the sector investors.
Our calculations results into a figure of TShs 90 per litre compared to a
maximum margin of TShs 64 per litre. These finding are consistent to
discussions with dealers and OMCs that reflected a general feeling that
the retailers margins are not adequate for sustainable operations. It is
suspected that this may be the reason why most of stations do not meet
the minimum licensing standards and that independent dealers, who
operate most of the stations, have side businesses to make ends meet.
There is also merit in considering whether the retailers margin can be
further disaggregated. There were concerns from some dealers and
OMCs that the lump sum margin given for this component brings some
confusion as to which party should get what, more so for the CODO
outlets. This is because the dealers mistakenly belief that they are
entitled to the entire retailers margin, forgetting that the OMCs have made
the infrastructure investments and incur other costs. The margins can
therefore be split into:
Margins for wholesalers without retail investments
Margins for wholesalers with retail investments. They should not
recover any rent or service charges from the fuels business.
Margins for CODO dealers). This means there is clarity into what
OMCs and dealers are entitled
Margins for COCO Stations
However the counter argument is that EWURA may end up over-
regulating the sector and strictly has no business in interfering with the
private arrangements between the dealers and the OMCs. If the dealers
or OMCs are not happy, they should be free to discontinue with the
business relationships.
7.2 Frequency of review and need for indexation
Once the margins are establishes, reviews should only be carried once
the underlying factors have changed. The underlying factors can change
because of exogenous shocks to the pricing formula, in which case
EWURA can review the formula workings in its entirely and make the
necessary adjustments and because of general inflation adjustments.
A form of indexation that could be reviewed on a yearly basis could be
used to adjust the margins to ensure that they are generally in line with
Summary findings and next steps
the then current costs. This would reduce the inflation erosion of the
recommended margins. This automatic adjustment should be set to cover
the key cost components that affect the margins.
The significant components of margins include construction costs, utilities,
personnel and interest or finance charges. An annual inflation index
therefore needs to take into account both the relative proportions of these
components in the cost build up and their respective inflation indices.
Hence a water inflation index can be developed that is indexed to the
Construction Cost (CCI), Wage Index (WI) and the Consumer Price Index
(CPI).
7.3 Conclusions and way forward
This is draft report produced for EWURA for comments and for us to
engage in further discussions. EY expects therefore to engage EWURA
on the detailed findings and to further conduct any further data validation
that may be required to support the findings.
The consultants are aware that the OMCs and the stakeholders are
eagerly expecting the findings of this report. It may be necessary for
EWURA present sanitised findings to the key stakeholders. The
sanitatised findings need not include data easily identifiable to particular
OMCs.
Comments, both from EWURA and stakeholders will be factored to finalise
the report.

Appendices
8. Appendices
Appendix I: Storage Capacity
Dar es Salaam Kigoma

Arusha

Bukoba

Moshi

Musoma

Mwanza

Tanga

Tabora

Mtwara

Isaka

Zanzibar

Shinyanga
TIPER 137,652

CAMEL 36,000

ENGEN 25,000 2,500

GAPCO 95,247 6,571 2,098 890 - 755 4,708 -

GBP 35,288 2,940

3,726

26,799 790

HASS 24,000

KOBIL 31,200

LAKE OIL 24,961

MOGAS 40,000

MOUNT MERU

2,945

NATOIL 26,900

OILCOM 68,600 2,500

4,800 6,000

ORYX 23,264

635

1,371

1,500

PUMA 84,650

2,311

1,668

2,261

TOTAL 26,687 3,121

4,900

2,004
Appendices
WORLD
OIL 35,899

Others 75,968

7,200

15,500
Total 791,316 17,632 5,043 890

7,846 755 11,473

33,999 790 4,800 7,500 2,261 17,504

Appendices
Appendix II: Investment per Petrol Station
Name of the Petrol Station Investment in TShs
Filling Station 1 802,000,000
Filling Station 2 1,638,000,000
Appendices

Appendices

Appendix III: Petrol Station Profitability

Currency: Tshs000

Operating
cost per
Ltr

Financing
cost per
Ltr

Depreciation
per unit
Return on
investment
Total
Cost
Allowed
Margin
(by the
EWURA
Template)

Profit(Loss)
Filling Station 1
92 2 30 66 190 58 - (133)
Filling Station 2
70 2 32 71 176 58 - (118)
Filling Station 3 81 2 13 28 124 58 - (67)
Filling Station 4 59 2 12 27 101 58 - (43)
Filling Station 5
67 2 17 37 123 58 - (66)
Filling Station 6
98 2 28 64 192 58 - (135)
Filling Station 7
44 2 16 36 98 58 - (40)
Filling Station 8
188 2 32 73 295 58 - (238)
Filling Station 9
129 2 17 39 188 58 - (131)
Filling Station 10
54 2 16 37 110 58 - (52)
Filling Station 11
128 2 3 7 140 58 - (83)
Filling Station 12 94 2 4 9 111 58 - (53)
Filling Station 13 36 2 8 18 64 58 - (6)
Filling Station 14 168 2 71 159 400 58 - (342)
Filling Station 15 63 2 0 0 65 58 - (8)
Filling Station 16 4 2 4 8 18 58 40
Filling Station 17 14 2 11 25 53 58 5
Filling Station 18 4 2 8 17 31 58 27
Filling Station 19 4 2 12 27 44 58 13
Filling Station 20 4 2 8 18 32 58 26
Filling Station 21 34 2 0 1 38 58 19
Filling Station 22 59 2 13 30 104 58 - (47)
Filling Station 23 65 2 98 221 386 58 - (329)
Filling Station 24 112 2 75 169 358 58 - (301)
Filling Station 25 91 2 5 12 110 58 - (52)
Filling Station 27 103 2 15 34 155 58 - (97)
Filling Station 28 38 2 8 19 67 58 - (10)
Filling Station 29 58 2 6 14 80 58 - (23)
Filling Station 32 108 2 17 38 166 58 - (108)
Filling Station 33 63 2 2 5 72 58 - (14)
Filling Station 34 132 2 4 9 147 58 - (90)
Filling Station 35 163 2 38 86 289 58 - (232)
Filling Station 36 103 2 5 12 122 58 - (65)
Filling Station 37 165 2 15 34 217 58 - (159)
Filling Station 38 41 2 53 119 214 58 - (157)
Filling Station 39 49 2 81 181 313 58 - (256)
Filling Station 40 48 2 82 185 317 58 - (260)
Filling Station 41 46 2 74 167 289 58 - (232)
Filling Station 42 19 2 2 5 29 58 28
Filling Station 43 26 2 3 7 38 58 20
Filling Station 44 376 2 28 64 470 58 - (413)
Filling Station 45 47 2 5 11 65 58 - (7)
Filling Station 46 63 2 3 7 76 58 - (18)
Filling Station 48 36 2 7 16 62 58 - (4)
Appendices
Currency: Tshs000

Operating
cost per
Ltr

Financing
cost per
Ltr

Depreciation
per unit
Return on
investment
Total
Cost
Allowed
Margin
(by the
EWURA
Template)

Profit(Loss)
Filling Station 49 85 2 2 5 95 58 - (37)
Filling Station 50 12 2 2 3 20 58 38
Filling Station 51 9 2 6 14 32 58 25
Filling Station 52 22 2 3 7 35 58 23
Filling Station 53 33 2 4 10 50 58 8
Filling Station 54 17 2 2 5 27 58 31
Filling Station 55 29 2 5 12 48 58 9
Filling Station 56 6 2 9 20 38 58 20
Filling Station 58 28 2 2 5 38 58 20
Filling Station 59 106 2 15 33 156 58 - (99)
Filling Station 60 62 2 4 10 78 58 - (21)
Filling Station 61 240 2 20 45 308 58 - (250)

EY 62
EY
Assurance | Tax | Transaction | Advisory
About Ernst & Young
Ernst & Young is a global leader in assurance, tax, transaction and
advisory services. Worldwide, our 167,000 people are united by our
shared values and an unwavering commitment to quality. We make a
difference by helping our people, our clients and our wider communities
achieve their potential.
Ernst & Young refers to the global organization of member firms of
Ernst & Young Global Limited, each of which is a separate legal entity.
Ernst & Young Global Limited, a UK company limited by guarantee,
does not provide services to clients. For more information about our
organization, please visit www.ey.com.
2013 Ernst & Young.
All Rights Reserved.
www.ey.com

Proprietary and Confidential Information: This Proposal contains
information that Ernst & Young considers to be confidential, trade secret
and proprietary in nature. The Proposal is intended to be strictly
confidential and to be used only for the purposes of evaluating its contents
as a basis for a contract award. No part of this Proposal may be disclosed
to any third party or reproduced by any means without the prior written
consent of Ernst & Young.

EWURA Report - Final Revised Draft Report

Hochgeladen von

Dokumentinformationen

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

EWURA Report - Final Revised Draft Report

Hochgeladen von

Copyright:

Verfügbare Formate

Review of Petroleum Wholesalers &

Retailers Margins SANITISED Draft

Das könnte Ihnen auch gefallen