Govt drags its feet on cushioning against fuel price hikes

• Several countries, including neighbouring SA and Namibia, have done so

This week, Acting Minister of Minerals and Energy, Thulagano Segokgo said Minister of Finance and Economic Development will inform the nation how this will be done.  Several other countries have taken similar initiatives. South Africa’s Business Day newspaper reported in March that the South African government cut the fuel levy by almost 40 percent between April and May at a total cost to the fiscus of R6 billion in order “to cushion consumers and businesses from the effect of prices that have jumped to record highs in the wake of the Russian invasion of Ukraine”.

The report said the levy would be reduced by R1.50 a litre from April 6 until the end of May. “That will bring the charge for petrol down from R3.85c/l to R2.35c/l. The levy on diesel will be cut from R3.70c/l to R2.20c/l,” Business Day reported. Even before the surge in fuel prices, the newspaper reported that “the government provided relief in the 2022/2023 budget by freezing the fuel levy and the one for the Road Accident Fund, at a cost of R3.5bn”. SA’s finance minister Enoch Godongwana reportedly has tabled for an extension of the suspensions by another two months. Namibia also acted with its cabinet approving recommendation of a temporary reduction of levies imposed on fuel on all products for a period of three months (May to July) by 50 percent.

According to a statement by the country’s Ministry of Mines and Energy, approved reduction in the levies amounted to 135.375 cents per litre on each of the two products and is based on a monthly fuel consumption of about 89 million litres. According to the ministry, the reduction of levies amount to about N$120.4 million per month in savings to the fuel consumers at the macroeconomic level.  However, it is important to note that Namibia experienced both over-recoveries and under-recoveries. The forthcoming reduction of the levies also entails that an over-recovery on petrol of 31 cents per litre and an under-recovery on diesel of 92 cents per litre are each supported by an extra surplus of 135.375 cents per litre on each product, the ministry said in a statement.

While the Botswana Government is reportedly considering similar measures, some hold that it has dragged its feet for too long. Some observers also argue that the government may hesitate from reducing levies, given that some of these funds have been redirected to foot the bill of oil companies. BERA recently revealed that the cabinet had considered the matter of debt and directed funds from the Road Levy and a couple of others to reduce the debt. P130 million was taken from Security of Supply Margin (SSM) to settle some of the debt. BERA said they are now looking at collecting about P230 million a month instead of P9 million, which should reduce the debt over a period of six months.

Economists argue that the reduction of levies would create a need for a supplementary budget to fill the gap. The NPF is a cushioning mechanism but it is not able to perform its functions after much of the money in it was used under the Ian Khama administration and because it is now overwhelmed by rising international oils prices. Under normal circumstances, when international prices go down and there is a period before local prices are adjusted, the NPF collects money as savings. Conversely, when international prices go up compared to local prices, the NPF pays money out to oil companies as a cushion. But oil prices have been going up over the past 18 months. BERA says the NPF currently collects P14 million a month while under-recoveries register P100 million a month.

BERA reviews prices every month but takes a while, some will say too long, before adjusting prices. But CEO Rose Seretse says there is always a consideration for the consumer. “We always take into account that before we increase (prices),” she said recently. “That consideration and other factors always come to play.” Seretse added that they always endeavour to effect the full rate of recovery after establishing what the shortfall is. Even so, oil companies argue that local prices should be adjusted monthly in order to keep track of international prices.