Botswana Oil (BOL) is set to enjoy the exclusive right to import 90% of the country’s fuel supplies from April 1 next year, a move that has outraged retailers who say the monopoly will effectively kill the industry.
BOL, the state oil company, has been angling for a dedicated quota for years, under which it would exclusively import most of the 1.2 billion litres of fuel consumed in the country every year, and resell this to retailers such as Engen, Total, Puma, Caltex and the wholesalers.
BOL argues that an exclusive import quota will help it promote effective citizen empowerment in an industry dominated by large, foreign multinationals. In addition, BOL says the import quota would ensure security and stability of supply, while anchoring the businesses cases of other developments such as the long-planned Coal to Liquids project.
In 2021, BOL attempted to secure a 50% exclusive import quota from the Botswana Energy Regulatory Authority (BERA), but was only granted a conditional 25%. Last August, through a parliamentary amendment, BOL apparently secured the 50% import quota, which has now been increased to 90%, according to documents seen this week by Mmegi.
“The consolidation of a significant portion of imports through Botswana Oil will enable government to have side of market dynamics and be able to make key decisions on sourcing routes, including prioritisation of direct sourcing from oil producing countries, and to be able to put in place appropriate measure in the event of potential supply disruptions to ensure security of supply in the interest of the country,” Minerals and Energy minister, Lefoko Moagi, was quoted as saying by the Daily News when parliament approved the initial import quota last August.
Botswana Oil senior manager for marketing and communications, Mpho Mokgosi, told Mmegi that consolidating volumes would give government, through BOL, the much required leverage to negotiate better prices and terms for the country.
“In addition, the government wants to have more insight and some level of control into the oil and gas industry, to mitigate against developments in the market such as mergers and acquisitions or divestures as well as market exits that might leave a gap in the market without ample notice to the Botswana market to adjust,” Mokgosi said in an emailed response to Mmegi enquiries yesterday evening.
“It is also a way for the Government to provide a cushion that will enable business continuity across various sectors of the economy and continuity in the provision of critical and essential services.”
Responding to the latest developments this week, executives at the oil retailers expressed outrage at government’s plans, noting that Botswana Oil had no capacity to carry out the role it was requesting. They also said the plans would essentially crush innovation, the ability to secure competitive pricing and transform the industry into extensions of government, rather than dynamic private sector actors.
The executives said the move would also render useless the millions of Pula made in investment over the years, such as depots built by the various oil companies in the country.
Industry representatives also told Mmegi that they had not been consulted on the move to 90%, which they described as “shock from nowhere”.
“Botswana consumes about 1.2 billion litres of fuel a month and I don’t know how you can wake up and say I will import all of that alone and will start in five months’ time, in April,” a senior oil executive told Mmegi yesterday.
He spoke on condition of anonymity citing fear of reprisals from authorities including BERA, BOL and the Ministry.
“How do you just wake up and say that?
“You don’t have to be too clever to see that this is a dream,” the executive added.
The industry says that BOL does not have the physical infrastructural capacity to handle 1.2 billion litres of fuel a year, or about 100 million litres a month and sell this forward to the fuel retailers. They said the state-owned company would not have the capacity to sell at the pace required by the retailers, on a daily basis.
“As a truck driver, just go to fuel up at Botswana Oil’s offices at Haile Selassie Road at 0800hrs and see for yourself.
“If you’re lucky, you’ll leave at 1500hrs or 1600hrs.
“But at the same time, you want to supply 100 million litres in a month and you want all the trucks to come and queue there from all the private companies?”
Executives also questioned whether BOL would have the pockets to withstand the fluctuations of the oil industry. The oil industry frequently swings from under-recovery to over-recovery, or situations where retail pump prices are lower or higher than the actual costs involved in importing fuel.
“In September, the industry was in under-recovery of P3.50 per litre for diesel and close to P2 per litre for petrol,” another executive told Mmegi.
“That under-recovery and the millions of Pula owed to the fuel retailers will now sit with BOL.”
Responding to Mmegi enquiries on BOL’s capacity, Mokgosi said the company was “ready and well-resourced” for the task and had grown its volumes by over 65% during just ended financial year without the import mandate. This, she said, made BOL one of the biggest importers in the country and “an industry leader in volume growth as well as market share gain”.
“Efficiency drivers that have been in place and enabling current importation of product to the country remain available to be accessed by BOL as evidenced recently when BOL supported the whole industry to avert a security of supply catastrophe.
“Government, through BOL, is the biggest owner of storage capacity in Botswana with projects underway to more than double this capacity through the expansion of Francistown depot by 60 million litres and construction of a new depot in Gantsi.
“This will be achieved before developing the flagship Tshele Hills storage facility with a capacity of 187 million litres,” she said.
Besides the question of whether BOL can actually import the 90% required or the extent to which government will have to prop up its company, the fuel retailers say the latest developments are a death knell to them in terms of sustainability.
“It kills innovation and creativity.
“If Puma can identify a trader in Saudi Arabia to buy from or Total finds someone in Qatar, it means they cannot do anything about it because BOL has exclusive import rights.
“The industry is being turned into a socialist business,” another officials told Mmegi.
Industry analysts say government’s move appears to ignore a similar disastrous attempt by Namibia’s state-owned oil firm, Namcor, a few years ago. Namcor secured a 50% import quota for its home market and separately entered into supply agreements with a fuel major, whom it later attempted to dump after running into steep losses. The High Court there blocked the termination and Namcor eventually went insolvent.
The government of Namibia eventually had to pay nearly 540 million Namibian dollars to terminate the deal with the fuel major, before spending another 260 million to revive Namcor.
The industry analysts told Mmegi that while the Namcor experience was tough, BOL is taking an even bigger risk as Botswana is landlocked.
“There is a significant risk associated with a landlocked country relying on a single entity for its imports.
“The fuel shortage that took place a few years was actually resolved by the efforts of the fuel retailers,” the analysts said.
Mokgosi however said consolidating the import volumes would give government the required leverage, through BOL, to enter into “bigger and longer-term supply contracts with a diversified pool of suppliers from diversified import sources”.
“This will enhance bargaining power and reduce concentration risk, improving security of supply for the country,” she said.
