The fuel crisis which struck Botswana beginning of July as a result of supply chain disruptions has exposed the country’s vulnerability, lack of preparedness to unforeseen circumstances and weak petroleum supply security base.
Due to COVID-19 pandemic, when countries went on lockdown, fuel demand dropped to record low levels, making it uneconomical to operate refineries. In South Africa where Botswana imports bulk of its fuel, refineries significantly curtailed production, while some completely shut as demand lowered close to zero levels, the likes of which the industry has never experienced before.
A month later as countries went out of lockdown and lifted extreme social distancing regulations to reopen ailing economies, the industry was confronted with instant hike in demand, outpacing output from refineries and suffocating the supply chain.
Unrests around truck driver’s issues in South Africa as well as COVID-19 requirements at Botswana points of entry further exacerbated the situation leaving country in unprecedented fuel crisis, characterized by panic buying, stock piling and counterproductive long queues.
As the crisis escalated it emerged that Botswana‘s strategic fuel storage can only cover 5 days and a maximum of about 15 days in the event of completely zero supply. This then pushed the country to zoom into mega strategic fuel reserve projects which according to initial plans should have been completed 3 years ago in 2017.
Appearing before Parliament Accounts Committee (PAC) late last week, Meshack Tshekedi, Chief Executive Officer of Botswana Oil Limited, told Lawmakers that all projects to expand Botswana’s strategic fuel reserves are currently on hold.
Botswana Oil is a wholly state owned company established to ensure the security and efficiency of supply of petroleum products for Botswana, manage state owned strategic fuel reserve facilities, strategic stocks as well as bulk storage and distribution.
TSHELE FUEL STORAGE PROJECT
Initially planned for completion in 2017, funded from fiscals, the 3.4 billion Pula project according Botswana Oil CEO has since been put on hold owing to constrained national coffers. Meshack Tshekedi told PAC that government has since decided to rope in the private sector into funding the project through a Public Private Partnership (PP) model.
The Tshele hill strategic fuel reserve project was conceived in 2012 to ensure fuel security in the country. Initially P3.4 billion was estimated for the project which included the funds for the first purchase of strategic storage, with P1.7 billion estimated for the actual construction of the facility.
The project was initially developed by the Department of Energy in the Ministry of Mineral Resources, Green Technology & Energy Security fully funded in phases from government budget. Tshekedi revealed that so far phase one of the project has been completed at around P630 million. These entails rail spar, access road, electricity and water infrastructure as well as bulk of the earth works.
The remaining work entails civil works which involve putting up the tank farm and erecting the tanks, as well as shipping in the product which will be about 160 million liters of fuel. Botswana Oil Chief further revealed that because of pressure on Government fiscus, Cabinet decided to move the project from Department of Energy to Botswana Oil Limited for the latter to take over responsibility of engaging the private sector and manage completion of the project.
“We are in the process of procuring and engaging a transactional advisor, who would facilitate and structure the project and define how the private sector would come on board, we are at the tail end of this process and the selected consultant will soon get to work,” said Meshack Tshekedi.
When completed the Tshele storage facility would add a further 49 days cover to Botswana’s current 15 days stock holding cover. The current storage which is a total of 55 million litres is held at the Gaborone and Francistown depots.
“Because we are engaging the private sector at brownfield stage as compared to green field, it was important to engage and seek the services of a transactional advisor so that we can protect and transfer the significant amount of work already undertaken by government into equity and actually quantify and define how the private sector would come to play,” explained Tshekedi.
The Botswana Oil Head further revealed that the Tshele project is expected to be completed in 18 -24 months. “We already have significant expression of interest from the private sector, showing interest in the PPP, so the transactional advisor once they begin the work is expected to be done in 4-5 months then we are good to go, of which we expect the whole project to be completed in about 2 years from thereafter.”
GHANTSI STORAGE FACILITY & EXPANSION OF FRANCISTOWN DEPOT
The Parliament Public Accounts Committie was also briefed on the Ghantsi and Francistown fuel reserve projects. Meshack Tshekedi shared that there was a project conceived to expand the Francistown 30 million liters depot by additional 60 million liters storage capacity.
He said the project has also been put on hold due lack of funding because constrained government budget. “The Ministry is currently reviewing the project to see how best we can go forward form here; available options are also around the possibility of a PPP model or any other funding mechanism that can be explored.”
For the Ghantsi project, a total of 30 million liters storage capacity is envisaged. Meshack Tshekedi revealed that so far land has been identified and the area has been fenced and Environmental Impact Assessment is completed while government is exploring ways of funding the projects.
Member of Parliament for Nata Gweta, Polson Majaga who was chairing the proceedings of the day however suggested that Government move swiftly to complete the Tshele Project on full government funding noting that the country’s lack of preparedness is a ticking time bomb.
“The way things are coming up and how supply chains are unpredictable these days we could wake up any day and find ourselves with no fuel to even move ambulances, essential services and other critical activities, why can’t we find money from government and complete the Tshele project then engage private sector on other projects,” said Majaga.
According to World Bank & International Monetary Fund (IMF) recommendations, a landlocked non producer country should have at least 90 days cover in strategic fuel reserves.
Government‘s envisaged storage expansion with these upcoming projects is however still short of the recommended cover. Meshack Tshekedi however noted that plans were also underway to acquire or build coastal storage facilities in Namibia, South African and Mozambique.
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.