BERA To Overhaul Fuel Pricing Model

While details remain sketchy, petroleum companies hope the new mechanism will match the changes in international benchmark prices. The spokesperson for BERA, Tshepang Monare told this publication that the Authority is currently in the process of procuring consultancy services to assess the existing pricing structure, which currently fall behind international oil prices. “The objective is to review all costs associated with the supply and distribution of petroleum products into and within Botswana with a view to achieve cost reflectivity on the pricing slate.”[ihc-hide-content ihc_mb_type="show" ihc_mb_who="1,2,3,4" ihc_mb_template="1" ] Politicised mechanism Botswana uses a managed fuel pricing mechanism that lags changes in global international prices. This means there are periods where prices are too low or too high relative to global prices. Economist Keith Jefferis has called for a price market-determined mechanism. “I would like to see a lot more competition, different fuel companies charging different prices for fuel which we don’t see at the moment,” Jefferis said at a recent breakfast webinar by Bifm. Although this is permitted under the current mechanism, Jefferis said there is a bit of laziness in the supply chain. Currently, fuel prices undergo a cabinet approval process before being implemented, a practice criticised by industry players as being at odds with fair market principles. Although BERA conducts monthly price reviews, the adjustment process experiences delays. While fuel consumers inevitably bear the brunt of price increases, they do so with a time lag. Industry players argue that this lag fails to adequately account for import costs influenced by the upsurge in international prices. As a result, industry players castigate BERA for its prolonged delay in adjusting fuel prices in line with global fuel trends. They say unlike in Botswana where lapses and delays are quite routine and losses to the economy astronomical, energy regulators in countries like Zambia, Namibia and South Africa adjust retail fuel prices in line with global fuel price movements promptly and the economic benefits are accordingly tremendous. Further, with Botswana Oil Limited (BOL) having been granted a 90 percent quota on fuel importation, industry players are worried about the impact on fuel pricing since only one entity will be tasked with the responsibility of controlling the price of fuel. There are also concerns that pricing model for alternative routes like Mozambique and Namibia are unfavorable as compared to the South African routes. This they said, makes it uneasy to consider alternative routes when the South African route experiences supply challenges, which affects security of supply of fuel. Industry players are calling for a holistic review of the fuel pricing model. BERA is mindful of the cost on consumer Former BERA CEO Rose Seretse previously said there is always a consideration for the consumer before an increase in prices. “We always consider that (consumer) before we can increase. What is the impact on the consumer? That consideration and other factors always come into play.” What she said they always endeavor to do is to effect a full rate of recovery after establishing what the shortfall is. Even so, oil companies argue that for local prices to keep track of international prices, they should be adjusted monthly. “The South African slate which we use as a basis has changed and we haven’t followed suit so that needs to be corrected. The new pricing formula must incorporate alternative routes of Mozambique and Namibia,” one industry player said. Botswana consumes about 22,000 barrels a day of liquid fuels and has no domestic production. Its reliance on supply from South African refineries has been disrupted by shutdowns, leading to plans to use storage facilities in Mozambican and Namibian ports which industry players said is not included. Call for depoliticising of slate Jefferis also would like to see a depoliticised and better-functioning fuel price slate. In South Africa when costs go up, prices go up. When costs go down prices go down. “If we had a depoliticised technical and more frequent adjustments mechanism with weekly changes and monthly it will be a lot better.” BERA adjusts fuel prices BERA adjusted the retail pump prices for petrol grades, diesel and illuminating paraﬃn this week. Unleaded petrol 93 decreased by 132 thebe per litre, unleaded petrol 95 decreased by 135 thebe per litre and diesel decreased by 57 thebe per litre and paraﬃn decreased by 67 thebe per litre. Justifying this decrease, BERA said the price of Brent crude averaged US$88.70 per barrel in October 2023, compared to US$92.59 per barrel in September 2023. Oil prices have been volatile as markets react to tension in the Middle East. Demand concerns outweigh supply worries as the Middle East conﬂict has so far been conﬁned to Gaza, and thus not impacting on oil supply. Demand concerns have been increasing as most large economies continue to show weak growth. Botswana Oil cautious In an interview with the The Business Weekly & Review , Botswana Oil Limited (BOL) cautioned that any major undesirable disparity between international fuel pricing and locally set prices will adversely affect its business operations and cashflows. But Mpho Mokgosi, the Senior Manager – Marketing and Communications said this will be managed in the normal operations of the business in consultation with the ministry and the regulator. With effect from April 2024, 90 percent of fuel imports required for Botswana shall be imported by Botswana Oil, with fuel companies importing the remainder. When questioned about Botswana Oil's financial capacity to address challenges stemming from import costs, Mokgosi affirmed that as a business, Botswana Oil operates with a robust supply strategy. This strategy is anchored by a cost-to-serve model, ensuring the optimal selection of suppliers. “We also utilise multiple instruments in the financial services industry to ensure we source fuel in a financially sustainable manner,” she said. Botswana Oil is a state oil company established under the Companies Act. Mokgosi said the company does not receive government funding. In its formative years, the spokesperson emphasised that the government had capitalised it to enable it to be a viable operation. “Botswana Oil Limited does not get any subvention from government but sustains its operations from the sale of fuel to the market.” She said the ministry supports Botswana Oil with specific interventions that the government assigns Botswana Oil to deliver on behalf of the government as evidenced by the support offered to BOL to deliver multiple projects funded through the fiscus to improve security of supply. “Over the years BOL has grown and transitioned into a business offering products and services to a portfolio of various clients and has become a financially stable entity.” Therefore, Mokgosi believes BOL has the financial muscle to import the quota requirements and it will fulfil this in collaboration with its partners and well as support from Government as may be necessary. Mokgosi said BOL is aware of an ongoing exercise by the regulator to review the pricing mechanism and they await their guidance on the outcomes of the exercise. “We will continue to engage with the Ministry of Minerals and Energy, the regulator to bring closer alignment on an optimised and efficient pricing model which in the long term balances the interests of business, the consumer, and the economy in the long term.” She said BOL will continue to engage BERA to forge alignment on matters of pricing for the best outcomes for the country. [/ihc-hide-content]

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BERA To Overhaul Fuel Pricing Model

In a move aimed at recalibrating dynamics of the local fuel pricing model, the Botswana Energy Regulatory Authority (BERA) recently launched a comprehensive review of the current pricing mechanism for fuel pumps across the country.

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BERA To Overhaul Fuel Pricing Model

In a move aimed at recalibrating dynamics of the local fuel pricing model, the Botswana Energy Regulatory Authority (BERA) recently launched a comprehensive review of the current pricing mechanism for fuel pumps across the country.

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