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ZIMBABWE – AFRICA’S EMERGING LPG MARKET

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An Interview with Chad Chawanda, Executive Chairman of Original Energy Resources

Zimbabwe is a nation that has bounced back economically following the collapse and eventual demise of the Zimbabwean dollar in 2009. The country is still suffering from widespread unemployment and high poverty rates but there is a need to compliment the nation’s economic resurgence with much needed sources of energy. To gain further insight into the LPG market in Zimbabwe, we spoke to Mr. Chad Chawanda, Executive Chairman at Original Energy Resources.

Chad is a highly motivated individual with over a decade of experience in the import and export industry. He began as an entrepreneur working in coal exports. He eventually started looking into LPG as an alternative clean energy fuel that did not face the same challenges as coal. He is a founding member and majority shareholder of Size Chunk Resources (Pvt) Ltd which has presence in Zimbabwe and South Africa. He is also a shareholder and board member of two other mining companies in Dubai and Zimbabwe. He is experienced in start-ups, strategic planning and business development. He is also currently studying an MBA – ‘Doing Business in Emerging Markets’ with the University of Liverpool.

He told us that his journey has been a long and interesting one. “It was brought about by the passion to provide energy solutions from understanding that there is a huge gap in the market”, he said. He said it was this that led him down the path to LPG. In his work at Original Energy Resources he says, that like most professionals in any industry, his role is to lead, motivate and achieve organisational objectives profitably. He explains that the division under Original Energy Resources that deals with LPG is Alpic Gas. Alpic Gas is an alternative energy related company that does LPG imports and distribution in Zimbabwe. The company owns a gas depot in the capital city of Harare.

LPG In Zimbabwe

We were keen to find out what exactly LPG was being used for. We suspected that, like other African nations LPG was purely for cooking however aside from that Chad also told us that it has some limited use in water geysers for crops. He went on to say that, “There is potential for growth but currently availability is mostly in urban areas and accessible to just a small percentage of the population which is predominantly due to the high initial cost of buying LPG equipment such as cylinders and tanks.”

He told us that the industry in Zimbabwe is dominated by a few companies, namely Zuma, Pioneer, BOC gas and Kensys with majority market share concentrated amongst Zuva, Pioneer and BOC Gas. He said there are smaller players such as Alpic Gas, Gas and Gear, Quality Gases and GP Gases. He said that the smaller players service a niche market where the big players are not completely involved.

We were curious as to the problems associated with market entry with which Chad explained to us that there is a high initial start-up cost, a complicated legal process, numerous fees and stringent policies to overcome. He said that there is also a huge shortage of readily available LPG equipment in Zimbabwe. This combined with a lack of qualified technical human resources, make the equipment that is available that much more expensive to use. He also said that LPG is relatively expensive at $1.50 – $2.00 per kg compared to paraffin which costs only $0.90 per litre. Considering that there are no subsidies currently in place, this is quite a hefty price to pay for those living in rural areas.

Chad believes that there is superior potential for growth in the country and it has been apparent over the past 10 years or so. We asked him what he felt were the motivating factors that were responsible for this growth. He told us that Zimbabwe has had a long history of erratic power supply and expensive electricity and that LPG was a very convenient fuel that could help in this area. He also said that combined with these problems, advancements in LPG technology has attracted new entrants into the industry and that this increased presence has had a positive effect on visibility and awareness of the uses of LPG.

Alpic-Cylinders-2

The Role of Government

Besides influence from the private sector, it is extremely important that the Government plays a major role in growing awareness. After all it is the government that is responsible for implementing policies that will either support or act as a barrier to growth. Chad told us quite firmly, saying “I would even go on to say that majority of the burden is the onus of the Government. Through policy, subsidies and initiatives the Government assumes the leading role in growing energy usage. “ Chad firmly believes that there is massive room for growth, especially if policies are altered to cater for new entries.

Our next question for Chad was about the sudden surge in use of LPG, we wanted to know what problems had come to light following this increased usage. He told us that increased awareness had brought along with it, the appearance of roadside hecklers selling gas illegally. These roadside sellers are a huge problem for the industry as the handlers are not trained and tend to make use of old or damaged cylinders which could lead to some hazardous results. When asked what the government has done in response to this, Chad tells us that, “The Government is still yet to come up with a solution, the challenge is that the market is driven by a huge demand for energy and these hecklers do not have permanent structures in some places meaning even if there was a crackdown on them they will be able to run away and resurface the next day.”

Damaged cylinders in Zimbabwe also have no way of being replaced except by returning them directly to the issuing company as there is currently no cylinder rehabilitation programme in the country. Chad says that the Government does have plans however, “I think it is still not clear how this will work as people buy cylinders for outright purchase now”, he says.

“Who will pay the cost for rehabilitation?” Chad responded.

“We thank God there has been no incidents yet however this is mainly because it’s a new market and most cylinders have not reached their life cycle. Only time will tell,” he adds.

Currently there are minimum standards that have been set by the Zimbabwe Energy Regulatory Authority. These standards however do little to deter the roadside hecklers as gaining a permit that needs to be approved by the fire brigade costs some $1000 each year, plus there’s an additional permit that’s required from the Environmental Management Authority which further adds to the costs. This is a harrowing issue to say the least. Proper enforcement of laws are needed to deter this illegal action by the parties involved.  Besides the roadside hecklers, it is also important that the people making use of LPG understand the safety issues surrounding the use of the gas. Chad informed us that the government has been quite active in this regard and have been putting articles in the local media to educate the public on best safety practices when handling LPG.

A Future of Opportunity

The fate of LPG in Zimbabwe is highly dependent on the plans that the government has moving forward as spread and frequency of use increases. In this regard, Chad tells us that, “The government keeps engaging with the players in the industry to formulate policy that can help regulate the industry for example a year ago you could import gas if you have any storage tank, now you need storage tanks, 400 cylinders and you will need to comply with fire department, local council planning, environment authority and only then you can get an import license or a trading license.”

Hopefully these new measures will allow for the continued and successful growth and development of LPG in the country.

Chad sees the future of LPG in Zimbabwe as a bright one. One where the industry helps with employment creation, revolutionizes clean and healthy cooking in rural homes, reduces traditional heating systems and reduces deforestation as a result of firewood consumption. The government has begun to make some of the right steps and hopefully as the industry grows, policies could be developedthat will emulate slightly more mature, neighbouring markets. A number of great opportunities could be waiting just over the horizon and one would be wise to keep a close watch on Zimbabwe.

(LPG Business Review)


Chad

Chad Chawanda

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6 Comments

  1. Anonymous April 22, 2016 at 5:03 am

    An impressive share! I have just forwarded this onto a coworker who has been doing a
    little homework on this. Thanks for spending some time to discuss this topic here on your web page.

  2. Anonymous April 24, 2016 at 1:47 am

    Great delivery. Solid arguments. Keep up the good effort.

  3. Anonymous May 1, 2016 at 11:28 pm

    This piece of writing is nice, my younger sister is analyzing these kinds of things, thus I am going to inform her.

  4. Tawanda May 30, 2016 at 9:21 am

    its an emerging market to Zimbabwe and I hope this will go a long way into providing insight to aspiring investors. Many thanks for the article for capital raising and financing on such a project.

  5. Caesar Mukudzei Mubviri June 1, 2016 at 9:43 pm

    I stand to correct Chad I’m a director of Quality Gas and we are not a small player as he says in fact we are amongst the top two in Zimbabwe interms of imports and this is independently verifiable through the Zimbabwe Energy Regulatory Authority.

  6. WilliamMisk June 8, 2016 at 10:41 am

    Really enjoyed this forum topic.Really looking forward to read more. Cool. Knoebel

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