$747 Million Debt Casts Shadow on Tanzania’s Oil Marketing Industry

In a worrisome development, Tanzania’s oil marketing industry is grappling with a substantial financial crisis, burdened by a staggering debt of $747 million (equivalent to approximately Sh1.9 trillion). This financial strain is attributed to unpaid invoices for petroleum products purchased during a dollar crisis. The debt encompasses matured letters of credit, swaps, and post-import loans, with imports primarily spanning from March to July of the current year.

The oil marketing companies (OMCs) in Tanzania are grappling with the implications of this hefty debt. The mounting pressure is exacerbated by the strengthening US dollar, leading to increased pump costs and a notable 24.2% decrease in imports compared to the previous year.

Raphael Mgaya, the Executive Director of the Tanzania Association of Oil Marketing Companies (Taomac), highlighted the urgency of the situation. He emphasized that the $747 million debt is critical to clearing the backlog of matured letters of credit, swaps, and post-import loans. Commercial banks have extended financial tools like swaps and post-import loans to aid OMCs during the ongoing US currency shortage. However, these financial solutions come with substantial costs, impacting the industry.

Mgaya underscored the ramifications of the unresolved debt. Without addressing this financial burden, OMCs could face constraints in obtaining additional lines of credit to support future petroleum imports. He also pointed out the challenging market conditions that make it difficult to source the required $747 million from commercial banks and currency exchange bureaus.

Furthermore, OMCs need approximately $250 million (equivalent to Sh625 billion) every month to cover the expenses of importing petroleum products for the domestic market. This significant amount is crucial for ensuring a steady supply of fuel for the country.

The impact of the appreciating US dollar is evident as petroleum product marketers grapple with higher costs. The surge in the price of imports, particularly petroleum products, is putting pressure on the industry. Currently, the US dollar is trading for Sh2,510/Sh2,610 in currency exchange bureaus, a significant increase from the previous rate of around Sh2,300 that had been stable for over two years.

This exchange rate shift is affecting the prices of gasoline and diesel, with a liter of gasoline and diesel costing Sh3,199 and Sh2,935, respectively. The blame for these price hikes is placed on the strengthening dollar. Importers have been forced to curtail their purchases due to the scarcity of dollars, leading to a 24.2% drop in gasoline and diesel imports between January and August compared to the same period last year.

In response to concerns about the dollar shortage, the governor of the Bank of Tanzania (BoT), Mr. Emmanuel Tutuba, assured that the central bank intervenes in the market as needed. This intervention includes issuing extra dollars and creating an export credit guarantee program. Official data reveals that Tanzania holds $5.5 billion in foreign reserves, surpassing the required minimum of at least four months and sufficient to cover nearly five months of imports.

As a response to the crisis, the BoT recently sold $6 million (approximately Sh15 billion) to oil marketing companies with established LCs. Additionally, the central bank has implemented measures such as prohibiting the use of US dollars in local transactions and engaging in gold purchases for export in exchange for US dollars. The industry’s response to this challenging scenario remains a topic of keen interest.

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