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.
The partnership between Debswana and Botswana Oil Limited (BOL) which was announced a fortnight ago will create under 100 direct jobs, and scores of job opportunities for citizens in the value chain activities.
In a major milestone, Debswana and BOL jointly announced that the fuel supply to Debswana, which was in the past serviced by foreign companies, will now be reserved for citizen companies. The total value of the project is P8 billion, spanning a period of five years.
“About 88 direct jobs will be created through the partnership. These include some jobs which will be transferred from the current supplier to the new partnership,” Matida Mmipi, Head of Stakeholder Relations at Botswana Oil, told BusinessPost.
“We believe this partnership will become a blueprint for other citizen initiatives, even in other sectors of the economy. Furthermore, this partnership has succeeded in unlocking opportunities that never existed for ordinary citizens who aspire to grow and do business with big companies like Debswana.”
Mmipi said through this partnership, BOL and Debswana intend to impact citizen owned companies in the fuel supply value chain that include transportation, supply, facilities maintenance, engineering, customs clearance, trucks stops and its support activities such as workshop / maintenance, tyre services, truck wash bays among others.
“The number of companies to be on-boarded will be determined by the economics at the time of engagement,” she said. BOL will play a facilitatory role of handholding and assisting emerging citizen-owned fuel supply and fuel transportation companies to supply Debswana’s Jwaneng and Orapa Letlhakane Damtshaa (OLDM) mines with diesel and petrol for their operations.
“BOL expects to increase citizen companies’ market share in the fuel supply and transportation industries, which have over the years been dominated by foreign-owned suppliers. Consequently, the agreement will also ensure security of supply for Debswana operations, which are a mainstay of the Botswana economy,” Mmipi said.
“Furthermore, BOL will, under this agreement, transfer skills to citizen suppliers and transporters during the contract period and ensure delivery of competent and skilled citizen suppliers and transport companies upon completion of the agreement.”
Mmipi said the capacitating by BOL is limited to providing citizen companies oil industry technical capability and capacity to deliver on the requirements of the contract, when asked on helping citizen companies to access funding.
“BOL’s mandate does not include financing citizen empowerment initiatives. Securing funding will remain the responsibility of the beneficiaries. This could be through government financing entities including CEDA or through commercial banks. Further to this, there are financial institutions that have already signed up to support the Debswana Citizen Economic Empowerment Programme (CEEP),” Mmipi indicated.
While BOL is established by government as company limited by guarantee, it will not benefit financially from the partnership with Debswana, as citizen empowerment in the petroleum value chain is core to BOL’s mandate.
“BOL does not pursue citizen facilitation for financial benefit, but rather we engage in citizen facilitation as a social aspect of our mandate. Citizen facilitation comes at a cost, but it is the right thing to do for the country to develop the oil and gas industry,” she said.
Mmipi said supplying fuel to Debswana comes with commercial benefits such as supply margins. These have traditionally been made outside the country when supply was done by multi-nationals for a period spanning over 50 years. With BOL anchoring supply for Debswana, this benefit will accrue locally, and BOL will be able to pay taxes and dividends to the shareholders in Botswana.
PwC Africa has presented the eighth edition of the VAT in Africa Guide – Africa re-emerging. This backdrop of renewal informs on the re-emergence of African economies and societies which have been affected by the COVID-19 pandemic.
In this edition, which has been compiled by PwC Africa’s indirect tax experts, covers a total of 41 African countries. It is geared towards sharing insight with our clients based on the constantly changing tax environments that can have a significant impact on business operations.
Within Africa, governments continue to focus on expanding the tax net by improving revenue collection through efficient compliance systems and procedures. PwC Africa has observed that revenue authorities also continue to take a keen interest in indirect taxes as part of revenue mobilisation initiatives.
Maturing VAT system and upskilling SARS
“In South Africa, VAT is becoming more relevant as a revenue source for the government,” says Matthew Besanko, PwC South Africa’s Indirect Tax Leader. “Strides have been made to upskill South African Revenue Service (SARS) staff and identify VAT revenue leakages, particularly in respect of foreign suppliers of electronic services to people and businesses in South Africa.”
Broadening the tax base and digital economy
In the past year, South Africa, Mozambique and Zimbabwe saw updates to their VAT legislation, or introduced specific legislation targeting electronically supplied services (ESS), which is in line with the global trend of attempting to tax the digital economy. “The expectation is that Botswana will also introduce VAT legislation in due course, while the National Treasury in South Africa has also made mention of revising the rules to account for further developments in the digital economy,” Besanko says.
South Africa’s National Treasury has also drafted legislation with the intention to introduce a reverse charge on gold, which is expected to come into effect later in 2022. While in Zimbabwe, revenue authorities have introduced a tax on the export of raw medicinal cannabis ranging between 10% and 20%, which came into effect on 1 January 2021.
ESG and carbon tax
Key strides have also been made within the Environmental, Social and Governance (ESG) space. “ESG leadership, strategising and reporting is essential now for organisations that wish to flourish and remain relevant,” Kabochi says. He adds that companies need to consider how ESG and tax intersect, since tax is a significant value driver when businesses need to deliver on their ESG goals.
In South Africa, a carbon tax regime, which is being implemented in three phases, has been adopted. The second phase was scheduled to start in January 2023, however phase one was extended by three years until 31 December 2025.
Until then, taxpayers will enjoy substantial tax-free allowances which reduce their carbon tax liability. At the beginning of 2022, the South African government increased the carbon tax rate to R144 (about US$9), which is expected to increase annually to enable South Africa to uphold its COP26 commitments.
With effect from 1 January 2023, carbon tax payers in South Africa will also be required to submit carbon budgets and adhere to the provisions of the carbon budgeting system which will be governed by the Climate Change Bill. Where set carbon budgets are exceeded, the government plans to impose penalties. “At PwC, we are continuously focused on our renewed global strategy, ” The New Equation,” Kabochi says. “Through this strategy, a key focus area for PwC Africa is to support clients in adding value to their ESG ambitions and building trust through sustained outcomes.”
The New Equation is also an acknowledgement of the fundamental changes in the business environment in which PwC’s clients and other stakeholders operate. PwC continues to reinvent and adapt to these changes as a community of problem solvers, combining knowledge and human-led technology to deliver quality services and value.
Local and international economists have lowered their projections on Botswana’s economic growth for 2022 and 2023, saying the country is highly likely to fail to maintain high growth rate recorded in 2021 hence will not reach initial forecasts.
Economists this week lowered 2022 forecasts for Botswana’s economic growth rate, from the initial 5.3% to 4.8% and added that in 2023 growth could further decline to 4.0%. The lower projections come on the backdrop of an annual economic growth that recovered sharply in 2021 with figures showing that year-on-year real Gross Domestic Product (GDP) growth increased to 11.4%, up from a contraction of 8.7% in 2020.
Economists from the local research entity, E-consult, this week stated that the 2021 double digit growth that exceeded projections made at the time of the 2022 budget may be short lived due to other developments taking place in the global economy. E-consult Economist Sethunya Kegakgametse stated that the war in Ukraine has worsened supply problems in the global economy and added that before the war, macroeconomic indicators were seen as improving and returning to pre-COVID levels.
According to the economist the global economy was projected to improve in 2022 and 2023. Recent figures show that global growth projections have been revised downwards from the initial forecast of 4.9% in 2022 with the World Bank’s new estimate for global growth in 2022 at 3.2%.
The statistics also shows that International Monetary Fund revised their growth projections for 2022 and 2023 down by 0.8% and 0.2% respectively, falling to 3.6% for both years. “The outbreak of war has severely dampened the global recovery that was under way following the COVID-19 pandemic,” said the economist.
She stated that despite Botswana being geographically removed from the conflict, the country has not and will not be exempt from the disruptions in the global economy. “The disruptions to global supply chains resulting from the war will have a negative effect on both Botswana’s growth and trade activities.
The economic sanctions against diamonds from Russia will add uncertainty to the market which will have knock on effects to Botswana’s growth, exports, and government revenues,” said the economists who added that the disruptions are driving prices up and result with very high inflation in the local economy.
Kegakgametse projected that in an attempt to limit inflation Bank of Botswana will be forced to raise interest rate “Should the sharp increase in both global and local inflation persist, Bank of Botswana much like other central banks around the world will be forced to raise interest rates in a bid to control rising prices. This would mean an end to the expansionary monetary policy stance that had been adopted post COVID-19 to aid economic growth,” she said.
In the latest projections, the UK based economic research entity Fitch Solutions lowered 2022 real GDP growth forecast for Botswana from 5.3% to 4.8% “In 2023, we see economic growth rate decelerating to 4.0%,” said Fitch Solutions economists who also noted that the 2022 and 2023 economic growth projections may come out lower than the current forecasts, as it is possible that new vaccine-resistant virus variants may be identified, which could result in the re-implementation of restrictions. “In such circumstances, we cannot rule out that Botswana’s economy may post weaker growth than our baseline scenario currently assumes,” said the economists.
According to the projections, Fitch Solution stated that there is limited scope for Botswana government to increase diamond production and exports, following the economic sanctions imposed on Russian diamond mining companies operating in Botswana. The research entity added that De Beers is unlikely to scale up diamond output from Botswana in order to prop up diamond prices.