Industry players in the oil and gas sector have expressed growing concerns over the persistent issue of fronting, particularly in filling station ownership, which they say undermines citizens’ participation in the sector.
Under the Trade Act 2003 and regulations issued in 2008, licences for petrol filling stations are reserved for citizens and wholly citizen-owned companies.
However, fronting which involves foreigners working with citizens intermediaries to give the impression of local ownership, is stifling the full participation of Batswana.
Speaking during a consultative forum this week, oil industry stakeholders highlighted the alarming trend of licence sales and the frequent exchange of filling station ownership, practices they believe are contributing to the instability and lack of transparency within the sector.
“Sometimes they opt for fronting because they do not have the financial muscle to compete with the rich guys,” a citizen oil industry stakeholder told BusinessWeek on condition of anonymity at the forum. “We need government to help us; meeting us halfway.”
Delegates at the forum noted the challenges citizens face in entering and competing in the industry, noting that financially stable players, who do not qualify under the reservation regulations, still dominate the sector, making it difficult for smaller or emerging businesses to thrive.
The disparity in resources often puts less established players at a significant disadvantage, further worsening inequality within the sector.
Oil industry experts have previously told BusinessWeek that Batswana attempting to break into any level of the industry face barriers such as high capital expenditure, where the costs of a single service station can reach P10 million. More critically, however, citizens aspiring to enter the oil industry quickly encounter the requirement of strong operating capital or the deep pockets required to ride through price and demand fluctuations.
Meanwhile, when addressing the forum, the Minister of Minerals and Energy, Bogolo Kenewendo, assured the participants that government is working on ensuring that it creates a conducive environment for local players.
She said the ministry is setting up a division specifically dedicated to addressing issues within the value chain and cluster development.
“Government has undertaken the construction of additional storage facilities but we have been reviewing how much should be held by government or how much of it should government release to the private sector,” she said. Government through Botswana Oil is the biggest owner of storage capacity in the country with projects underway to more than double this capacity through the expansion of the Francistown depot by 60 million litres and the construction of a new depot in Gantsi.
Kenewendo said currently the national oil strategic reserves only provide for 15 days of the current national demand, against the preferred minimum of 60 days. She said this highlights that the shortfall exposes the economy to severe supply risk.
In addition, Kenewendo said government is considering building strategic gas reserves in the near future.