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."
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.
Lockdown is back, but now with less stringent measure of curfew restrictions, and will affect the economy whose bounce back was expected to be this year.
Economic projections saw 2021 with glimmer of hope, where all the past Covid-19 ruins will be offset by things going back to normal. An anomaly of curfew has since come to this country’s shores after the discovery of a new Covid-19 variant.
Some Botswana’s trade partners are on complete lockdown ever since the beginning of the festive season when the new variant was reported to be spreading rapidly and uncontrollably.
Measures were since put in place to tame the new high spreading and uncontrollable coronavirus variant called South African 501. V2 which was discovered in Botswana’s neighbor South Africa and the similar variant also known as E484K discovered in the UK.
After South Africa put in a curfew restriction following a response to a second wave of infections driven by a new Covid-19 variant, also called 20C/501Y.V2
President Mokgweetsi Masisi announced on national television Botswana’s first restrictions which was a curfew from 7pm to 4am from 24 December 2020 to 4 January 2021.
This month curfew regulations were extended from 8pm to 4am until end of January and many business operations were either stopped or closed earlier, hence slowing of economic activity in Botswana.
Latest data showing how business operations are being affected is not yet available. But many businesses are already crying foul and showing frustrations.
Lining of economic data with Covid-19 measures shows that at a time when there were lockdowns the economy slumped by 24 percent.
The GDP data of the second quarter of 2020, a time when Botswana got into its first lockdown amid national panic, shows that the real Gross Domestic Product contracted by 24 percent “due to the impact of measures that were put in place to combat the spread of the Covid-19 pandemic.”
But Botswana expected a 7.7 percent rebound and growth in 2021 from the 8.9 percent contraction forecast of last year.
This was pinned on expected improved sentiment in the global diamond industry and overall improved economic activity when the domestic economy goes back to normal.
Bank of Botswana’s Monetary Policy Committee in December last year also projected that inflation will go back to within the objective range in the second quarter of 2021.
Initially, in October last year, the central bank projected that inflation will be within 3-6 percent by the third quarter of 2021.
Two months later Bank of Botswana projections changed with the reversion to the objective range now expected to come earlier than the previous forecast as the domestic and the international economies were opening.
“Overall, risks to the inflation outlook are assessed to be balanced. Upside risks relate to the potential increase in international commodity prices beyond current forecasts, aggressive action by governments and major central banks to bolster demand, as well as possible supply constraints due to travel restrictions and lockdowns, though abating,” said Bank of Botswana last month.
When the meeting of Monetary Policy Committee which was held on 3 December 2020 decided to maintain the Bank Rate at 3.75 percent inflation had increased from 1.8 percent in September to 2.2 percent in October 2020 and remained below the lower bound of the Bank’s objective range of 3 – 6percent.
With the curfew which is place this whole month, spending or economic activity is expected to slow down and inflation will remain below the lower bound of the Bank’s objective range.
According to the last Monetary Policy Statement, the real GDP contracted by 4.2 percent in the 12 months to June 2020 compared to a growth of 3.9 percent in the corresponding period in 2019.
Mining and non-mining sectors registered a steep decline in output and this is blamed on Covid-19 containment measures.
The curfew regulation, despite being of a lesser sting than total lockdown, will have a slight or nominal impact on the domestic economy which is also affected by lockdowns in some of Botswana‘s trading partners.
Uncertainty looms on Botswana as reports continue that the 501. V2 seems to be uncontrollable and is spreading quickly in Botswana population.
While the country is on curfew restrictions, a possible lockdown looms if the disease continue to spread with this much prevalence, according to sources at government enclave.
This means the economic recovery, a rebound or leap in 2021, could remain a big pipeline dream.
The International Monetary Fund (IMF) had forecast the domestic economy to contract by 9.6 percent in 2020 compared to 5.4 percent in the April 2020 World Economic Outlook.
While the domestic eyes projected the economic to rebound to a growth of 7.7 percent, IMF had higher lenses of a growth of 8.6 percent in 2021. But the expected growth is set to be offset by the new elephant in the room, South African 501. V2.
The central bank and other international bodies have not ruled any chances of the pandemic remaining resilient or standing stubborn against countries, meaning possibility of future containment measures remains.
Now in Botswana a stubborn variant of the pandemic has caused panic and curfew regulations.
In December 2020, Monetary Policy Committee said: “Even with recovery in 2021, the contraction in 2020 equates, approximately, to a two-year loss of growth in output. The disparity in forecasts attest to the challenges of making forward projections when there is uncertainty about the duration of constrained economic activity, the resultant adverse impact on productive capacity, as well as the speed of resumption of production and pace of recovery in demand.”
Q3:2020 GDP decrease eases, but still remains in the negatives
The data for Q4: 2020 is yet to be released. Economic data available is the recent Q3:2020 released last month showing that real GDP for the third quarter of 2020 decreased by 6.0 percent compared to a deep contraction of 24.0 percent registered in the previous quarter.
As mentioned by Bank of Botswana in the last Monetary Policy Committee meeting of 2020 which was held in December just few weeks before the release of the Q3:2020 GDP data, the economy was expected to have performed better in the third quarter of 2020 compared to the second quarter given the gradual easing of COVID-19.
In Q3:2020 the economy tried to jump up out of the dark hole, but could move up 18 times and still remain in the fringes of economic hell. Many saw this movement as the one towards the recovery of 2021.
According to Statistics Botswana, the improvement in the third quarter GDP reflected continued efforts to reopen businesses and resume activities that were postponed or restricted due to the COVID-19 pandemic.
The latest report on Sub Sahara Africa (SSA) by rating agency Moody’s was prepared before the global panic of a new coronavirus variant which has already been detected in Botswana following its discovery in South Africa, the country’s major trade partner.
Latest reports are that the new variant, now christened South African 501.V2 or E484K, was detected from the local tourism hub of Maun, and the Covid-19 task team have borrowed credence from the high rate of infections prior to the festive season as vindication of the new virus mutation being in Botswana.
The local task team is not the only one missing on full scientific data of how this new corona virus variant is in Botswana and its carriers or patients — renowned rating agency released a report on Wednesday with absence of any mention of South African 501.V2.
Moody’s made a study on “2021 outlook negative as debt costs intensify amid limited institutional capacity to adjust post pandemic.”
However, the current affairs suggest that “post pandemic” there are mutations or new variants of the virus which should be dealt with, now forcing countries like Botswana, South Africa and some in Southern Africa into coming up with curfew regulations to curb the new form of Covid-19.
The Great Pandemic seems to be here to stay in the midst of humankind if reports coming from next door South Africa about Covid-19 taking new forms to survive vaccine hence spreading uncontrollably is anything to go by.
Optimism has been brought the vaccine which is currently being rolled out, but scientific theories being conducted suggest that the new variant of Covid-19 might prove to be more resistant to vaccination.
Moody’s released a report this week on the outlook of SSA creditworthiness in 2021 which is deemed to be negative. With the new variant sweeping across Botswana and its influential trade partner South Africa, curfew regulations that are currently in place in the two countries could lead to further economic injury.
That Moody’s expectation for the fundamental conditions that will drive sovereign credit over the next 12-18 months to be severe, could be less far-reaching and short sighted given the lack of the new variant factor on the latest report.
“We expect SSA sovereigns to face severe challenges in grappling with the fallout from the coronavirus shock as lower overall economic growth and revenue coupled with higher government expenditure will lead to wider fiscal deficits and higher debt,” said Moody’s on Wednesday.
Higher debt levels, weaker debt affordability (amid both lower revenue and higher interest payments) and low buffers will challenge SSA sovereigns’ institutional capacity to manage economies, public health, budget positions, financing strategies, reserves and social discontent, thus elevating event risk.”
According to Moody’s latest report on SSA, commodity producers and tourism-dependent countries like Botswana were hit particularly hard.
Currently no tourist can come to Botswana lest they want to brave the ‘new Covid-19’, incidentally borders have been closed save for goods transportation.
The change in outlook on Botswana (A2 negative) was driven by a fall in demand for diamonds, its principal export commodity, said Moody’s. This has affected Botswana’s GDP which on the third quarter of 2020 was -6 percent, moving from -24 percent in the second quarter which mirrored all the hallmarks of an economy down spiraled by Covid-19 negative ripple effects.
Moody’s furthered its report by picking on overall growth in the SSA region to be associated with lasting impact of the economic contraction, which the rating agency said it will be greater in 2021.
“The region’s long-term recovery is more precarious given that SSA sovereigns have little fiscal space to counter the pandemic’s negative impact on economic activity and preserve productive capacity, and given that structural factors are generally less conducive to fostering a rebound in SSA than in other Emerging Markets,” said Moody’s.
Moody’s said although favourable base effects will help the recovery, real GDP growth will remain lower than historical averages in most countries. Botswana was at last given a glimmer of hope by the Moody’s report, optimism was that non-energy exporters like this country will remain the most dynamic economies, with growth driven by domestic demand and high public investment rates, and a rebound in demand for non-energy commodities.
“Public investment that addresses infrastructure gaps can raise growth both over the near and longer term. However, the impact of public investment on boosting long-term growth potential is determined in part by investment efficiency, which is generally weak in the region. Public investment efficiency is constrained by weak institutional quality, which affects project selection, appraisal and monitoring, as well as high rates of corruption, which can lead to rent-seeking and cost overruns,” said the rating agency.
Moody’s projected that Botswana will average economic growth of 6.5 percent in 2021 as a global growth recovery drives greater demand for coffee and diamonds. This is despite much uncertainty wearing on this country’s prospect of a big leap, the discovery of the new coronavirus variant believed to be at large in Botswana’s shores.