One sector of the Tanzanian economy that is highly visible is the lubricant industry, comprised of both local and international brands contending for a share of the countrys thriving lubricant market. LubesnGreases visited Tanzania in July for a first-hand look at the prospects and challenges in the lubricant sector.

Tanzanias Lube Market

In a presentation at the 2013 ICIS Middle East Base Oils & Lubricants Conference in Dubai, Joseph Ndugu and James Wakiru of Kenya-based consultancy Lubes Africa, estimated Tanzanias finished lubricant market at 35,000 metric tons per year. Sameer Manik, group marketing manager for Oilcom, said in an interview that the automobile sector in Dar Es Salaam alone accounts for 800,000 to 1 million liters of lubricants per month. However, he could not gauge demand in the mining and power generation sectors because there are so many mining sites that it is difficult to determine the total quantity.

LubesnGreases was unable to confirm the figures quoted by Lubes Africa or Sameer with the Energy and Water Utilities Regulatory Authority (EWURA), a government agency responsible for regulating the lubricant sector. We have statistics for petrol and liquefied petroleum gas. The lubricants market is not that big, just moderate, Titus Kaguo, EWURA manager of communications and public relations said in an interview in his office in Dar Es Salaam.

Despite the lack of firm statistics, the consensus among stakeholders is that the Tanzanian lubricant market has huge upside. Tanzania has a lot of potential for the lubricants business, said Irfan Khan, general manager of Tanzania operations for General Petroleum. They have the mining sector, the commercial sector, and now Dar Es Salaam is a cargo transit center. So, there is a lot of potential in terms of new industries. There is also a lot of consumption and demand for lubricants.

Tanzanias relatively stable political environment is also seen as plus for investors in the lubricant sector. More than 70 brands of lubricants are available on the market, but the leaders are Total, Oryx, Puma and Fuchs. And Caltex recently entered the market, said Sameer. Oryx, Fuchs and General Petroleum operate blending facilities.

Trends

Tanzanias lubricant market mainly comprises the automotive, industrial and mining industries, but automotive dominates. The industrial market is small, said EWURAs Kaguo, adding that growth of the vehicle industry in Tanzania is huge. We are surrounded by five landlocked countries; therefore, automotive lubricants have a larger market. Oilcoms Sameer agreed that the lubricants market is healthy in Tanzania and added that competition is fierce when it comes to the automotive sector.

The consensus among stakeholders is that Tanzania consumes predominantly API Group I oils. It is 99.9 percent a Group I market, said Khan, but we launched a product in the Group II+ category. Sameer agreed that Group I dominates the market. I think only General Petroleum and Gapco and Puma are blending Group II in the whole of Tanzania, he noted.

Khan said that the dominance of Group I is fueled by ignorance on the part of end users, who are swayed by price rather than quality. When I talk to somebody about Group II, they say, I dont know Group II or Group I; what I know is that I need cheap oil, Khan said. Sameer said synthetic lubricants are available in Tanzania, but because they are imported and expensive, they do not enjoy a wide market.

Market Challenges

According to Khan, the critical challenges for the Tanzanian lubricant market are the glut of substandard lubes and the counterfeiting of popular brands. In addition, he said, the countrys tax system is not uniform, especially for blenders. But he noted that the government is making progress in modifying the system to benefit the economy.

Sameer agreed that counterfeiting and recycling of used oil are critical challenges in the market. I have learned that some people have already put a facility in place to make base oils from recycled oil collected from petrol stations and auto mechanic workshops, he said. The challenge is that no one knows the quality of the oil being produced by this plant.

In February 2012, the Tanzania Bureau of Standards (TBS) implemented the Pre-Shipment Verification of Conformity (PVoC) regulation in partnership with three global inspection and certification firms: SGS, Intertek and Bureau Veritas. The regulation mandates the three inspection firms to certify that every lubricant product, including base oils and finished lubes, complies with Tanzanian national standards before being imported into the country. According to the TBS, the goal of the PVoC is to ensure that importers do not ship substandard lubes or base oils to Tanzania.

The fight against substandard lubes gained traction in June when a TBS advertisement in the Guardian newspaper published the names of lubricants brands that did not meet its standards. The brands listed include: Super Plus SAE 40; Super SAE 40; Top Gatex Super Plus SAE 40; Gatex Super Plus SAE 40; Laurence Lubricants; Lubex SAE 40; Caltex Super Plus SAE 40; Mohona Lubricants SAE 40; Duma Tech SAE 40; Auto Star Super HD; Universal Lubricant HD 40; Auto Star SAE 40; and Super Plus SAE 40.

The notice stated: The TBS is hereby notifying users of lubricants and oil products and the public in general that the under mentioned brands of lubricants and oils used in vehicles do not comply with the Tanzanian Standard for products, TZS 467:2001: Engine Oils-Minimum Performance -Specification. Legal action as per the Standards Act No.2 of 2009 will be taken against whoever is found selling, importing, distributing or involved in any transaction of such substandard products.

Nichonia Mabuka, head of TBSs chemicals section said in an interview that his agency is empowered by the act establishing the TBS to educate the public when it is at risk of patronizing substandard products. We do enforcement, and we educate the public. The publication was part of the education, Mabuka said. The products named fall below the Tanzanian standards requirements for vehicles.

Roida Andusamile, TBS corporate communication and public affairs officer, added that the essence of the publication was to ensure that Tanzanians get quality products. After the advertisement ran, people who were not certain of their products came to the TBS to request testing. Others enquired about which products meet our standards so that they can import from approved manufacturers, she said.

However, Mabuka said, one of the challenges the TBS has had to contend with in the war on substandard lubricants is the fact that the agency does not have the power to regulate the Zanzibar end of the market. However, to address the situation, the governor of Zanzibar has established the Zanzibar Bureau of Standards (ZBS) to complement the TBSs efforts to sanitize the lubricant sector, Mabuka said.

While Sameer lauds the TBS for the publication, he said that fake lubes continue to proliferate because end users are driven by price. You still find people selling fake lubricants. If somebody wants bulk quantities, brand does not matter. Rather, it is very much about the price, he said. Most fleet owners still patronize these substandard lubes because they think it is more economical.

Khan explained that the markets stakeholders put pressure on the TBS to take action against substandard lubes. The approach the TBS has taken will help all people who engage in fair business practices, he said. It will squeeze local blenders to be more careful, more concentrated.

The EWURAs Kaguo said the authority is working on rules to effectively regulate the lubricants sector. Rules have been submitted to the chief parliamentarian, who is authorized to publish them in the government gazette, he said. We have not gone to the market yet because we dont have the requisite instruments to monitor the situation.

The EWURA can take an active role in regulating the sector only after the rules and regulation have been published.

According to Khan, tariffs on the lubricant sector have been applied fairly. Finished lubes carry a 25 percent import duty and an 18 percent value added tax. Base oils carry only the 18 percent value added tax. Additives incur a 10 percent import duty and 18 percent value added tax. However, he added that as a blender, he pays a value added tax when importing base oils that the government is supposed to refund when the finished lube is exported, but that part of the bargain is not being fulfilled.

Government Taking Action Against Substandard Lubes

An article in the 7 August Tanzania Daily News, reported that the governments Chief Chemist contends that between 78 and 91 percent of the lubricants imported in the country are substandard, and the agency has announced a drive to get them out of the market. Speaking to reporters in Dar es Salaam, Prof Samwel Manyele said that starting in September 2013, they randomly sampled 114 lubricants from three major importers. Of the lubricants being imported by two companies, 78 to 91 percent were substandard.

Manyele said the lubricants are used in both motor vehicles and industrial machines. The companies were given an ultimatum to withdraw their products from the market before other measures were taken. Moreover, he said, the government will start taking random samples and testing them to ensure customers vehicles and machines are not being subjected to the use of unqualified lubricants.

The move followed complaints raised by a number of stakeholders as well as the Tanzania Revenue Authority that the country was losing revenue due to importation of substandard lubricants. The government is not collecting revenues as needed but also stakeholders are not enjoying fair competition as the substandard goods fetch low prices compared to genuine ones he said.

In dealing with the situation, Manyele said they will cancel importation permits for all companies found to contravene the rules and regulations.

– By Richard Beercheck