The energy sector regulator, Botswana Energy Regulatory Authority (BERA) has rejected an application by the state owned Oil Company – Botswana Oil Limited through which it sought to be awarded an exclusive license that will see it importing 50 percent of the national petroleum requirements.
The recently enacted BERA Act allows for an entity to be issued with an exclusive license as long as the Authority is satisfied with the application. In order to process BOL’s application for such a license, BERA conducted public hearings to allow the public to express their view.
Botswana Oil Limited Chief Executive Officer (CEO) Willie Mokgatlhe had explained that his organization is fully capable to handle the exclusive import license which they had applied for, but BERA has since made a determination that the license application will not be acceded to for now based on technical, skills and financial constraints.
Despite efforts by Botswana Oil to sell their case to industry players, the public and stakeholders in the energy sector, BERA decided against them and rejected the application on the grounds that BOL failed to make out a case to demonstrate the necessity of the exclusive license. During the public proceedings, the CEO had highlighted that unlike other strongly contending companies in the sector they have the capacity to oversee the whole importing of petroleum in the sector.
The Botswana Oil Limited CEO further explained that the application for the exclusive import license which is in line with the section 38 of the 2016 Botswana Regulatory Act allows for the parastatal to hold such a license, to which the authority crashed the claim with another section in which there should be a submission of certain documents to aid the approval for such. The decision of the Authority is further noted to be based on the failure of BOL to meet the requirements as stated in Section 32 (9) (d).
According to BERA the section requires the applicant to present their financial and technical capability, a requirement that Mokgatlhe’s organisation could not satisfy. This contributed immensely to the final decision made by BERA. The Authority was not in a position to do an assessment because the requisite evidence was not availed and there was no explanation to what changes would effect in the importing of petroleum products should the license be granted to BOL.
They cited that such an important decision could not be taken on the basis of speculation because they were not afforded documented plans on the costs and benefits of the proposal. Although Botswana Oil Limited CEO made a case of job creation and sustainability as benefits to the public when presenting to during the public hearing, BERA failed to establish the said benefits of the import license because there was no documentation to support the assertions of the Botswana Oil Limited’s CEO.
On Technical Capability, it was established that Botswana Oil Limited does not have the capacity to handle the licensing. This is one of the core requirements when applying for the exclusive license. The requirement is such that Botswana Oil Limited should have stakeholders in place to work with but at the time of the hearing Botswana Oil Limited indicated that they have no one place yet but there are efforts to engage them.
In preparation for the changes in its role, Botswana Oil Limited was said to be looking at a partnership with a Middle East company – Oman Trading International for the procurement of petroleum and petroleum products. During the hearing, Mokgatlhe explained that the Government of Botswana currently owns two depots which can hold up to 62 million litres (l) of petroleum in Gaborone and Francistown. Currently Botswana Oil Limited imports 10 percent of petroleum product of the market and also have access to government storage facilities of close to 60 million litres for commercial sales which also serves to sweeten the strategic stock.
Furthermore the decision to reject the exclusive import license was based on the realization that although Botswana Oil Limited has access to storage facilities they do not have sufficient storage to store the goods for 60 days uninterrupted. This was supported by a finding by the Authority that the Government planned bulk petroleum products storage programme indicates that the expansion of the Francistown Depot and the Tshele Hills construction project and development of the new storage depot will only fulfill the 60 day stock capacity by 2022.
Despite Botswana Oil Limited having the support of a number of organizations, BERA explained that while Botswana Oil Limited had applied for 50 percent of the exclusive importing licensing, they had agreed and were aware that the awarding of the license would entitle them to 100 percent share of the import market. Mokgatlhe had stated that when BOL procures, they will deliver product for multinationals directly at their current 18.8 litres depots as they would not be importing for themselves.
During the hearing the Botswana Oil Limited CEO admitted that it is risky for one entity to be given 100 percent mandate for fuel supply. Mokgatlhe had said their fuel importation implementation of the product should be done overtime and they wanted to import 50 percent of the fuel volumes while the other 50 percent should be left to citizens companies.
He said they want Batswana to also participate in the value chain and the idea is not for BOL to play in the retail or commercial space. Botswana Oil Limited has been given a 30 day period to appeal the decision at the High Court. Mokgatlhe is adamant the move is a strategic one meant to ensure consistent fuel supply in the country.
Marcian Concepts have been contracted by Selibe Phikwe Economic Unit (SPEDU) in a P230 million project to raise the town from its ghost status. The project is in the design and building phase of building an industrial hub for Phikwe; putting together an infrastructure in Bolelanoto and Senwelo industrial sites.
This project comes as a life-raft for Selibe Phikwe, a town which was turned into a ghost town when the area’s economic mainstay, BCL mine, closed four years ago. In that catastrophe, 5000 people lost their livelihoods as the town’s life sunk into a gloomy horizon. Businesses were closed and some migrated to better places as industrial places and malls became almost empty.
However, SPEDU has now started plans to breathe life into the town. Information reaching this publication is that Marcian Concepts is now on the ground at Bolelanoto and Senwelo and works have commenced. Marcian as a contractor already promises to hire Phikwe locals only, even subcontract only companies from the area as a way to empower the place’s economy.
The procurement method for the tender is Open Domestic bidding which means Joint Ventures with foreign companies is not allowed. According to Marcian Concepts General Manager, Andre Strydom, in an interview with this publication, the project will come with 150 to 200 jobs. The project is expected to take 15 months at a tune of P230 531 402. 76. Marcian will put together construction of roadworks, storm-water drains, water reticulation, street lighting and telecommunication infrastructure. This tender was flouted last year August, but was awarded in June this year. This project is seen as the beginning of Phikwe’s revival and investors will be targeted to the area after the town has worn the ghost city status for almost half a decade.
The International Monetary Fund (IMF) has slashed its outlook the world economy projecting a significantly deeper recession and slower recovery than it anticipated just two months ago.
On Wednesday when delivering its World Economic Outlook report titled “A long difficult Ascent” the Washington Based global lender said it now expects global gross domestic product to shrink 4.9% this year, more than the 3% predicted in April. For 2021, IMF experts have projected growth of 5.4%, down from 5.8%. “We are projecting a somewhat less severe though still deep recession in 2020, relative to our June forecast,” said Gita Gopinath Economic Counsellor and Director of Research.
The struggle of humanity is now how to dribble past the ‘Great Pandemic’ in order to salvage a lean economic score. Botswana is already working on dwindling fiscal accounts, budget deficit, threatened foreign reserves and the GDP data that is screaming recession.
Latest data by think tank and renowned rating agency, Moody’s Investor Service, is that Botswana’s fiscal status is on the red and it is mostly because of its mineral-dependency garment and tourism-related taxation. Botswana decided to close borders as one of the containment measures of Covid-19; trade and travellers have been locked out of the country. Moody’s also acknowledges that closing borders by countries like Botswana results in the collapse of tourism which will also indirectly weigh on revenue through lower import duties, VAT receipts and other taxes.
Latest economic data shows that Gross Domestic Product (GDP) for the second quarter of 2020 with a decrease of 27 percent. One of the factors that led to contraction of the local economy is the suspension of air travel occasioned by COVID-19 containment measures impacted on the number of tourists entering through the country’s borders and hence affecting the output of the hotels and restaurants industry. This will also be weighed down by, according to Moody’s, emerging markets which will see government losing average revenue worth 2.1 percentage points (pps) of GDP in 2020, exceeding the 1.0 pps loss in advanced economies (AEs).
“Fiscal revenue in emerging markets is particularly vulnerable to this current crisis because of concentrated revenue structures and less sophisticated tax administrations than those in AEs. Oil exporters will see the largest falls but revenue volatility is a common feature of their credit profiles historically,” says Moody’s. The domino effects of containment measures could be seen cracking all sectors of the local economy as taxes from outside were locked out by the closure of borders hence dwindling tax revenue.
Moody’s has placed Botswana among oil importers, small, tourism-reliant economies which will see the largest fall in revenue. Botswana is in the top 10 of that pecking order where Moody’s pointed out recently that other resource-rich countries like Botswana (A2 negative) will also face a large drop in fiscal revenue.
This situation of countries’ revenue on the red is going to stay stubborn for a long run. Moody’s predicts that the spending pressures faced by governments across the globe are unlikely to ease in the short term, particularly because this crisis has emphasized the social role governments perform in areas like healthcare and labour markets.
For countries like Botswana, these spending pressures are generally exacerbated by a range of other factors like a higher interest burden, infrastructure deficiencies, weaker broader public sector, higher subsidies, lower incomes and more precarious employment. As a result, most of the burden for any fiscal consolidation is likely to fall on the revenue side, says Moody’s.
Moody’s then moves to the revenue spin of taxation. The rating agency looked at the likelihood and probability of sovereigns to raise up revenue by increasing tax to offset what was lost in mineral revenue and tourism-related tax revenue. Moody’s said the capacity to raise tax revenue distinguishes governments from other debt issuers. “In theory, governments can change a given tax system as they wish, subject to the relevant legislative process and within the constraints of international law. In practice, however, there are material constraints,” says Moody’s.
‘‘The coronavirus crisis will lead to long-lasting revenue losses for emerging market sovereigns because their ability to implement and enforce effective revenue-raising measures in response will be an important credit driver over the next few years because of their sizeable spending pressures and the subdued recovery in the global economy we expect next year.’’
According to Moody’s, together with a rise in stimulus and healthcare spending related to the crisis, the think tank expects this drop in revenue will trigger a sizeable fiscal deterioration across emerging market sovereigns. Most countries, including Botswana, are under pressure of widening their tax bases, Moody’s says that this will be challenging. “Even if governments reversed or do not extend tax-easing measures implemented in 2020 to support the economy through the coronavirus shock, which would be politically challenging, this would only provide a modest boost to revenue, especially as these measures were relatively modest in most emerging markets,” says Moody’s.
Botswana has been seen internationally as a ‘tax ease’ country and its taxes are seen as lower when compared to its regional counterparts. This country’s name has also been mentioned in various international investigative journalism tax evasion reports. In recent years there was a division of opinions over whether this country can stretch its tax base. But like other sovereigns who have tried but struggled to increase or even maintain their tax intake before the crisis, Botswana will face additional challenges, according to Moody’s.
“Additional measures to reduce tax evasion and cutting tax expenditure should support the recovery in government revenue, albeit from low levels,” advised Moody’s. Botswana’s tax revenue to the percentage of the GDP was 27 percent in 2008, dropped to 23 percent in 2010 to 23 percent before rising to 27 percent again in 2012. In years 2013 and 2014 the percentage went to 25 percent before it took a slip to decline in respective years of 2015 up to now where it is at 19.8 percent.