FUEL: The Vexing – and Recurring – Question of Security of Supply

An investigation by The Business Weekly & Review has established that over the past few weeks, fuel (petroleum) companies have been battling a shortage of fuel. Botswana Oil Limited (BOL), the stated-owned fuel company, has confirmed this. But because of limited storage capacity and alternative importation routes, Botswana Oil struggled to fulfil its mandate, which is to ensure the security of fuel supply. BOL functions under defined governance and operating principles to inform and guide its operations. It is mandated to ensure the security and efficiency of supply and distribution of petroleum products in Botswana, manage and maintain government owned strategic storage facilities and strategic stocks, as well as to ensure meaningful participation of citizen-owned oil companies [ihc-hide-content ihc_mb_type="show" ihc_mb_who="1,2,3,4" ihc_mb_template="1" ] in the petroleum industry. However, BOL seems to be having challenges in terms of achieving security of supply. W illing buyer-willing seller In an interview with this publication, Mpho Mokgosi – Senior Manager, Marketing and Communications at BOL, says the state-owned fuel company currently imports about 25 percent of the fuel consumed in Botswana to supply some customers in Botswana on a willing buyer-willing seller basis and a few contracted clients. The Business Weekly & Review approached Mokgosi in a quest to understand why Botswana has been facing security of supply of fuel challenges. She says BOL has a system in place to manage the relationship between contracted market demand and products to be supplied from import sources. To this end, the company BOL engages customers to firm up their forecasts and to commit their requirements with suppliers every month. “In that regard, it is sometimes difficult for BOL to accommodate unplanned demand from customers who ordinarily do not buy from BOL,” she explains. “To ensure the security of supply, BOL often has to ramp up imports to accommodate these unplanned requirements for clients who experience supply challenges.” In addition, she says the industry has been experiencing challenges in the security of supply due to global supply interruptions caused by various factors around the world. It comes to light in speaking with her that the current supply challenges that have been affecting the Southern African region, Botswana included, trace their origins from the pre-COVID days when investors reduced spending on carbon fuels in line with the Environmental, Social and Governance (ESG) concerns. “This slowdown in investment reduced worldwide refining capacity and was further worsened by forced closures of refineries caused by low demand during COVID-19 lockdowns,” she explains. Further, Mokgosi states that when the world recovered following the lifting of COVID restrictions, it was met with less-than-optimal refining capacity. This situation, where demand outstripped supply, was further affected by geopolitical challenges in Europe, especially the Ukraine-Russia conflict, and the situation has been volatile ever since. Disruptions at SA refineries According to several fuel industry players, Botswana’s main problem is reliance on South Africa. In 2019, South Africa had over 10 oil refineries, but fast-forward to 2023 and only one refinery is operational, making SA a net importer. Industry players point to the fact that SA also faces importation challenges. “Sometimes vessels are delayed, leading to a delayed product, thus affecting supply chains,” says an industry player anonymously, who adds that SA prioritises its market before it can supply external customers. “We are at the end of the supply chain,” says the player. SA is now a net oil importer At BOL, Mokgosi does not disagree but clarifies thus: “It is important to note that the Republic of South Africa is traditionally the main source of fuel for Botswana due to better prices offered and no pricing mechanism for importing fuel from alternative routes into Botswana. However, South Africa has recently become a net importer and is therefore unable to cater for Botswana’s full fuel requirements.” In addition, Mokgosi says all potential import routes into Botswana have been activated by all importers to ensure continuous fuel flow into the country. She discloses that BOL has active supply contracts in South Africa, Namibia and Mozambique, with more than one supplier on each route as a way of reducing concentration risk and ensuring security of supply. Alternative import routes But fuel industry players are not satisfied. They believe the government could have long prioritised alternative routes – Namibia and Mozambique - to eliminate the reliance on SA imports. Sources point to the fact that importation through the SA route is effective because of an affordable pricing mechanism. Unfortunately, the Namibia and Mozambique routes do not have an effective pricing mechanism, which makes importing fuel via the two countries far too expensive as compared to SA. Botswana recently issued a tender for private consultants to develop and review the fuel import pricing mechanism for Namibia and Mozambique, but the Request for Quotations (RFQ) was later cancelled. The Business Weekly & Review asked Mokgosi why the government decided to cancel the RFQ and when exactly did government intend to establish a pricing mechanism to ensure affordability and efficiency of the Mozambique and Namibian routes. In response, Mokgosi says alternative routes are operational and that the government has a model in place to manage the cost differential, which currently is under review by the regulator to make it easier for importation through alternative routes to be introduced. However, fuel industry players believe the current pricing model is unsustainable and consider it the biggest impediment to using alternative routes because the prices become uncompetitive. Strategic Fuel Reserves Currently, the government does not have enough fuel storage capacity to keep fuel for times of need. The Business Weekly & Review is informed that in 2017, the government engaged a company called Petrocoms to assess the need for Botswana to establish fuel depots and become sustainable. The company had found that Botswana had no known petroleum reserves and the country imported all its petroleum requirements in refined form, mainly from South Africa. The firm also found that limited supply routes are a bottleneck that has led to periodic shortages in fuel supply. This situation is exacerbated by inadequate internal strategic storage capacity and the long distances to supply all parts of the country. To ensure the security of supply, the Department of Energy in the Ministry of Minerals and Energy found it prudent to source petroleum products from alternative routes and to construct more storage depots in strategic areas to facilitate the use of these routes. Documents seen by this publication show that the objective of constructing these depots was to facilitate the supply of petroleum products to essential services of the government and to improve supply to these essential services in different parts of the country. However, plans to construct strategic fuel reserves are yet to be fulfilled. 15 days ’ cover The current capacity of the strategic reserves is just over 53 million litres between Gaborone and Francistown, holding around 15 days’ cover of products when full. “As Botswana Oil, we continue to look for opportunities to ensure there is security of supply for the country through various collaborations with strategic partners to deliver on key projects,” says Mokgosi. She speaks of the ongoing and planned expansion of storage facilities at the Francistown depot, saying these will provide an additional 60 million litres. The Ghanzi storage facility is 30 million litres, while the Tshele Hills storage facility and the Ikaegeng Coal to Liquid projects will ultimately generate sufficient fuel to drive the economy of the country. Further, Mokgosi notes that the Francistown expansion project is currently under construction and is expected to be completed mid-2024. The Ghanzi project is at the award stage with construction expected to start in October 2023. The Tshele Hills and the Coal-to-Liquid projects, which are being procured as Public-Private Partnerships, are at advanced stages of procurement by private-sector partners. The request for proposals for both projects will be issued before the end of the year. Security of Supply Margin After the government established Botswana Oil Limited (BOL), a levy called Security of Supply Margin was set up to finance the new entity. The levy collects 17.5 thebe per litre from fuel users, which amounts to over P20 million each month. Chief among the reasons the levy was established was to finance Botswana Oil Limited, the state oil company established to achieve the government’s broader economic objectives of ensuring the security of fuel supply and facilitating active citizen involvement in the petroleum industry. BOL is the government’s transformation agent charged with the responsibility of managing state-owned strategic fuel reserves and strategic stocks as well as bulk storage and distribution. This publication asked Mokgosi how the levy has been utilised over the years, and what role the levy played in a quest to achieve the security of fuel supply. She became cagey with details of how exactly the funds were being utilised. However, The Business Weekly & Review is aware that a part of the funds has been used to pay for over-recoveries owed to oil companies. [/ihc-hide-content]

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FUEL: The Vexing – and Recurring – Question of Security of Supply

The fuel industry has been experiencing serious challenges of security of supply that Botswana Oil Limited says are due to “global supply interruptions caused by various factors around the world”

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FUEL: The Vexing – and Recurring – Question of Security of Supply

The fuel industry has been experiencing serious challenges of security of supply that Botswana Oil Limited says are due to “global supply interruptions caused by various factors around the world”

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