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Why does the oil industry attract much corruption?

07 Feb 2020 at 06:00hrs | Views
I HAVE a long indirect association with the oil business. My father joined the Atlantic Oil Company in the early years of the last century and rose through the ranks, eventually becoming a senior executive and then during the Second World War was appointed fuel controller for the Rhodesian market by the government of the day.

During those days, we imported all our fuel in refined form and it was distributed through local "filling stations". I can also remember distributing fuel in tin cans which were then used for a myriad of purposes once they were empty.

Then in the late 1950s, after the war had ended, the governments of Rhodesia and Mozambique decided to build a pipeline from the Port of Beira to a site just west of the town of Mutare where the Rhodesians had decided to build a small oil refinery with help from the Shah of Iran. The plant was specifically designed to process crude oil from Iran in the Gulf.

It was commissioned in 1965, just in time for the project to be overtaken by momentous political developments in the region. The pipeline and its supporting infrastructures cost nearly US$200 million — in those days, a considerable sum.

I have no idea what the refinery cost but it too was quite a structure. It only operated for a short period before the United Nations imposed mandatory, global sanctions on Rhodesia following its unilateral declaration of independence in November 1965. Britain sent a frigate to police the sanctions off Beira port and that was the end of the refinery project, it never operated again.

From that time onwards, until Independence in 1980, the country drew its fuel needs from South Africa who at the time was the main supplier to the region. This, in turn, gave the South Africans the political leverage that it subsequently used to secure change in this country. The creation, by the Rhodesians, with the support of South Africa, of the Renamo bandit movement in Mozambique further sealed the fate of the port of Beira and its oil pipeline.

In 1987, a group of us in business in Zimbabwe decided we had to get the port of Beira reopened to service the needs of the region. We formed a group of over 1 000 companies from Botswana, Zambia, Malawi and Zimbabwe and launched what we called the Beira Corridor Group or BCG Limited.

We raised considerable funds from our own resources and in addition secured US$350 million from other countries who wanted to help us with the project. The Zimbabwe National Army sent a brigade to protect our teams who were working on the road, rail and pipeline connections to Zimbabwe. Thirty-two Zimbabweans workers died during this operation in Renamo attacks.

In conjunction with the government of Zimbabwe we concluded that the oil refinery was old technology and too costly to replace. However, we thought we could convert the pipeline to carry refined product to Harare and in 1987 we negotiated a deal with Lonrho in London for them to extend the pipeline from Feruka refinery to Harare. This was completed by 1990 and partly in response to this initiative the Swedish government facilitated the construction of the largest underground storage facilities in the southern Africa region at Mabvuku in Harare.

At the time, and because fuel is a strategic material, the State had created a national oil trading company known as National Oil Company of Zimbabwe (Noczim). This had a monopoly over imports and was originally created to break sanctions. After Independence it became one of the most important sources of corruption in the country.

Those in power or positions of influence were drawn to Noczim like moths to the light but, unlike the moths, they were not burned but thrived, at the expense of the country.

This situation persisted right through until the formation of the government of national unity in February 2019 when the MDC took over the Energy Ministry and appointed the minister.

After allegation that he was taking money from Noczim, he was removed and replaced by a local accountant, Elton Mangoma. Mangoma immediately set about dismantling Noczim and in its place he created the National Oil Infrastructure Company (Noic) and a Trading company to operate a network of State-owned filing stations. He opened up the market to all suppliers and made access to the oil pipeline open to everyone.

The immediate result was to lower fuel costs to world market levels and eliminate corruption in the bulk procurement and distribution of fuel. At the retail end he simply made it compulsory for filling stations to display their prices on the forecourt. Fuel was in free supply and prices stable, only influenced by global market changes. There was no price control and quality standards were enforced by the ministry.

When the GNU collapsed and was replaced by a new government in 2013, the new minister immediately set about ensuring that the natural monopoly provided by a single, state owned pipeline system was used to secure corrupt gains. When global prices collapsed in 2014, the State arranged for an international company to take control of the pipeline in return for massive transfers of wealth from the system to the elite.

By my calculations, this involved skimming off the top of the system anything up to US$500 million a year. This persisted until 2017 when a new government took over following a military assisted transition.

By the time the new leadership assumed office the era of very low international prices was at an end and the margins used to secure the massive funds in the previous three years were no longer available. However, even on a smaller scale, the corruption continued, with companies taking inflated profits from the system, while the State-controlled infrastructure created by Mangoma, sat on the side lines and watched.

One of the projects Mangoma initiated was the concept of a new, even larger pipeline from Beira to Harare to feed bulk fuel to the region as a whole. This idea emerged from the basic fact that South Africa was no longer able to supply fuel to regional States on the same basis as before. The concept was to avoid congestion in the Port of Beira by building a floating platform for discharging fuel from tankers out at sea off Beira and pumping the fuel directly to Harare where the massive underground storage capacity would become a regional distribution centre.

Because this would create competition with the old pipeline the idea was opposed by the entrenched hierarchy in Harare who were benefitting from the corruption involved with fuel imports. It was stalled until Mnangagwa was elected as President in 2018. The project is now underway with Noic taking the lead in the project, which, when it is complete, will further reinforce Harare as a regional energy hub.

Now we have suddenly discovered a massive fraud involving officials at our border posts and oil companies who have been buying fuel with resources from the Zimbabwe market and then diverting the fuel to neighbouring countries — the result, even though we are "importing" record quantities of fuel, we still have queues. It is time to publically execute some of these people for corruption, it might be the only way to stop this subversive activity.

Cross is an industrialist, economist and former MP for Bulawayo South. These weekly New Perspectives articles are coordinated by Lovemore Kadenge, immediate past president of the Zimbabwe Economics Society. — kadenge.zes@gmail.com, Cell: +263 772 382 852.

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