- SA refineries may be unable to supply Botswana with fuel from April, May and June
- Only P49m left in the NPF
- NPF fails to cushion Batswana against exorbitant fuel price increases
With a meagre balance of P49 million, the NPF is unable to cushion Batswana against exorbitant fuel prices that keep rising further.
Further, since its looting by powerful greasy men, the government has been unable to construct enough storage capacity to store fuel for use during tough times like these. As things stand, Botswana is about to face a serous fuel shortage as a result of the Ukraine-Russia war and related geopolitics.
In an interview with The Business Weekly & Review, the Minister of Mineral Resources, Green Technology and Energy Security, Lefoko Moagi, admitted that the continued rise in international oil prices have put considerable pressure on local pump prices as well as on Botswana’s price cushioning mechanism. Minister Moagi said most factors currently support oil prices, noting that aside from the geopolitics in Eastern Europe and the Middle East, there is a structural supply deficit and potential increase in demand.
“As of February 2022 review, one of the largest refineries in South Africa, SAPREF, shut down at the end of March and shareholders of the facility were looking to sell it,” the minister revealed. “The closure of the facility has now added to other refineries that had since closed in South Africa, CALREF and ENREF. The (Botswana Energy Regulatory) Authority has seen a communique from SASOL (the second largest refinery after SAPREF, with a throughput of 150,000 barrels per day) to some oil companies in Botswana declaring inability to supply diesel and petrol for the months of April, May and June 2022. This situation will affect Botswana badly as some of the product consumed in-country is sourced from SASOL.”
Moagi said all pump price adjustments are done at a minimum a month after the actual adjustments in the market. In most situations, the period between the market adjustments and the actual pump price adjustment averages around three months. “During this period, the National Petroleum Fund would have been cushioning the customer against the market price increases, on average the Fund paying around P250 million per month,” he said. Unfortunately, the NPF cannot provide that cushion any more.
Asked about the state of the NPF, Moagi said only P49 million remains in the strategic fund. The National Petroleum Fund was created through the National Petroleum Fund Order of 1st February 1986. The purpose of the Fund is, among others, to subsidise prices charged by the oil industry, commonly referred to as pump price stabilisation. Price stabilisation simply defers any sudden price increase/decrease for a limited time to give the public an opportunity to adjust to new price regimes.
Due to the equilibrium nature of the NPF, it can only collect modest amounts from consumers over time that can quickly become exhausted in times of high price differentials. The Business Weekly & Review asked Minister Moagi about the current capacity of the NPF to play its role. In response, he said his ministry reviews retail pump prices of petrol, diesel and illuminating paraffin on a monthly basis through the Botswana Energy Regulatory Authority (BERA). The retail pump price adjustments are done to align with international crude oil and refined petroleum product prices. Further, Moagi said the increase in pump prices continued to be influenced by increases in international oil prices. Since February 2022, he pointed out, the main driver of international oil prices has been the Russia-Ukraine conflict that threatens global crude oil supplies.
In March 2022, international crude oil prices continued their upward trajectory, averaging US$112.46 per barrel compared to US$94.10 per barrel recorded in February 2022. Average prices increased by 19.5 percent between February 2022 and March 2022. Oil prices have surged more than 30 percent since Russia invaded Ukraine nearly three months ago. Prices continued to rise on fears of a supply crunch and because traders are avoiding shipments of Russian crude oil and refined oil products as financing and securing Russian oil shipment is becoming increasingly difficult. Moagi pointed out that prices have not only been increasing due to geopolitical concerns in Ukraine but also in Saudi Arabia.
“Houthi rebels have been attacking oil facilities of the Saudi state oil company, thereby disrupting global supply,” he said. “Reports of European Union countries considering joining the US in an embargo on Russian oil also supported price increases. Damage to a loading facility of the Kazakhstan pipeline that accounts for nearly 1.2 percent of global oil added to an already tight global supply dynamic.” The NPF also plays a critical role in the management government strategic fuel storage facilities by financing construction of fuel reserves. Currently the government does not have enough fuel storage capacity to keep fuel for times of need.
In 2017, the government engaged a company called Petrocoms to assess the need for Botswana to establish sustainable fuel depots. The company had found that Botswana had no known petroleum reserves and imported all its petroleum requirements in refined form, mainly from South Africa. The firm also found that limited supply routes were/are a bottleneck that has led to periodic shortages in fuel supply. This situation was/is exacerbated by inadequate internal strategic storage capacity and the long distances to supply all parts of the country.
In order to ensure security of supply, the energy department found it prudent to source petroleum products from alternative routes and to construct more storage depots in strategic areas to facilitate 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 at different parts of the country.
Although this was the mandate of the energy department, files show that the plan was under the supervision of the Office of the President (OP), led then by President Ian Khama and Vice Mokgweetsi Masisi. The OP had identified five potential sites for development of the depots in Phase One and Phase Two. The sites were identified in Gaborone, Lobatse, Lone Tree, Maun and Mahalapye. At the time of this proposal, a team comprising officials from the OP, the Department of Energy, a representative of Petrocoms, and a contractor who was running services and maintenance, SLA, for the OP’s four depots that were constructed five years ago (from 2017) visited the sites from 23 June to 28 June 2017. Preliminary observations and assessments were made on the proposed sites. From observations and assessments of the team,
it was planned that the project would be implemented as follows: Site investigation which involved development of site maps, undertaking sites topographical surveys and geotechnical surveys and preparation of inception report. Preliminary design – this involved tank sizing, orientation and configuration, production of general layout drawings, development of facilities operation philosophies, development of design basis memorandum and preparation of preliminary design report. Environmental impact assessment reports – as per the EA act 2016, an EIA report was to be developed for the project.
Final design – this involved material choices and selection, equipment selection and sizing, deriving sources of construction materials, selecting suppliers, sourcing indicative prices, production of final designs, production of final design report, production of tender documents and hazop study. Construction – this entails construction of depots which involve construction of the tank farm, construction of the truck loading/offloading facilities, construction of the fire fighting system and other ancillary works in accordance with the approved designs.
According to the proposal, the project was to be implemented through the OP with the assistance of the Department of Energy. The Fidic Yellow Book (design and build) was the preferred project development model. Under this model, the contractor was appointed to design, procure and construct the works. It was envisaged that a contractor would be engaged for design and construction of the works and an independent consultant was to be engaged for undertaking the EIA study and monitoring of EMP during construction.
“The contractor, under the supervision of the government officials from the Office of the President and the Department of Energy, will design and construct fully operational depots at Gaborone, Lobatse, Lone Tree, Maun and Mahalapye in accordance with international recognition standards,” the proposal read. The project was estimated to vest over 39 months, gobbling up a total of P656 million, according to the proposal.
However, the project cost is roughly the amount of money allegedly misappropriated from the NPF, resulting in its near-total depletion. Previously, the then CEO of the Botswana Energy Regulatory Authority (BERA), Rose Seretse, revealed publicly that NPF was struggling to honour its financial obligations. For example, she said, the expansion of the Francistown Oil Storage Facility was suspended because of that.
Government established the NPF in 1986 for the purpose of meeting the engineering, construction and operating costs of the strategic oil storage facilities and most importantly determine stability of prices charged by the oil industry. Accordingly, they are not supposed to be used outside this mandate. However, it turned out that after the approval of the project, the funds were diverted for unclear reasons, which is basically why – other than the geopolitical reasons that are of recent origin – Botswana is facing a fuel crisis in the form of exorbitant and frequently escalating fuel prices and hardly any fuel storage facilities.