Pressure builds on fuel prices

MBONGENI MGUNI
Staff Writer | Friday September 9, 2011 00:00

The rising pressure from the accumulated shortfalls between real and government-fixed fuel prices points to further upward adjustments this year to cover a gap currently estimated at P2, BusinessWeek has established.

Thus far this year, fuel prices have risen four times, with the last review in, being the 50thebe across the board in August, the heaviest so far.

However, even with these reviews, industry experts and their government regulator have revealed that prevailing pump prices continue to trail real prices, squeezing the National Petroleum Fund (NPF) that pays retailers the difference.

Yesterday, BusinessWeek learnt that were government to fully expose consumers to the real fuel prices, motorists and the economy at large could pay up to P2 more for certain fuel types.

Ironically, most industries and consumers had expected a fuel price reduction based on lower levels that brent oil has been trading at for several months, following the US debt crisis and subsequent downgrade. The Department of Energy Affairs says the slate, or formula used to peg pump prices, has been showing shortfalls for most the year.

'Therefore all price adjustments made this year were not enough to cover the final cost of fuel at the filling station pump,' it says in response to BusinessWeek enquiries. 'This means that payments have been coming out from the NPF to the oil Industry without much coming into the Fund, except for a little bit from the levy.'

'The government has therefore been opting to use the NPF to maintain lower prices as per its mandate. The department is still following the smaller, more frequent policy as there have been no increments of more than 50thebe per litre this year, even though under-recoveries are much higher and are currently up to more than P2 for some of the petroleum products.'

The accumulated under-recovery, or the situation where pump prices are lower than actual costs, has been worsened by increases in non-fuel components of the pricing formula.

The level of under or over-recovery is the key driver of fuel prices in Botswana and is reviewed on a monthly basis by the department and fuel retailers.

'While crude prices have not been that bad, other elements of the fuel price increased from South Africa such as transport and other storage and handling costs,' says oil industry chairperson, Boitumelo Sekwababe.

'The main issue is to manage the cumulate under-recovery from previous months; the adjustments thus far have been such that they have not necessarily covered the shortfall. Our assessments indicate that prices are squeezed, and while we do not expect huge increases, we also do not expect huge decreases.'

In their financials for 2010/2011, local fuel retailers reported double and triple digit increases in logistical charges in South Africa, hiking up the costs they incurred bringing fuel into Botswana.

Although most of the logistical increases occurred last year, the formula did not account for them. Coupled with rising brent prices on a monthly basis, these have worsened industry under-recovery.

In separate interviews, executives with two of the five local fuel retailers estimated that industry under-recovery by July at between 50thebe and more than one Pula. Both stressed the need for frequent adjustments to beef up the NPF's ability to provide a buffer to the economy.

'We have not adjusted prices on a monthly basis and there's catching up to be done,' said one executive. 'South Africa does so every month, marginally, and you can anticipate when it's going to happen. Here, as much as we have this information on a monthly basis, the adjustments are irregular, sometimes leading to huge increases like the last one.'

The other executive explained the situation thus: 'If current brent prices are sustained for a period of time or decline, they will take care of the under-recovery that currently exists. However, the best way is to have reviews on a monthly basis in order to reflect the current scenario.'

Energy Affairs officials were unclear on why there had been a three-month gap between the third and fourth fuel price reviews for this year. However, they dismissed fuel industry speculation that the delay was caused by the fact that some key personnel were seconded to form the state owned oil company.