Vladimir Putin to build Zimbabwe US$1,5 billion oil pipeline

Russian President Putin and Zimbabwean President Emmerson Mnangagwa

ZIMBABWE has roped in the Russian government to fund the construction of a second fuel pipeline worth US$1,5 billion, in a deal that will see three other southern African countries also coming on board.

The new deal completely shuts the door on the much-talked about Mining, Oil and Gas Services (MOGS) deal, which some politicians such as former Presidential Adviser Christopher Mutsvangwa (Zanu-PF) and opposition MDC vice-president Tendai Biti have been pushing for over five years without success.

The US$1,5 billion Russian deal involves Mozambique, Zambia and Botswana and was mooted at last year’s Russia-Africa Summit in Sochi city, with the blessings of all the respective Presidents.

A delegation from Russia is expected in Zimbabwe in March to fine-tune the deal.

Construction of the second pipeline was rejected as an unviable business venture by Mozambique owing to failure by Zimbabwean oil companies to fully utilise the existing Beira-Harare pipeline, which has capacity to move 180 million litres monthly.

At present, about 40% of the existing pipeline is not being utilised.“Russians hinted their interest in funding the second pipeline at last year’s summit in Sochi city as a government to government transaction for the southern region at a very nominal rate.

If there is a second pipeline to be built, then it is this one by the Russians because this is what the four governments prefer than having it as a one-nation project, considering that 40 percent of the current pipeline is underutilised,” a government source involved in the negotiations said.

“Negotiations are now at an advanced stage and a team from the Russian government will be in the country next month.”

MOGS had attempted to build a second pipeline in the past years, but government rejected the deal after discovering that the project was meant to bankroll the opposition MDC party’s activities.

The South African firm has continuously tried without success to use Mutsvangwa, Biti and Eddie Cross to consummate the deal.

The trio has been at the front of smearing Trafigura and Sakunda Holdings, which they believe have been blocking them from landing the billion-dollar project.

Another source in the fuel industry highlighted that before agreeing on the second pipeline, Zimbabwe, Zambia, Mozambique and Botswana first discussed the upgrading of the Beira-Harare pipeline.

“The current pipeline can be upgraded up to 240 million litres monthly, which can be expanded to 320 million litres, hence continuous engagement at Presidential level to have volumes of scale,” the source said.

“However, after deliberations, the Russian deal was finally agreed on.”

The government source also scoffed at media reports that Zimbabwe was losing US$400 million due to alleged Trafigura’s monopoly of the pipeline.

The existing pipeline has a capacity to pump 180 million litres monthly at a pipeline fee of 0,0789 cents per litre from Beira.

“Total revenue of the pipeline is US$14 million monthly and multiplied by 12 months, it gives a revenue of US$170 million annually, hence assertions in the media that we are losing US$400 million is mere fallacy,” the government source said.

A National Oil Infrastructure Company (NOIC) insider indicated that 40 percent of the underutilised capacity of the pipeline at the going rate of 0,0789 cents per litre can amount to US$68 million,” which does not even tally with figures being thrown around”.

“There are more than 20 companies which signed agreements with NOIC to pump fuel via the pipeline and about six companies pump fuel on a regular basis, that is Glencore, IPG, Trafigura, Praise Petroleum, Vivo and BP. So one wonders how this can translate to a monopoly,” the NOIC source said.

“The pumping fees from Beira to Feruka are not set by Zimbabwe, but by CPM of Mozambique, as Zimbabwe does not own the pipeline. The Government of Zimbabwe sets pipeline fees from Feruka to Harare, meaning no other company can do that except government.”

Information ministry secretary Ndavaningi Mangwana dismissed reports that Sakunda enjoed a monopoly over the pipeline, saying the company was only recouping its investment for rehabilitating the infrastructure.

In 2014, Sakunda invested millions into the refurbishment of the Beira-Feruka pipeline and is now only recouping its investment.

“Trafigura assisted in refurbishing the pipeline and they are recouping their money from the use. The seven (US) cents applies to Zambia and DRC [Democratic Republic of Congo] because they would be collecting the fuel from here,” Mangwana said.

“Suppose we contract an energy company to help us build infrastructure, when they have finished, they will say, ‘from your power tariffs, add the two cents per kilowatt hour which we will use to recoup the costs’ and it will be done, but it doesn’t speak to a monopoly, it speaks to a PPP [public-private partnership].

It’s a variant of the BOT [build, operate and transfer]. So definitely, they don’t have the monopoly.”

Source – Byo24