Zambias lubricants industry is driven by agriculture and copper mining. Copper is the mainstay of the Zambian economy, contributing about 70 percent to its export earnings. In a presentation at the ICIS African Base Oils and Lubricants Conference in Cape Town in November, David Ohana, group managing director of Kenol Kobil, stated that investment in the mining sector continues to drive other sectors, mainly construction, transport and energy.

According to Ohana, agriculture and mining consume about 40 percent of total lubricant volume. He emphasized that the government has also encouraged investment in the mining sector with guaranteed input claim for five years on preproduction expenditures for exploration companies, zero tax on dividends for mining companies and 100 percent deduction on capital expenditure on buildings, railway lines and equipment.

For the agriculture sector, Ohana said the government has encouraged investment by deferment of value added taxes on some imported agricultural equipment and machines, reduced income tax rate of 15 percent, zero import duty on irrigation equipment and no tax on dividends from farming profits for the first five years. There is also zero rating on taxable agricultural products and supplies when exported, he said.

Zambias lubricants market has seen marginal volume growth in the past four years. The total volume of lubricants consumed was 53,757 cubic meters in 2010; 36,901 cubic meters in 2011; 36,921 cubic meters in 2012; 31,812 cubic meters in 2013, said Ohana. About 20 percent of this total volume is blended locally through Lublend, Lube Oil Blending Plant.

According to the 2013 Energy Sector Report produced by the Energy Regulation of Zambia (ERB), the agency for the lubricants sector, there are ten top players in the Zambia lubricant market but three are dominant. The top ten (and their brands) comprises Puma (BP/Castrol brand), Spectra (Shell & own brand), Total (Total brand), Dana (BP/Castrol brand), Fuchs (own brand), Engen (Own brand), Kobil (own brand), Oryx (Own brand), Auto world (auto shop, all brands), Continental (Castrol and others).

In 2013, the report noted, Puma Energy Zambia Plc led the market with a 39.7 percent share, followed by Spectra Oil Corp. with 26.9 percent and Total Zambia Ltd. at 12.9 percent. The balance of the market was split among the other seven companies.

In 2010, Puma Energy acquired British Petroleums downstream business in Botswana, Namibia and Zambia. In addition, Engen International Holdings acquired 100 percent of Chevron Zambia Ltd.

Zambia has only one blending plant, Lublend, which is licensed to blend and package lubricants in Zambia. The company is jointly owned by Total Zambia with a 59.5 percent share, Kobil Zambia with 25.5 percent and Spectra Oil with 15 percent. Lublend was previously owned by the government, which controlled 51 percent of the company before it was privatized.

According to a 2011 U.N. report on Zambias petroleum sector, Lublend processes lubricants only for the three shareholding companies. Processing for third parties can only be done through one of the participating companies, the report stated. The shareholding companies provide all the raw materials required for blending and packaging of lubricants.

According to Ohana, Lublend, which is ISO 9001:2001 certified, has a capacity of 1,300 metric tons per month in a single shift. Although there is a refinery in Zambia, Indeni Petroleum, it does not have the capacity to blend base oils; therefore, blenders in Zambia source Group I base oil from South African refineries in Durban.

Imports Dominate

Ohana said that about 80 percent of Zambias total lubricant volume is imported, mainly in small packs, as major international brands from South Africa and Europe or in attractive-looking, fairly priced brands from the Middle East. According to the 2011 U.N. report, there are only 53 valid licenses for the importation of lubricants. The report noted that the market is segmented into commercial and retail.

[To understand] market behavior, the commercial segment can be further divided into large and small consumers. Large commercial consumers are sensitive to both product price and quality, with quality being of paramount importance. Small commercial consumers are sensitive to both product price and quality, with price being more important. The retail market is predominantly concerned with product price, the report stated.

Ohana said that Zambias lubricant market is predominantly Group I. The majority of products on the market are middle-tier grades that are blended using Group I base oils. Engine oils include multigrades (SAE 15W-40 and 20W-50) and monogrades (SAE 30 and 40). Hydraulic oils are typically ISO 46, 68 and 100 viscosity grades, while industrial gear oils come in ISO 150 and 320 viscosity grades. Transmission fluids include Dexron IID ATF and SAE 85W/-140 and 80W-90 manual transmission fluids. Lithium greases (both AP and EP) carry NLGI 2 and 3 ratings for automotive and industrial applications.

Ohana emphasized that lubricant pricing is left to market forces, not government control. However, the Zambia Energy Regulation Board is responsible for licensing all lubricants businesses.

According to Ohana, the Zambian lubricant market is seeing an increase in the use of synthetic lubes, driven by technological advances in equipment and new vehicle specifications. He noted that while growth is slow the synthetic market is expected to gain momentum over the long term.

Ohana also said there is a perception among Zambian consumers that imported lubricants have better quality, which he noted will continue to be the norm in the market. On the other hand, Ohana advocates consumer education about lubricants specifications as being key to growing the sales volumes of locally blended products.

Tariffs & Other Challenges

Ohana said taxes on imported lubricants are as 15 percent for imports originating from outside the Common Market for Eastern and the Southern African Development Community, and zero percent for imports from within COMESA and SADC.

The U.N. report noted that Zambias lubricant market in continues to be plagued by unlicensed operators who flood the market with imported lubricants. These [entities] are not registered, and it is alleged that some of them are smuggling the products into the country, the report said. The quality of these products is not checked, and it is felt by all players that there is regulatory failure in this regard. The illegal traders have targeted small commercial and retail consumers.

The report went to note that some industry players estimated that about 30 percent of the market for small commercial and retail consumers is serviced by the illegal traders. It added that there is regulatory failure on the part of government agency tasked with regulating the lubricant sector.

Stakeholders stated that numerous complaints made to the sector regulator have not yielded any positive results, the report stated. Its the industrys view that the case of lubricants in this country is one of total regulatory failure. It is noteworthy to mention here that … the Energy Resources Board has acknowledged the existence and the extent of the problem.

Lee Haamunji, Public Relations Officer for the Zambia Bureau of Standards told LubesnGreases in an email that all petroleum products have standards and the Zambia Bureau of Standards tests the products to ensure that the prescribed parameters are met. The Bureau said it introduced Import the Quality Monitoring Scheme (IQMS) in 2003, following the liberalization of the economy.

According to the Bureau, The rationale of the IQMS is to ensure that products that enter the Zambian market are thoroughly inspected to ensure that they meet the minimum requirement of the set standards of the country. ZABS emphasized that in its bid to stem the proliferation of substandard products on the Zambian market, it has established a presence in Nakonde, Chirundu, Livingstone, Mwami and Chanida in the eastern province. This enables [us] to inspect the imports before they come into the country and, thus, promote quality products on the market, it stated.

In an email to LubesnGreases, Langiwe Lungu, executive director of the Energy Regulation Board, said, To strengthen enforcement on lubricants and quality compliance by dealers, the ERB, in conjunction with other stakeholders such as the Zambia Bureau of Standards, has developed a number of standards on lubricants. These standards, which stipulate the minimum specifications for lubricants that should be imported and marketed in Zambia, are clearly spelled out in the license conditions. In addition, the ERB monitors all energy entities and rigorously enforces the standard provisions.

She noted that the ERB collaborates with the standards bureau, which maintains a presence at all major border entry points. The bureau ensures that all imported petroleum products, including lubricants, meet the minimum specifications stipulated in the standards.

Considering the extensive market for lubricants, ranging from retail to bulk consumers, the ERB always encourages consumers to buy products only from licensed suppliers such as oil marketing companies, Lungu said. The ERB will continue engaging consumers and other stakeholders to report any suspected illegal activities.