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.
A graphical picture or statistical publication shows that since 2018, Botswana’s trade balance has been on the lows if not fluctuating on the negatives-a bad economic health. This was shown in the latest International Merchandise Trade Statistics (IMTS), statistics which is one of the major contributing indicators of the performance of Botswana’s economy and its competitiveness in the world market.
This trade balance graphical picture is figuratively akin to that of a Covid-19 patient on life support; struggling to breathe while lying down on a sickbed gasping to salvage the last oxygen left on offer.
Botswana’s affair in foreign trade statistics -which is all about an account of all transactions of merchandise between this country’s domestic residents and the rest of the world- is on feeble health or life support status. The account measures the value and quantity of goods which add or subtract from the stock of material resources of a country, by entering (imports) or leaving (exports) its economic territory.
By introducing special regulatory, administrative and fiscal regimes, the Special Economic Zones Authority (SEZA) intends to improve the ease of doing business and re-position Botswana as a premier investment destination of choice, thereby ushering in a new era of robust economic growth.
This was revealed by SEZA Chief Executive Officer (CEO) Lonely Mogara, who further explained that the special regulatory, administrative and fiscal regimes will be implemented at the Authority’s eight SEZs in Pandamatenga, Francistown, Selibe Phikwe, Palapye, Tuli Block, Gaborone and Lobatse.
“These special regimes will ease doing business by addressing constraints that may hinder investment in the country like work permits, residence permits, building permits, Environmental Impact Assessment (EIA) permits, and tax incentives through a dedicated One Stop Service Centre (OSSC),” said Mogara.
SEZA was established through an Act of Parliament and mandated to establish, develop, manage and regulate a portfolio of SEZs. The Authority would then attract world class investors to set up mega factories and businesses in these SEZs, thereby growing and diversifying the Botswana economy through increased Foreign Direct Investment (FDI) and export revenue.
Mogara explained that SEZA intends to develop SEZs that are integrated into the domestic, regional and international markets; facilitate clusters development; and create backward and forward linkages anchored by targeted investors. The Authority will also rollout the red carpet for SEZ investors through its robust One Stop Service Centre (OSSC).
“In order to tap into existing resources and avoid duplication, we have initiated discussions with strategic organisations that will be appointed Zone Management Companies. Some of the potential Zone Management Companies that we have identified are Local Enterprise Authority (LEA), Fairgrounds Holdings, Botswana Innovation Hub (BIH), Selibe Phikwe Economic Diversification Unit (SPEDU) and Botswana Agricultural Marketing Board (BAMB),” said Mogara.
Going forward, SEZA will explore partnerships with these stakeholders to leverage on their strengths and optimise the country’s resources. To this end, said Mogara, SEZA has already signed agreements with BIH and Business Botswana; while negotiations with BAMB and LEA are in advanced stages.
In 2005, the Business Economic Advisory Council (BEAC) recommended the implementation of Free Zones to spur economic growth and diversification, create jobs and eradicate poverty post depletion of minerals. Free Zones were identified as suitable vehicles for introducing viable, new economic activities by providing attractive incentives for highly specific, strictly circumscribed investment ventures. Government later adopted the SEZ Policy of 2011, established the SEZA in 2016 and approved the SEZ Regulations and Incentives in 2018 and 2019 respectively.
Rough diamond production for global mining giant, De Beers Group declined by 54% to 3.5 million carats in the second quarter of 2021. This is primarily due to the Covid-19 lockdowns across the mining producer countries.
A production report released by Anglo American, De Beers parent company recently , reveals that Debswana, Botswana’s De Beers operation spearheaded the decline, registering 68 % drop in production for the second quarter of the year 2020.
Debswana is jointly owned by both Botswana Government & De Beers Group on equal shareholding. Botswana government has 15 % direct shareholding on De Beers Group, with the remaining 85 % owned by mining conglomerate Anglo American.
Debswana, which is De Beers‘s flagship rough diamond producer has only managed to deliver to 1.8 million carats in quarter 2, principally due to a nationwide lockdown from 2 April to 18 May in Botswana. In addition De Beers says the 68 % production drop is also attributable to curtailed output in both plant and human resource as a result of Covid-19 measures implemented to safeguard the workforce. Operations restarted from mid-May, with production targeted at levels to meet the lower demand.
Since COVID-19 pandemic engulfed the world beginning of the year, demand in polished diamonds significantly dropped as a result of closure of jewelry and retail outlets in the United States. This then disrupted the entire value chain from downstream backwards, leaving midstream businesses with full and dense inventories subsequently shrinking demand for rough goods from upstream producer entities.
In Namibia where De Beers operate a model similar to that in Botswana, production decreased significantly at NamDeb, the inland mining outfit jointly owned by Namibian Government and De Beers Group on 50-50 shareholding.
However the decrease was offset by Debmarine, a unique mining operation where De Beers recovers diamonds on the Namibian coast of Atlantic Ocean. In 2016 De Beers invested P5 billion on a new vessel of unprecedented sophistication for Debmarine to take coastal diamond mining to another level.
For the quarter under review, the magic was delivered by Mafuta crawler vessel which was under maintenance in Q2 2019. Overall production in Namibia increased by 7% to 0.4 million carats. In South African where De Beers operates Venetia Mine in Limpopo province, production decreased by 3% to 0.6 million carats primarily due to Covid-19 measures. The production shutdown was partly offset by higher grades from the open pit material prior to transition to the underground.
Production in Canada decreased by 27% to 0.8 million carats, primarily due to Victor reaching the end of its life in Q2 2019. At Gahcho Kué, production decreased by 11% to 0.8 million carats due to Covid-19 measures.
During Q2, the demand for rough diamonds was significantly impacted by a combination of Covid-19 restrictions impacting consumer demand and access to Southern Africa, as well as severely limited midstream cutting and polishing capacity due to lockdowns, particularly in India.
Rough diamond sales totalled 0.3 million carats (0.2 million carats on a consolidated basis) compared with 9.0 million carats (8.3 million carats on a consolidated basis) in Q2 2019. The third Sight of 2020 was cancelled due to Covid-19-related travel restrictions and, in response to the unprecedented industry conditions, De Beers also offered sightholders the option to defer up to 100% of their allocations at the fourth and fifth Sights.
Rough diamond consolidated sales in Q2 2020 decreased to $56 million, signaling a catastrophic decline from $1.3 billion raked in second quarter 2019. The sharp decline was driven by lower volumes and prices.
The H1 2020 average realized rough diamond price decreased by 21% to $119/carat (H1 2019: $151/carat), driven by a higher proportion of lower value rough diamonds sold and an 8% reduction in the average rough price index.
De Beers has however maintained their production guidance at 25-27 million carats (100% basis), subject to continuous review based on the disruptions related to Covid-19 as well as the timing and scale of the recovery in demand. The guidance was in the first quarter revised from the initial 32-34 million carats forecasted beginning of the year, slashed by 20 % to the current guidance in response to declining demand.