Botswana Oil takes Control of Fuel Industry

Botswana Oil Limited (BOL) is wholly owned by the Government of Botswana and is one of the state-owned enterprises under the Ministry of Minerals and Energy (MME) and has been involved in the discussions, says Mpho Mokgosi, Senior Manager – Marketing and Communications at BOL. Last week, it was announced in the government gazette that fuel companies will only import 10 percent of the fuel demand, while the rest will exclusively be imported by BOL. This will come into operation on the 1 st of April 2024. According to Mokgosi, Botswana imports all its fuel requirements mainly from South Africa which is now a net importer due to dwindling refining capacity and the country, [ihc-hide-content ihc_mb_type="show" ihc_mb_who="1,2,3,4" ihc_mb_template="1" ] therefore unlikely to cater for Botswana’s fuel requirements while grabbling with its own fuel needs. Mokgosi responded in an interview, in which The Business Weekly & Review sought to understand what informed the decision. She adds that fuel is currently imported by various players without meaningful involvement of the Government in the importation of this strategic commodity that provides more than 50 percent of the country’s energy needs. When BOL was established in 2013, the Government wished to have meaningful involvement in ensuring the security of supply of petroleum products in the country through the National Oil Company, and one of the key anchors of security of supply, according to Mokgosi, is consolidation of import volumes. “This development will give the Government through BOL the required leverage to control the fate of fuel availability in the country and provide the required scale to enter bigger longer-term supply contracts with a diversified pool of suppliers from diversified import sources with better prices. This will enhance bargaining power and reduce concentration risk, improving security of supply for the country,” she responds. The Business Weekly & Review wanted Mokgosi to spell out the implications of the new legislation. In addition to giving financial value back to the Government, she adds that the increased volumes controlled by the Government will grow the pool of funds available for spending on citizen economic development initiatives. She expands further that this will also allow the Government to finance more supporting infrastructure such as storage facilities that are currently not enough to hold the requisite levels of strategic reserves. Botswana Oil is currently managing the Gaborone Depot with a capacity of 24 million litres and the Francistown Depot with a capacity of 38 million litres of fuel giving BOL access to 62 million litres of storage. Mokgosi states that the ongoing and planned expansion of storage facilities at the Francistown depot will provide an additional 60 million litres while the new 60 million liters Ghanzi and the 187-million-litre Tshele Hills storage facilities will give Botswana more than 60 days cover of strategic stock ensuring the country is able to withstand supply shocks. The Francistown expansion project is currently under construction and expected to be completed in mid-2024 while the Ghanzi project is at the award stage with construction expected to start in October 2023. The Tshele project, which is being procured as Public Private Partnerships is at the advanced stage of procurement of the private partner with the request for proposal for the project expected to be issued in the next few weeks. In addition to the storage facilities, as just discussed, BOL spokesperson says it will continue to deliver directly to storage facilities currently owned by the private sector. She was responding to a question from The Business Weekly & Review, which was motivated by some petroleum industry opinions that BOL does not have the storage capacity to ensure the security of supply. Some are worried by the fact that BOL’s plan is based on storage facilities that have not yet been constructed. There are also concerns about the impact on the pricing of fuel since only one entity will be tasked with the responsibility of controlling the price of fuel. Further industry players are worried about the decision’s impact on industry margins, as well as the risks of having only one entity being tasked with the security of supply in a landlocked country. In addition to the current transportation infrastructure, BOL through the Citizen Economic Empowerment Program (CEEP) initiative is working on onboarding more citizen transporters of fuel and says they are in the process of facilitating some of them to acquire requisite licensing to transport fuel as per international standards. “We are in the process of collaborating with other international industry partners (refineries, traders, and service providers) on importation of fuel from various countries. In preparation for this major task, BOL has grown its volumes by over 65 percent during the just ended financial year without the import mandate, making it one of the biggest importers in the country and an industry leader in volume growth,” she answers. To diversify sources and routes of supply, she says BOL has been able to increase volumes imported from alternative routes of Mozambique and Namibia from about 10 percent to 30 percent this past financial year. Mokgosi adds that efficiency drivers that have been established, enabling the current importation of products to the country remain available to be accessed by BOL as evidenced recently when BOL supported the whole industry to avert a security of supply catastrophe. With regards to concerns over pricing and industry margins, Mokgosi says the industry is regulated by the Botswana Energy Regulatory Authority (BERA), including pricing regulations, and to this end, BOL is not aware of any changes in regulations that may affect margins and or the pricing structure because of this importation. “Botswana Oil is privileged to be tasked with the responsibility to be one of the biggest companies to contribute to the Government’s Transformation Agenda and participation in CEEP initiatives. There is also a great opportunity for BOL to contribute to the establishment of new industries and related value chains that will emerge through the Public Private Partnerships (PPP) model of infrastructure development. These developments will be highly invaluable as catalysts for the diversification and growth of Botswana Oil’s products and business portfolios. We therefore look forward to collaborating with citizens, the local and international partners to achieve these strategic goals,” she explains. BERA BACKS BOL BERA, which regulates BOL, agrees that the decision to grant BOL the 90 percent quota is justified. They say BOL provided a convincing justification in terms of its strategy on storage and product handling logistics in their application made to the Authority. BERA explains that the Government has established the National Oil Company; Botswana Oil Limited, with national interests of ensuring the security of the supply of petroleum products into the country, managing Government Strategic Reserves (GRS) and ensuring meaningful citizen participation in the sector. “These national objectives are reflected in the approved National Energy Policy and the Oil Sector Strategy. The decision to grant BOL a 90 percent quota was meant to ensure the realisation of the objectives as stated above. Most importantly, such a decision was meant to anchor the business case for strategic projects currently being undertaken by BOL such as the Francistown Depot expansion, construction of the Ghanzi storage facility, and the Coal to Liquids (CTL) project,” authorities at BERA say. They add that BERA is one of the implementers of this policy through the development and implementation of an efficient regulatory framework. Therefore, they say the Authority will continue to support Government Policy and ensure that it plays a facilitative role to the extent permissible in law. BERA also says the impact of this reform can only be assessed after the implementation period which is April 2024. “That notwithstanding, it is our considered view that every reform will normally have its teething problems at the start of implementation. Should that happen, the Authority would be ready to work with all relevant stakeholders to remedy the situation. Also, note that fuel prices are influenced by a whole number of factors and key among them are trends in international oil prices, freight, and exchange rate movements. Prices and margins are computed as per established methodologies premised on best practice principles. Therefore, we do not anticipate any challenges regarding fuel prices,” BERA authorities say It is important to point out that fuel prices in Botswana are arguably political, with approval of price adjustments coming from the president’s office. Unlike in South Africa where changes are determined by immediate changes in international prices, Botswana lags and adjusts prices only to cover fuel companies’ cost margins. Many have been calling for local prices to reflect international benchmark movements on a weekly basis. The energy ministry previously said when it adjusts, it considers affordability, given that transport has the largest weighting on the inflation basket. In other words, local pump prices are not entirely influenced by changes in crude oil prices. While consumers ultimately pay the price of increased oil prices, changes in Botswana are staggered. Botswana Oil Limited (BOL) is a company incorporated in 2013 under the Companies Act (2008) and wholly owned by the Government of Botswana through the Ministry of Minerals and Energy (MME). For the over 100 years it has been in existence, Botswana’s petroleum industry has been dominated by international oil companies IOCs. The establishment of the national oil company, Botswana Oil Limited (BOL) in 2010 was the Government’s effort to ensure the security of supply and sufficiency of petroleum products in the country. BOL is mandated to manage the government’s strategic fuel storage facilities, strategic stocks to ensure security of supply. Further to this, it is also mandated to facilitate the meaningful participation of citizens in the oil and gas industry by removing barriers that hinder them. Through the creation of BOL, the Government is trying to address this. In the few years it has been in existence, BOL has established a Citizen Facilitation Framework that has four pillars: Procurement, Capacity Building, Supplier Development and Enterprise Development. As a result, BOL has facilitated citizen-owned oil Companies (COOCs) through initiatives like training, mentoring, coaching, leasing of storage facilities, and reservation of tenders, credit line arrangements all in a quest to enable them to break into industry. To date, there are at least 14 active COOCs and more are showing interest to enter the industry. [/ihc-hide-content]

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Botswana Oil takes Control of Fuel Industry

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