Tanzania's Energy and Water Utilities Regulatory Authority (EWURA) is looking to consolidate the way letters of credit (L/Cs) are used for petroleum imports with the aim of reducing costs.

The authority's director general, Felix Ngamlagosi, maintains that, under current conditions, the cost of a disparate and expensive chain of L/Cs, separately arranged between each importer with different banks is pushing the cost of fuel up.

Lower costs

Ngamlagosi told a recent meeting of petroleum importers that a better approach would be to identify banks willing and able to finance petroleum imports at a lower cost.

He says that currently, each oil marketing company opens L/Cs with banks on different terms and that some shipments involve several L/Cs before fuel reaches the final consumer.

Negative impacts

"The situation means a lot of time is time wasted and paperwork is done, causing delays to some oil marketing companies in opening and confirming L/Cs in favour of their consignment," he said.

"This leads to unnecessary demurrage charges. Business risks are increased and the number of participating companies in bulk procurement system tenders is reduced," he added.

Bank consortium

He told the meeting that, in talks with the Bank of Tanzania, they were mulling the option of having one lead bank backed by a consortium of other banks to open L/Cs in a bulk procurement system.

"To reduce the financing cost arising from multiple L/Cs and increase efficiency in the petroleum supply chain, a single L/C which will be opened by a commercial or lead bank is recommended," Ngamlagosi told delegates.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.