An 8.6 months year old Embraer ERJ 170 jet with serial number 17000319 currently bearing registration code N735A lies in store and unused at UK aviation company waiting for Air Botswana to take it home, BusinessPost has established. Fresh information is that this airmachine which is currently owned by UK leading professional aircraft registration company, Southern Aircraft Consultancy, is expected to descend upon Botswana in June this year.
Recently Minister of Transport and Communications Dorcas Makgato also confirmed that government has approached the funding facility of Public Service Debt Fund (PSDF) for acquiring of two jets and the first one has arrived in last day of 2018. The PSDF loan, according to the minister, is P230 million payable over a period of seven years at an interest of 5 percent for the two jets. Before the minister released a hint, there have been sketchy details on the two aircrafts; how they were paid for and whether one or two were acquired.
BusinessPost has established the kind of the second jet which is coming to Air Botswana shores in a space of two months. The aircraft which was manufactured in 2010,m the Brazilian plane maker Embraer is currently stored at the Southern Aircraft Consultancy like her fellow sister Embraer ERJ170 (c/n 17000318), A2-ABM, formerly registered N734A which was delivered on the New Year’s Eve of 2018. The two aircrafts were both kept on the storeroom before the other was delivered to Botswana.
This publication understands that before being delivered to UK the coming Embraer jet was formerly part of the three jets (including the one that is already in Botswana) owned by Saudi Arabia’s state owned oil company Saudi Aramco. Unconfirmed reports are that both jets were part of the aircraft sales bribery matter that rocked the Asian country. They are alleged to have been part of the three jets bought from Brazilian aircraft maker Embraer SA by Saudi Aramaco linked to a huge scandal where a former executive of Embraer pleaded guilty in October 2016 to USA charges that he arranged a bribe to an employee of the Saudi company.
In early 2010 Saudi Aramco had awarded Embraer a $93 million contract for three new aircraft. Saudi Aramco named the aircraft that is now owned by Air Botswana Damman, the other one which was bought by this country and coming was named Shaybah while the third jet which was bought by the Saudi company named al-Hasa’s whereabouts are unclear.
It is reported that after the bribery scandal Saudi Aramaco’s relationship with Embraer suffered as all the three jets were never seen on the Saudi skies again before taken by Southern Aircraft Consultancy in 2018. Some reports allege that al-Hasa might still be “stored” at Saudi Arabia waiting for it to be sold. Investigations shows that ever since the 2016 scandal Saudi Aramco ‘grounded” all the Embraer aircrafts and since then the Saudi company has not flew any aircraft made by the Brazilian jet maker.
In 2016 after the bribery allegations Saudi Aramco confirmed publicly that it had “suspended all business dealings with Embraer since the incident and excluded it from any future business.” This is despite Embraer in October 2016, the same year, agreeing to pay $205.5 million to settle a six year corruption investigation by US and Brazilian authorities-a spirited attempt to resuscitate its disgraced mammoth image. During that time Embraer was involved in similar corruption scandals in Mozambique, India and Dominican Republic.
How Air Botswana settled for “cheaper” second hand jets
Further allegations reveal that the two jets which are now on Air Botswana’s books never touched the sky for a long time and were “stored” at Southern Aircraft Consultancy before being acquired at “a cheaper price” by Air Botswana. Further unconfirmed reports suggest that the N735A which is expected to come to Botswana is currently still residing at Toronto Lester B. Pearson International Airport pending its fate.
This publication can authoritatively reveal that in 2016, the same year when Embraer was hit by myriad corruption scandals involving the sale of their jets Botswana government had toyed with the idea of buying an airmachine from it. The same year a P2.6 billion refleeting tender was put forth for purchase of two jets (from Embraer) and two turbo-propellers. It was the same time when the then Minister of Tourism Tshekedi Khama was said to be taking Air Botswana from the transport ministry to his portfolio- a move that failed and so was the lucrative tender.
Three companies Embraer of Brazil, Bombadier of Canada and ATR of France were on government’s mind during that seemingly lucrative refleeting tender. A source revealed this week to the publication that the refleeting was dealt a huge blow and delayed because of disagreement of a task team that lead the project. In 2016 it also emerged that a sub-committee for privatization of Air Botswana visited countries like the US, Brazil and Canada in a bid to buy new fleet. The then minister of transport Kitso Mokaila “was not in any way going to break a bank for government to buy the new fleet” hence the disagreements, said a source.
It is reported further that government officials which were part of the negotiating team for refleeting agreed that “cheaper”, “affordable”, “sustainable” and “durable” second hand aircrafts were ideal for the hence the move to buy the two used jets. “Therefore, Botswana Government decided to buy two second hand jets for P230 million. Government officials were advised that it is affordable and sustainable. If you watch very carefully, government was advised by a consultant to buy these kind of brands which are trusted internationally and it was believed even the second hand Embraer jets or ATR turbo-propellers,” said a source.
Okavango joined by younger sister as privatization remains on the horizon
Born in 22 November and renamed Okavango by Air Botswana, Embraer ERJ170 (c/n 17000318), A2-ABM, formerly registered N734Awas acquired from Regional One last year December, but it is yet to take on the skies. It is expected to take on Lusaka and Harare routes which will be opened on next week Tuesday.
With the additional N734 which was made on 15 December 2010 coming in June, Okavango will not be a lonely jet on the Botswana skies. The coming new jet yet to be named by Air Botswana upon arrival is expected to get a brand name after being ‘born again’ to the local airliner and it is expected to traverse the long routes of Gaborone-Durban and Gaborone-Maputo in few months to come. The new jet will add to Air Botswana’s fleet of five aircrafts.
The same month when the new jet arrives, International Air Transport Association (IATA) will conduct a biennial Operational Safety Audit. The last audit which was carried in 2017 cleared Air Botswana as fit and safe. Meanwhile the national airline has been taken up by PEEPA for privatization, the process started last year December. Minister Makgato revealed recently before parliament that PEEPA has appointed Deloitte Consulting as a “Transaction Advisor”
“The key deliverable would be strategic options available to Government on how the airline could be privatized thereby enabling the shareholder to make strategic choices in line with other national strategic objectives,” said Makgato to parliament.
Government has made some adjustments0 in fiscal policy, as some taxes and levies are to be imposed from the beginning of March this year. It is expected that effective 1st March 2021, government will announce an increase on fuel levy followed by increases in tax items including VAT and tax on sugar-sweetened beverages.
FILL UP AND PAY CAESAR TOO AMID FUEL CRISIS
Ministry of Mineral Resources, Green Technology and Energy Security in 2017 approved 17.5 thebe per litre which will be in addition to the already existing fuel levy of 13.5 thebe per litre. Apparently Botswana consumes 1.2 billion litres of petroleum products and the levy could raise P210 million per annum which could be used to; purchase of stocks for Botswana Oil Limited, meet insurance premiums for government oil storage facilities and construction of other strategic storage facilities around the country.
According to investment manager Kgori Capital, the new tax might not immediately lead to an increase in fuel pump prices as the National Petroleum Fund (NPF) might be able to cushion the effect of the tax in the short term. Kgori Capital said this however could see increased outflows from the fund which could be unsustainable over the long term.
Recently government released a ‘National Fuel Supply Update’ announcing that the shutdown of three refineries in South Africa, making Botswana look elsewhere to increase sourcing from alternative suppliers. As assurance government stated that it is currently able to meet fuel demand, that back-up is available, it would only be deployed if the situation deteriorates.
Other determinants of fuel price dynamics could be the Rand vs US Dollar. This week on Thursday the Rand rallied for another day, retaining gains from the previous day, as risk appetite stayed high on hints that the new US administration would be in support of a huge stimulus to uplift the economy.
On Thursday commodity news oil prices were supported for yet another day on Wednesday, climbing above US$56 per barrel in mid-afternoon trading, supported by expectations that the incoming US administration would approve a large stimulus package to boost the economy and in turn support oil demand.
According to stockbroker Motswedi Securities, also supporting the commodity’s pricing were ongoing supply cuts by the Organization of Petroleum Exporting Countries as well as expectations that US crude inventories are forecast to decline for the week ended 15 January 2021.
Last week the FNBB researchers said they expect a possibility of a rebound in oil prices as economic activity recovers this year. FNBB said it is probable that fuel prices will be increased to mimic international oil price movements.
First National Bank of Botswana Quantitative Analyst, Gomolemo Basele, in his recent analysis of December inflation, said over the course of this year inflation should receive some upward pressure from volatile items, particularly the transport group index as the fuel levy is anticipated to increase from P0.12 to P1.12, effective 1st March 2021.“We also expect further pressures on the administered prices of water and electricity, as well as increases in tax items,” said Basele on behalf of his FNBB economy research team.
VAT TO GO UP SOONER THAN EXPECTED, JOB LOSSES
Amid being met with a lot of opposition, FNBB expect an increase in VAT from 12 percent to 14 percent, effective 1st April 2021. Last year permanent secretary in the Ministry of Finance and Economic Development, Wilfred Mandlebe told Parliamentary Committee on Government Assurances (PCGA) that as part of economic recovery from Covid-19 shocks, VAT will be increased from 12 percent to 14 percent in the next financial year.
This is despite Basele in his December inflation report warning that the demand side will remain muted this year as the bulk of Botswana’s labour force will be faced with unemployment challenges as well as pressures on disposable income levels due to diminished economic activity.
State of Emergency which bars employers to lay off employees might end the same time when government imposes an increase in VAT, this is why FNBB expects inflation to average 2.8 percent in 2021 and anticipate that the Bank of Botswana will remain accommodative this year and cut the bank rate by 25 basis point.
INTRODUCTION OF SUGAR LEVY
The beginning of the next financial year will see tax on sugar-sweetened beverages be 2 thebe per gram over and above 4 grams per 100 millilitres. This tax will be implemented by a Statutory Instrument to be issued by Ministry of Trade and Investment.
According to World Bank last year September, sugar-sweetened beverages (SSBs) are non-alcoholic beverages that contain caloric sweeteners, such as sucrose (sugar) or high-fructose corn syrup (HFCS). SSBs include carbonated soft drinks (carbonates), energy drinks, concentrates or syrups, sports drinks, less than 100 percent fruit or vegetable juices such as juice drinks or nectars, ready-to-drink teas and coffees, sweetened waters, and milk-based drinks.
SSBs are said to be the main factors of overweight and obesity which leads to a number of chronic non-communicable diseases (NCDs), including coronary heart disease (CHD), stroke, diabetes, and at least 12 cancers (cancer of the mouth, pharynx and larynx, oesophagus, stomach, pancreas, gallbladder, liver, kidney, prostate, colorectal, endometrium, ovaries, and post-menopausal breast).
In his first State of the Nation Address (SONA) in 2018, President Mokgweetsi Masisi blamed the increasing incidence of people who are overweight and obese amongst the Botswana population on the increased consumption of sugar sweetened products, especially beverages.
HOUSING INFLATION TO SOAR INTO THE NEXT FINANCIAL YEAR
Botswana Housing Corporation is expected to rise to the occasion this year by taking more from Batswana pockets in the coming financial year. The housing utility will adjust rentals by more than 100 percent margin effective 1st April 2021.
This could further spike future inflation into the housing and utilities group index which in December registered a rise of 0.3% m/m owing to higher costs associated with materials for the maintenance and repair of dwellings (0.9% m/m).
INFLATION TO REMAIN SUBDUED AND UNDER THE OBJECTIVE RANGE
The December 2020 inflation remained unchanged at 2.2%, bringing the 2020 inflation average to 1.9%. While Basele believes the 2021 inflation should receive some upward pressure from volatile items, particularly the transport group index as the fuel levy is anticipated to increase from, he said the demand side will remain muted this year as the bulk of Botswana’s labour force will be faced with unemployment challenges as well as pressures on disposable income levels due to diminished economic activity.
This moves FNBB to expect inflation to be just below the 3-6 objective range and be lower at 2.8 percent, the bank’s researchers further anticipate that the Bank of Botswana will remain accommodative this year and cut the bank rate by 25bp.
Botswana Government through Ministry of Mineral Resources, Green Technology & Energy Security (MMGE) has underscored its intention to support power generation through Coal-Bed- Methane (CBM).
This week Tlou Energy, one of the publicly listed companies exploring CBM power generation revealed in a circular to shareholders that the Ministry’s commitment to support the industry was a significant push to its ambitions.
Tlou Energy is focused on delivering power solutions to Botswana and southern Africa to alleviate some of the chronic power shortage in the region. The company is currently developing projects using gas and plans to add solar power projects to provide a cleaner power source. Botswana has a significant energy shortage and generally relies on imported power and diesel generation to fulfill its power requirements.
Last year Tlou Energy and state owned Botswana Power Corporation (BPC) singed a Pilot Power Purchase Agreement (PPA) for the first 2 Mega Watts of power from the Lesedi project. A grid connection agreement was also signed which enables the injection of power into the BPC grid.
These according to Tlou are key agreements that will facilitate development of the power project and the sale of first power. The company says things are promising for a larger power purchase agreement. The BSE listed energy outfit revealed that, “Botswana’s Ministry of Mineral Resources Green Technology and Energy Security (MMGE) has provided confirmation that negotiations on a larger PPA are due to commence in February.”
Tlou’s Managing Director, Mr Tony Gilby commented, “It is great to see that Botswana is open for business and the Government is motivated to get the gas industry up and running.” Gilby revealed that his company plans to start development of the Lesedi project as soon as possible noting that “confirmation of the Government’s enthusiasm to provide the necessary support to ensure commercial development of CBM is very well received.”
“In addition, we have also recommenced negotiations with Botswana based project financiers this month as we aim to close a deal for funding as soon as possible. After what was an extremely challenging year the Company is already making progress in 2021 and anticipate further advancement on all fronts in the coming term. We look forward to updating the market with further developments in due course,” he said.
Tlou said it has received written confirmation from MMGE of the “intention of MMGE to fast track the development of Coal Bed Methane (CBM) in Botswana.” MMGE also stated that it is “happy to provide the necessary support to ensure commercial development of CBM.”
In relation to the current tender to implement up to 100MW of CBM fired power plants MMGE has stated that negotiations with preferred bidders are due to commence in February 2021. The letter also acknowledged that the “Government is fully committed to seeing this project coming to fruition, as it will promote the gas industry, contribute toward import substitution, as well as to improve the livelihood of Batswana.”
“We welcome this update and look forward to negotiation and finalization of the tender process in the near term,” Tlou Energy Directors said.In 2018, MMGE issued a Request for Proposal for Development of up to 100 Mega Watts of CBM fueled power plants in Botswana.
Tlou submitted a comprehensive response to the tender including a plan to develop the project in stages, as well as outlining project feasibility, proposed field development, installation of power generation facilities and supply of power into the grid in Botswana.
Kgalagadi Breweries Limited (KBL) has suspended its operations indefinitely owing to the tough trading conditions occasioned Government decision to ban the sale of alcohol at the beginning of this month.
The brewer announced the decision today (Wednesday). KBL Corporate Affairs Manager Madisa said from the 25th January 2021 only a minimal number of critical roles will continue to be staffed and all other operational activity will stop.
KBL also acknowledged the impact this will have on the overall supply chain and those whose livelihoods depend on the beer industry and requests their understanding.
The current ban is expected to end on 31st January 2021, KBL said should the ban be extended past this date, suspension of its operations will continue.
KBL explained that its Tuesday meeting with suppliers was to align with them that due to the current situation, the brewer will suspend payments as of 6th February 2021, up for review pending the outcome of the current alcohol ban.
“However, it is regrettable that this latest total ban on alcohol sales has resulted in the suspension of KBL’s operations, which will remain in place for as long as the alcohol ban persists. KBL continues its efforts to engage government on this critical issue, which is having an enormous impact on the industry and its extensive value chain,” said Madisa.
On Tuesday afternoon, KBL conducted an ‘emergency meeting’ with its suppliers addressing some business decisions the company has made amid the current alcohol ban. Botswana has several alcohol bans since the first lockdown of March.
Mostly alcohol has been banned as a measure of curtailing the spread of Covid-19 and government then lived with putting stringiest operating hours for alcohol sales and distribution for a long time. Next week Monday KBL will be shutting down its operations, after a two weeks ban on liquor.
Sources say ever since the 4th of January 2021 when the December curfew regulations were extended, KBL has been brewing stacks of liquor for stockpiling. This is solely the reason why the brewer decided to close shop and stop manufacturing alcohol, because KBL’s depots no longer needed supply. On Tuesday suppliers were told to stop supplying KBL as next week the plant will be closing.
Air of uncertainty was hovering in the KBL plant premises on Tuesday as many workers feared mostly for their jobs. No one knows when alcohol ban will be lifted or if Botswana is going for a hard lockdown following the recent surge of Covid-19 infections. Botswana has 18,630 coronavirus cases, with 88 deaths and 14,624 recoveries.
KBL owner Botswana Stock Exchange (BSE) listed Sechaba Holdings came into contact with response to Covid-19 in March when Botswana recorded its first cases and that was the time when the company was doing well for years since the shedding of alcohol levy.
Sechaba associates, KBL and Coca Cola Beverages Botswana (CCBB), that time according to the holding company in its abridged financial results for the year ended 31 December 2019, continued to forecast growth in 2020 notwithstanding the challenges related to COVID-19.
Sechaba that time saw the business environment has been generally positive including relationship with stakeholders and the associates continue to manage the performance and business continuity risks.
Ten months ago the brewer underestimated the damage that can come with the pandemic and expected Covid-19 disruptions to be “temporary and the business will survive.”
That time Sechaba’s sole associate, KBL operates traditional beer breweries, alcoholic fruit beverages and a clear beer brewery.
In the period that just ended in December 2019, KBL contributed 72 percent to Sechaba’s revenues while CCBB contributed 28 percent. KBL also performed high in contribution to profit after tax with a share of 74 percent while CCBB contributed 26 percent.
Sechaba holds 49.9 percent in the local headline alcohol brewer KBL and 49.9 percent in the non-alcoholic drinks associate, CCBB. Sechaba holds 60 percent of the shares of KBL while SABMiller Botswana B.V. holds 40 percent. SABMiller Plc has management control in the operating company. The Botswana Development Corporation has a 25.6 percent shareholding in Sechaba Breweries Holdings Limited.
The glitter on the glass of KBL or Sechaba, is of December 2019 financial results which was downplayed and turned into a bearish affair in the financial results for the half year ended 30 June 2020. For those results, there was a spill in profit by Sechaba cash cow KBL by 72 percent while CCBB recorded a decline in profit by 15 percent, both and respectively in correspondence with the same period in 2019. All this downfall comes down to a loss of 60 percent of profit by the parent company. That was more than the 60 percent fall expected before the release of results.
In September during the release of the June 2020 results, Sechaba admitted that the intervention put by government since April, to fight the Covid-19 pandemic, negatively impacted its business performance and its associates, KBL and CCBB bore the full brunt. Revenue collected for KBL was lower by 37 percent while for its sister associate; CCBB, the numbers were down by 7.1 percent. This is the time when sale of alcohol was banned and manufacturing of soft drinks was not part of essential services.
Sechaba Chairman, Bafana Molomo last year said even though Covid-19 interventions would have an impact on the associates, this impact is expected to be temporary and the businesses will survive.
“However, it is advised that the situation is changing constantly and that it will be monitored closely. The Group’s associates continue to forecast growth in 2020 notwithstanding the challenges relating to Covid-19. The business environment has been generally positive, and the Group continues to enhance relationships with all stakeholders. The associates continue to manage the performance and business continuity risks,” he said.