1. A Presentation at the Economics Association of Zambia meeting 30 Sept 2008 Lusaka, Zambia by Raphael Salasini Email: rsalasin@coppernet.zm

2. Outline 1. World Oil Production 2. World Oil Prices 3. Definition of “Low Oil Prices” 4. The Petroleum Supply Chain in Zambia 5. Petroleum Price Structure 6. Options to Reduce Prices

3. 1World Oil Production ActualProjection

4. 2World Oil Prices Prices Production Have we reached the “Peak Oil”?

5. 3Definition of Low Petroleum Prices Reduction in cost of petroleum products is characterized by: i.Supply: Steady, reliable and adequate supply ii.Prices: Competitive, stable and fair prices

6. 4 The Petroleum Supply Chain GRZFeed stock cargo ship at Dar Tazama tank farm at Dar Tazama pipeline 1700km Indeni refinery Fuel terminal at Ndola Filling station Train Road Finished products from region

7. Petroleum Consumption by Sector Source:ERB

8. 5 Petroleum Price Structure REGIONAL COMPARISON Comparison of Diesel Prices in Southern Africa – Sept 2007

9. 6Options to Reduce Prices Any measures to significantly reduce prices must address: i.Government Taxes, Duties, & Levies ii.Basic Cost

10. 6.1 Govt Taxes, Duties & Levies Taxes on petroleum products are very important and contribute significantly to Govt revenue Reduction in taxes must therefore be a strategic policy decision: “Direct immediate tax revenue” VERSUS “Indirect future tax revenue”

11. Current Government taxes and duties i) Crude Oil Import Duty 5% (of Ndola landed cost) ii) Excise duty (of whole sale price to OMCs) Petrol36% Diesel7% Kerosene0% iii) VAT16% (applied on final price) Iv) Other: ERB, SRF

12. Recent Reductions on Excise Duty on Petroleum Products Before June 2008 June 2008 Sept 2008 P ETROL 60%45%36% DIESEL 30%15%7% KEROSENE 15%0%

13. 6.2 Petroleum Basic Cost What can increase “Basic Cost”? i.Inefficient procurement ii.Expensive financing iii.Poor feedstock cargo formulation iv.Inadequate national demand forecasting and strategic planning v.Lack of adequate national strategic reserves vi.Inefficient feedstock processing

14. 7Question Q: Who is responsible for planning and coordination of operations of the Zambian electricity network? A:Zesco Ltd Q:Who is responsible for planning and coordination of operations of the Zambian petroleum supply chain?

15. Thank You