The Hidden Costs Behind Botswana’s Elevated Fuel Prices

Motorists will continue paying up to 29 percent more for fuel than they did before the March global energy price shock, despite recent pump price reductions by the Botswana Energy Regulatory Authority (BERA), as accumulated import cost recoveries, elevated logistics costs and a weaker Pula continue to keep prices well above pre-crisis levels.

International oil prices have retreated to near pre-shock levels, but the July adjustment by BERA only partially reversed the steep increases introduced in March. Petrol remains about 18 percent above its pre-crisis price, while diesel is still roughly 29 percent more expensive.

Petrol 95, which sold for P15.47 per litre before the March adjustment, rose to P20.52 before declining to P18.21 in July. Despite the reduction, motorists are still paying 274 thebe more per litre than they did before the crisis.

Diesel has recovered even more slowly. The price climbed from P16.28 per litre before the March increase to P25.05 , before easing to P20.93 in July. Even after the latest adjustment, diesel remains 465 thebe per litre above its February price.

Energy analyst Stephen Lecha of Lecha Energy said the persistence of higher fuel prices reflects the delayed effects of the March market shock rather than current international crude oil prices.

"When global oil prices surged in March, BERA did not fully pass the increase on to consumers," Lecha said.

"While this cushioned motorists from the full impact of the shock, it created under-recoveries because the regulated retail price remained below the actual cost of importing fuel."

Under Botswana's regulated pricing system, fuel importers absorbed part of the increase while the pricing mechanism accumulated losses that now have to be recovered.

Lecha said this explains why Brent crude's return to around US$72–73 per barrel by late June has not translated into equivalent reductions at the pump.

"BERA still has to recover the accumulated under-recoveries carried by importers during the March shock while restoring the financial position of the National Petroleum Fund," he said.

Immediately after the March increase, the under-recovery stood at 32 thebe per litre for petrol and 141 thebe for diesel , indicating that the revised prices still fell short of actual import costs.

"If BERA had implemented fully cost-reflective pricing in March, petrol would have required an additional 32 thebe per litre and diesel another 141 thebe simply to break even," Lecha said.

Another reason pump prices remain elevated is that the cost of refined petroleum products has fallen much more slowly than crude oil prices.

According to BERA data, international petrol prices rose 59.7 percent during the crisis, increasing from US$79.70 to US$127.29 per barrel , while diesel prices surged 90.8 percent , climbing from US$91.18 to US$173.93 per barrel .

Because Botswana imports refined fuels rather than crude oil, these elevated product premiums continue to feed into local pump prices even as crude markets have largely normalised .

The National Petroleum Fund (NPF), which ordinarily cushions consumers from sudden fuel price spikes, also came under severe financial pressure during the crisis.

In April, Minister of Minerals and Energy Bogolo Kenewendo told Parliament that the fund was no longer able to fully absorb rising fuel costs because it was already heavily indebted.

Although the NPF paid P262 million in fuel subsidies earlier this year, it still owed distributors P350.6 million , while estimated under-recoveries following the March adjustment alone totalled P714 million .

"Suppliers were forced to carry these unpaid costs on their own balance sheets, which explains why BERA could not immediately pass the full benefit of lower international prices on to consumers," Lecha said.

Botswana's fuel pricing formula has also slowed the decline in pump prices.

Retail prices are calculated using a rolling 30- to 45-day average of international fuel costs rather than current market prices. While this cushions consumers from day-to-day volatility, it also delays the transmission of lower global prices to the domestic market.

"By the time BERA implemented the March 28 adjustment, import costs had already overtaken the pricing formula," Lecha said.

The result, he said, is a pricing system in which increases are implemented quickly to protect fuel supply, while reductions occur more gradually as accumulated deficits are recovered.

As a landlocked country, Botswana also remains vulnerable to regional transport costs.

Rail and road freight charges from regional ports increased sharply during the crisis and are typically governed by medium-term contracts, meaning they do not decline as quickly as international oil prices.

Inflation Lingers

Transport is not merely another component of the Consumer Price Index, it is the platform on which much of the economy operates .

Transport accounts for an estimated 60 percent to 65 percent of Botswana’s logistics costs, meaning fuel price movements quickly spread through food prices, retail goods, agriculture, construction, manufacturing and business operating costs.

The impact of the March fuel increase was reflected in inflation data. Statistics Botswana recorded annual inflation at 4.2 percent in March before it surged to 10.3 percent in April and 10.7 percent in May.

Transport alone contributed 7.4 percentage points to May’s inflation reading, pushing inflation far above the Bank of Botswana’s medium-term target range of 3 percent to 6 percent.

Economists expect inflation to average 8.7 percent this year before easing to 5.6 percent in 2027.

E conomic researcher Douglas Rasbash said the slower impact of fuel reductions compared with increases reflects what economists call price stickiness — where businesses adjust prices upwards quickly when costs rise but take longer to reduce them when costs fall.

“Fuel price reductions take much longer to work their way through the economy than fuel price increases,” he said.

Businesses often pass higher transport costs through supply chains immediately, but lower fuel costs take time to filter through as companies replace inventories, renegotiate freight contracts and assess whether lower prices will last.

“As a result, the indirect benefits typically emerge gradually over a period of two to six months rather than immediately,” Rasbash said.

The first relief is expected in transport-related areas, including private vehicle costs, freight services and passenger transport. Over time, lower logistics costs could ease pressure on sectors heavily dependent on movement of goods, including food, agriculture, manufacturing, construction and retail.

However, Rasbash warned that some inflation pressures will remain because fuel is not the main driver of costs in several sectors.

“These include housing, rents, utilities, education, medical services, insurance, financial services and labour-intensive activities, where wage and administrative costs remain the dominant drivers,” he said.