Tuesday, October 19, 2021

BOL will not subsidise fuel

The Chief Executive Officer of the Botswana Oil Limited, Willie Mokgatlhe has stated that the national oil company will not subsidise fuel.

He explained that as an entity active in the petroleum industry, BOL’s pricing structure is based on the basic fuel pricing (BFP) mechanism, which is the cost of importing fuel into the country. “BFP is influenced by the daily international market price of fuel. The BOL pricing structure will therefore be aligned to international pricing market trends and will not be subsidised. It is worth noting that fuel prices in Botswana are regulated by Government through the Control of Goods, Prices and Other Charges Act. Therefore, any price subsidy may come from the regulator and not BOL,” Mokgatlhe said.

Speaking generally and not in relation to this particular point, he stressed that as a private company, BOL is attentive to the fact that it must be commercially viable.

“When conceptualising our project plans we consider various factors including the long-term sustainability of the company and therefore our commercial performance,” he said.

Much to the consternation of the International Monetary Fund and the World Bank, Botswana subsidises fuel through the National Petroleum Fund to cushion motorists from hikes in fuel prices. The particular concern of the IMF is that fuel subsidies are regressive because they disproportionately benefit the rich more than the poor. This is because richer households generally own more vehicles and, consequently, spend a greater amount on fuel. According to the IMF’s 2010 estimates, 65 percent of total fuel subsidies in Africa benefit the richest 40 percent of households.

Fuel is subsidised in over half of the sub-Saharan African countries. The World Bank says that on average, Sub-Saharan Africa’s fuel subsidies consume nearly 1.5 percent of GDP. The International Energy Agency (IEA) estimated that in 2010, only 8 percent of the US$410 billion in subsidies went to the poorest 20 percent of the population. The Agency says that these figures underscore the inequitable distribution of subsidy benefits and the inefficiency embedded in subsidy programmes, especially consumption subsidies. All too often fuel subsidies sharply contrast with the proportion of public spending on sectors like health.

Reacting to such concern, countries like Nigeria, Ghana and Guinea have slashed fuel subsidies to align domestic fuel prices with international prices.

The environmental perspective is that the removal of fuel subsidies could also alleviate environmental problems by reducing petroleum consumption and associated greenhouse gas emissions. The IEA estimates that reducing subsidies by one-half in non-OECD countries could reduce greenhouse gas emissions by up to 12 percent by 2050.

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