Wars have disrupted supply of fuel in the past. Wars similar to that of Russia and Ukraine. Countries pondered on the need of having fuel reserves so that in case of any war or natural disaster, there would be enough supply. And so, there were plans to develop strategic fuel reserves in Botswana.
The transaction advisor at the time, Bakang Seretse, says government decided to build its own reserves in Gaborone and Francistown. “Beyond the two depots, they said we were going to do Tshele, which is a bigger one, and Gantsi,” Seretse told The Business Weekly & Review in an interview, adding that in order to protect Batswana from harsh fuel prices, the government considered introducing a National Petroleum Fund levy (NPF) to help pay under-recoveries.
“The government said apart from that, we will expand our suppliers,” he continued. “They were too dependent on South Africa, hence they needed to open other routes from Mozambique and Namibia. They then went to buy a dry port at Walvis Bay.” Further, he disclosed, the government wanted to build a pipeline from Rustenburg in SA to Tshele in Rasesa. In his view, a pipeline is better than trucks, given the potential disruption from South Africa’s political and labour unrest. Another positive concomitant of a fuel pipeline would be reduction of the number of fuel trucks on the road, fuel being “a very hazardous commodity” that should not be transported by road. Further, transporting fuel by trucks is expensive, according to Seretse and slow at the same time.
“Government also wanted to have a robust slate,” Seretse said. “Unfortunately, slate happens over six months, yet oil prices are daily.” But what irked Seretse is that a lot of what the government wanted to do was not done. Francistown depot was expanded but Tshele and Gantsi have not been done. “When we did 90 percent of the work, we had secured money from RMB and BPOPF,” he said. “But there were personal interests; not government issues but personal interests.
“Some of the banks wanted in on the project. Choosing a funder was not up to Bakang. It was coming from the cabinet, saying they want to use BPOPF and BDC. To give them opportunities to fund us and the money was cheaper. They said in order to stimulate growth and development of the market, let us use RMB to buy stock. For construction, we will give BDC and BPOPF. It was a joint bid.”
Why a joint bid? Seretse answered that BDC did not have money at the time and asked BPOPF to join them. “That project was frustrated deliberately. It is a fact that Batswana are affected by high fuel prices. It is a fact that we could have averted this problem,” he said, adding that it is also a fact that the story that the NPF is unable to perform its mandate of cushioning Batswana against high fuel prices because “some businessmen” misused funds is a fallacy.
He noted that other countries are having the same problem, the only difference being that some of them, say in Europe, “have a strong currency”. As he pointed out, petroleum and petroleum products are bought in USD that is then converted into Pula. Factors that also played a role include prevailing oil prices, exchange rates, the levy, margins of the industry and transport costs.
Seretse believes that the government should have averted transport costs by building pipelines and fuel storage facilities. “If you have storage, let’s say you bought a product at P12 per litre. If the prevailing price is P15, you pump back to the market at P12, that way cushioning Batswana. The levy is also too low to cushion Batswana,” he explained.
But while ensuring storage facilities and related projects was urgent seven or eight years ago, to this day, Tshele has not been built, Seretse emphasised. This is because after they worked hard to raise P3.4 billion for the project, the government allegedly cancelled their contract and wanted to get money from the Ministry of Finance. “There was no money,” he said. “They then changed and wanted to use a PPP model. We told them that we had looked at all these models and it was going to be expensive. One hospital in Lesotho was built through such a model. They spent 30 percent of the national health budget.”
According to Seretse, the government had designs for a railway line and a road to Tshele done. However, with a PPP model, the partners might prefer their own designs. To build on top of what we have already done, we decided to go for a structured finance programme.”
In his view, such a model was simple in the sense that they would borrow from the market whereas a PPP would require them to have an operator, funding and designs. A structured finance programme is also fast and they would have worked within the national strategic intent and brought Botswana Oil and an operator in. “Maybe Botswana Oil would look for a technical partner to capacitate them but we would be doing everything from home,” Seretse noted.
But as this happened, “some banks were saying they had waited all their lives for this project”, he said. “The NPF could not fulfill its mandate because of selfish, brutal personal interests, procrastination, and indecision on the part of the government “The government allowed (personal) interests to hamper national projects.” According to Seretse, the project would have cost P3.4 billion at that time. “It would not be the same this time around,” he pointed out. “Prices of steel and oil have gone up. Just this year, prices have gone up threefold to fill fuel depot. More importantly, we don’t have time.”
The government currently owes petroleum companies over P1.2 billion in under-recoveries. “They keep taking money from the fiscus to cushion the NPF, which is not sustainable,” Seretse said. He disclosed that the government paid him P28 million buying a system for collecting the levy without human intervention, which ensured automation and efficiency. The system is also used in SA, Lesotho and Rwanda. “A lot of operators were not paying,” he said. “Through the system, we played by the book and showed there was fairness in the market.”
That system calculated oil prices and informed decision-makers to know how to adjust prices, thus avoiding situations where there are under-recoveries. But because government no longer uses the system even though it paid for it, “they end up owing companies because their prices take long to adjust”. Seretse noted: “You cannot continue in Botswana to subsidise multi-nationals. Right now, what happens is that they calculate the slate at BERA and take it to the cabinet. You want a cabinet minister to have a say in a price which is international?”
Another issue that perturbs Seretse is concentration risk because all the oil multi-nationals operating in Botswana are foreign-owned. And this troublous reality is not lost to the government. To be fair, Seretse said, there was a point when the government was keenly aware of these issues, hence they appointed “us to deal with them” in accordance with a cabinet decision. “But when it came to implementation, self-interests came in,” Seretse said. “Tshele must come up urgently. Otherwise we will be bankrupt (as a nation). Prices will come to the levels of South Africa.”