The Ministry of Mineral Resources, Green Technology and Energy Security has introduced a security of supply margin of 17.5 thebe per litre on the sale of all petrol and diesel grades effective 11th JuIy 2Ol7.
According to a statement from the Ministry, the purpose of the security of supply margin is to capitalize Botswana Oil Limited (BOL), the national oil company to enable it to undertake projects that address security of supply of petroleum products. “The margin will be part of the price build up for a period of 5 years. The general public is informed that the introduction of this margin into the price build up will not affect pump prices in the short run. The effect will be on the unit rate over/under recoveries.
All importers and resellers of petrol and diesel are required to collect and remit the margin to the Department of Energy,” the statement further states. Botswana imports all her petroleum requirements (approximately 1.2 billion liters per year) from the Republic of South Africa. Government intends to embark on a number of projects that would Botswana Oil Limited add impetus into the economic diversification drive with Botswana becoming fuel self-sufficient and exporting to other southern African countries.
Botswana Oil Limited Projects
From its website, Botswana Oil Limited relays that it will embark on various projects in its endeavour to attain fuel sufficiency for the country, ensure equitable access of petroleum products and optimally manage government reserve stocks and storage facilities.
“These include consideration of environmentally friendly Coal to Liquid (CTL) technologies, execution of the Mobile Filling Station (MFS) initiative, expansion of the Francistown depot and development of the company ICT strategy and business processes. In addition, BOL will execute the Business Readiness project which aims to attain optimisation of company resources,” the company says on the official website.
Although some observers are concerned that the levy will hit hard on consumers who are already depressed financially because of a tight liquidity situation, there is a general view that the Oil industry holds big potential for the country diamond led economy.
Selibe Phikwe might be considered for the multibillion pula Coal Liquefaction Project (CLP) by Botswana Oil Limited, Acting Minister in the Ministry of Mineral Resources, Green Technology and Energy Security, Nonofo Molefhi had recently told Parliament
It is believed that the development of the CTL plant will go a long way in ensuring that Botswana becomes fuel self-sufficient with further potential of being a net exporter of petroleum products in Southern Africa and the African region. Reports from parliament indicate that the coal to liquids projects require substantial investment; it is estimated that the plant which would meet Botswana’s current annual demand of 1.2 billion of petroleum products could costs between US $ 3 – 4 billion (P40 billion) over a four (4) to five (5) year construction period.
Meanwhile Botswana Oil Company is working towards the construction of Tshele Hills oil storage with a capacity of 150 million litres; expansion of Francistown by 30 million litres and construction of Gantsi oil storage facility with 15 million litre capacity to augment the existing two government storage installations currently in use. It is assumed that these projects will need significant funding hence the introduction of the new levy.
A study undertaken by Ministry of Minerals, Energy and Water Resources (MMEWR) between 2012 and 2014 revealed that there are three main petroleum product consumption areas in Botswana – the south eastern area represented by Gaborone; the north eastern area represented by Francistown; and the western area represented by Gantsi/Maun. These areas were found to constitute 57%, 35% and 8% of the overall national consumption of petroleum products respectively.
Botswana Oil Limited is therefore working to expand the existing storage capacity for petrol and diesel in Francistown to meet the government’s strategic storage programme. In addition, BOL seeks to construct an appropriately sized road and rail loading and off-loading gantries to enable effective and efficient supply and distribution of fuel, the company website proclaims.
In addition the company intends to secure premises that are dedicated to tankers for staging purposes. This practice would assist not only in alleviating congestion around depots but also ensure that the depot area’s safety, security and environmental aspects are effectively managed.
Botswana Oil Limited is also constructing a loading facility at the Gaborone bulk strategic petroleum storage depot to address economic contingency plans under the Essential Supplies Regulations by improving the security of fuel supplies to Botswana. “It will increase the citizen oil companies’ participation in the oil sector, improve efficiency of petroleum strategic reserves management (quality assurance in the form of product turning over) and improve efficiency of fuel dispatching during contingency periods,” reads a proclamation on the company website.
The project will result in the construction of two (2) bay loading facility (one handling gasoil and mogas, and the other one handling gasoil, mogas and paraffin), driveway, product pumps, fire pumps, new power DB, prefabricated oil separator, security kiosk and access gate.
Why Botswana Oil Limited…
Botswana Oil Limited was established to support the Government of Botswana to achieve two broad, national economic objectives. These objective are to ensure the security and efficiency of fuel supply to Botswana and promote active citizen involvement in the petroleum industry.
Furthermore it manages state-owned strategic fuel reserve facilities, strategic stocks, bulk storage and distribution of petroleum products; assist emerging companies in the petroleum sector to participate meaningfully in the industry; and to achieve fuel self-sufficiency and diversification of the economy.
The Botswana Oil Limited current customer base consists mainly of citizen owned companies and international oil companies active in the local market. The BOL product range includes Petrol (ULP 93 & 95); Diesel (50 and 500 PPM) and Paraffin on demand.
BOL recently engaged a South African company to optimize its digital transformation to aid growth. Galeboe Mmelesi, ICT Manager at BOL, said at the time that the company recognised that it had to improve its operating model – including processes, data and information management – if it was to drive its performance to new levels.
"Our company is set for tremendous growth over the coming years. However, we had to be ready to scale quickly and efficiently, and for this we needed to establish best-practice processes specific to the oil and gas industry. Our SAP solution now allows us to not only scale our business, but expand into other mid to downstream oil and gas activities, helping us realise our vision of becoming a leader in the integrated oil and gas sector in Africa."
This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.
The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.
Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.
He was speaking in Parliament on Tuesday delivering Parliament’s Finance Committee report after assessing a motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.
Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.
The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.
The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.
The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.
This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.
Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.
Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.
However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.
Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.
When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.
This as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.
Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.
The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.
Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.
In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.
Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.
Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.
Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.
Acknowledging the need to draw down from GIA no more, current Minister of Finance Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”
He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”