Tanzania is ready to pick the company that will supply oil for its envisaged strategic oil reserve before the end of August, as it seeks to cushion its citizens and businesses against the shocks that come with disruptions in the supply of petroleum products.

The plan, which would make Tanzania the first country in the region to have such a reserve, was agreed by parliament in November last year following an acute fuel shortage.

READ: Tanzania to set up strategic fuel reserve

Currently, the country’s reserves can only sustain consumers for between 10 and 15 days in the event of disrupted supplies.

“Having a strategic fuel reserve will ensure the country has stocks at all times, unlike now,” said Deputy Minister for Energy and Minerals George Simbachawene.

Stopped tender

Reports last week indicated that the government had stopped the tendering process. But officers from the Tanzania Petroleum Development Corporation (TPDC) said on Thursday the process was ongoing.

Volatile international crude oil prices and lack of storage facilities, combined with domestic challenges such as price caps and exchange rate fluctuations, have remained a big challenge for investors in the oil marketing business.

According to the government, the creation of the National Strategic Petroleum Reserve (SPR) will also curb distortion of fuel prices in the local market by importers.

Tanzania is set to become the first country in the region to set up a strategic reserve, a project that Kenya has struggled for three years to roll out.

READ: Kenya’s oil reserve plan attracts investors

Kenya currently has no strategic reserves and relies solely on oil marketers’ 21-day oil reserves required under industry regulations.

At present, demand for fuel in Tanzania’s domestic market stands at more than five million litres per day.

Average demand for diesel is 3.54 million litres while petrol and kerosene is 1.7 million and 200,000 litres per day respectively.

According to experts, the creation of strategic oil reserves will help the country cushion itself from the kind of unexpected shocks which it suffered in 2011, when oil marketing companies hoarded fuel stocks after the Energy and Water Utilities Regulatory Authority (Ewura) lowered prices for petroleum products.

READ: Tanzania to set up strategic reserve to cushion oil shortages

A total of 25 companies participated in the tendering process. These included Independent Petroleum Group of Bahama, Galawa Petroleum Ltd and a local firm Prevail Technologies Tanzania.

Other companies were Trafigura Pte, Addax Energy SA Geneva and Augusta SA Geneva, both based in Geneva, Switzerland.

Another Swiss-based company Vitol and Oman Trading International (OTI) also tendered.

Winning bidder

According to the terms of reference, the winning bidder will be required to import and supply fuel to Commercial Petroleum Company of Tanzania (Copec), a subsidiary of state-owned TPDC.

The subsidiary was established in 1999 and two years later was granted a licence by the regulator Ewura to sell fuel in bulk.

Oil experts said the government is in a position to create the reserves at no cost by simply extending the transit period for petroleum products up from the current 30 days and offloading them in the market in time of crisis.

In May 2011, the Kenyan government through the National Oil Corporation of Kenya (Nock) announced plans to invest $1.1 billion in the development of a strategic national petroleum reserve.

The reserve once built will hold about 1 billion litres — equivalent to 90 days’ consumption — and help ease disruptions in the supply chain.