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NPF chickens come home to roost

A significant fuel price increase would reverberate across the economy
A P202 million drop in cash reserves at the country’s sole listed oil company, Engen Botswana, has provided the first official glimpse into the fallout from the troubled National Petroleum Fund. Staff Writer, MBONGENI MGUNI reports on a rapidly spreading crisis

Government and the country’s oil companies have been meeting regularly since last year, but to date, no firm answers have been hammered out on when the state will pay more than P775 million owed in cumulative arrears connected to the National Petroleum Fund (NPF).

Between December 2016 and now, the local fuel industry has been in a state of under-recovery – where pump prices are below actual prices incurred by oil companies in importing fuel. The NPF, which, amongst other duties, collects levies from motorists and is supposed to support the subsidy by paying the oil companies, is on its knees. For every litre of fuel motorists pay for, 13.5 thebe is remitted by oil companies to the NPF raising hundreds of millions of pula annually, but the Fund only had P98 million as at March this year.

Perennially threadbare, the NPF’s troubles have been worsened by its highly publicised legal troubles, involving alleged money laundering. Three people, including two asset managers, have been charged with spearheading the diversion of P230 million from the NPF. The trio’s lawyer has, in turn, made a wide range of allegations pointing the finger of blame at high-ranking government officials and politicians.

Meanwhile, the oil companies have watched the gap widen even further, between the costs they incur sourcing fuel and the price government orders them to sell it at to motorists.

Crude oil prices rose by an average 10% last year, and while government attempted to keep up with increases averaging 22.5 thebe in March, 20 thebe in November and 30 thebe in December, pump prices were still about P2 below par by January. While oil companies welcomed government’s attempts to keep up with crude prices, the lack of reimbursements continues to be the millstone around their necks.

“The cash reserves of the group declined substantially during 2017 due to the huge slate under-recovery amount being owed by the government through the National Petroleum Fund which started accumulating from December 2016 to December 2017,” Engen directors said in full year 2017 results released recently.

“We are hopeful that the government will attend to the matter of the slate under-recovery refund without further delay.”

By virtue of being listed on the Botswana Stock Exchange, Engen is required to publicly disclose its financial records and performance every six months, providing a glimpse into the effects of the NPF’s woes.

However, senior officials within the oil industry said Engen’s numbers were representative of the troubles facing other players in the country. Besides Engen, other oil companies include Puma Energy, Vivo Energy and Caltex.

“The only thing for government to do is to pay the reimbursement and raise

pump prices,” an executive at one of the companies told Mmegi.

“Everyone is in the same boat. It’s happening at Engen and it’s happening to everyone else. The arrears owed are putting high pressure on companies’ working capital.

“It doesn’t matter whether the company is big or small, the situation is the same. In fact, the bigger companies with deeper pockets, may have the bigger hole being burnt through their finances.”

The executive spoke on condition of anonymity citing the sensitivity of the discussions with government.

The oil companies have yet another meeting scheduled with government for next week, where the matter will again be raised. Last week, Mineral Resources, Green Technology and Energy Security permanent secretary, Obolokile Obakeng told a parliamentary committee that Cabinet had previously stepped in when the NPF ran dry.

While the oil companies groan under the weight, motorists and the broader public have only the strong pula to thank as the thread holding pump prices together. Thus far this year, the pula has gained 10.4% against the US dollar, while in 2017 it put on 7.9%, a situation that releases pressure on the extent of the under-recovery. Crude oil is traded in US dollars and a strong pula means lower pricing costs for local oil companies.

The public’s fate lies in whether new president, Mokgweetsi Masisi and his brand new Cabinet, featuring a rookie Energy Security minister, will be amenable to pushing through the P775 million needed, as well as the P2 per litre increase on pump prices.

With the NPF the subject of a criminal case and a probe by a parliamentary committee and the Auditor General, Masisi may find himself with little choice but to rescue the situation and bite the bullet of a significant fuel price increase. The Botswana Energy Regulatory Authority, itself barely six months old, is meanwhile busy trying to ensure the situation does not occur in future.

Chief executive officer, Rose Seretse recently spoke briefly to Mmegi.

“There are also some further discussions geared towards coming up with some robust measures that could help avoid recurrence of such. “These include amongst others, the clearance of the current outstanding cumulative price slate under-recovery,” she said.

The other measures, according to Seretse, include the adoption of immediate price adjustments based on the prevailing monthly price slate under/over recoveries. This approach, already used in South Africa, eliminates the build-up of arrears to oil companies. Fuel prices in South Africa are revised on the first Wednesday of every month.

Executives at the oil companies say the South African approach is the way to go. But in the meantime, they want government to pay.




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