The Acting Petroleum Director of the Botswana Energy Regulatory Authority, Gift Bakumbi, says that the average time taken to implement a cabinet decision on adjusting fuel prices is normally three days.
Of late and as a direct result of COVID-19, oil prices have plummeted to historic lows and last month, BERA announced a decrease in the prices of petroleum products being diesel, petrol and illuminating paraffin. Oil prices are time-sensitive and some have raised concern that the government takes too long to adjust prices – which concern is typically expressed when there is anticipation of a price drop at the pump. Sunday Standard asked BERA to explain the process of what happens when fuel prices have to be adjusted.
Bakumbi says that in line with Section 57(6) of the BERA Act, the Authority reviews prices of petroleum products on a monthly basis and make recommendations or proposals to the Minister of Mineral Resources, Green Technology and Energy Security.
“The recommendations/proposals made are informed by the results of the analysis for a particular month and these will normally lead to one of the following scenarios: a downward adjustment of pump prices, upward adjustment of pump prices, or leaving the prices as they are (what is termed the “do-nothing” scenario). Once a consensus is reached, the Minister will then approach Cabinet for a decision. Cabinet may either accept the Minister’s recommendation as is or with modifications, or it may choose to defer the matter,” says Bakumbi, adding that in instances where the decision to adjust pump prices is granted, the Authority then undertakes some administrative formalities which, amongst others, include facilitating timely preparation and publication of statutory instrument, notifying the oil industry of the impending adjustment, and issuing of a press release to notify the public.
“In practice, the average time taken to implement a decision of Cabinet is normally three days,” the BERA Director says.
Going back years, South Africa has been known to effect price adjustments quicker than Botswana. In a broad elaboration of the latter, Bakumbi says that the approach to the adjustment of pump prices differs from one country to another.
“There are certain countries which adjust prices on a monthly basis, notably South Africa and Tanzania. Some countries may choose to adjust prices either quarterly or bi-annually. Countries that adjust prices on monthly basis normally do not have existing government instruments to cushion consumers against the volatility of petroleum products prices.”
In the particular case of Botswana, the government has a deliberate policy of price cushioning in the form of the National Petroleum Fund (NPF). Bakumbi says that it has been established that one of the factors likely to contribute to a rise in inflation is the impact of administered prices.
“Petroleum products prices fall within this category. Therefore, it is normal practice that the Authority consults other government agencies to ensure that the impact of the proposed adjustment – especially upward adjustment – is reasonable,” says Bakumbi, adding that one of the considerations is ensuring that input costs remain reasonably low in order to stimulate investment and economic growth. “The price of fuel is seen as a significant input cost into other sectors of the economy such as transport, mining and agriculture. Therefore, whatever adjustment is made has to be seen to have taken this reality into consideration.”
In an ahistorical development, demand for oil is down 30 percent as flights have been grounded and factories shut down due to the COVID-19 pandemic. Russia and Saudi Arabia worsened the situation by continuing to pump more oil throughout March amid decreased demand. Resultantly, the price for Brent Crude, which is the global benchmark, has fallen below US$20 a barrel for the first time in 18 years. Some Batswana feel that the decrease in furl prices is not commensurate with the drop in oil prices. BERA’s explanation is that the uncertainty of international oil prices has compelled the government to be conservative so as to build enough funds to cushion prices in case they increase rapidly.