Friday, October 30, 2020

Botswana petroleum strategy – a tragedy of good intentions

The P100, 000 per month vacant first floor office space at Peelo House in the heart of Gaborone central business district remains a constant reminder of a national transformation project gone awry.

Botswana Oil Limited (BOL) acquired the office space in 2018. Their business case hinged on acquiring an import license to become the sole supplier of petroleum products in Botswana. Two years and more than P 2 million later, the business case is looking like a mirage and BOL continues to pay the monthly rent in a five-year no-exit lease agreement that will expire in 2023.

By the end of the contract Botswana Oil would have paid in excess of P5 million for an office space they never occupied. This is unless the company identifies a tenant, as they hope, to sub-lease the gigantic office space.

“Botswana Oil Limited rented unfitted office space at Peelo Place in 2018 for a period of five years in anticipation of being granted an import mandate which would have resulted in an increased staff complement and increased revenue for the Company,” Head of Stakeholder Relations Matida Mmipi says.

BOL, incorporated under the Companies Act, is wholly owned by the Botswana Government, represented by the Ministry of Mineral Resources, Green Technology and Energy Security (MMGES).

The company was established in 2013 to achieve the government’s broader economic objectives of ensuring security of fuel supply and facilitating active citizen involvement in the petroleum industry which is currently dominated by foreign nationals.

As the national petroleum company BOL serves as the Government’s transformation agent charged with the responsibility to ensure security for fuel at all times while at the same time ensuring citizen economic empowerment by leveling the playing field and presenting an opportunity for Batswana owned companies to enjoy a larger share of the petroleum industry.

Botswana Oil Limited now faces an imminent death at the hands of the very institution created to facilitate the transformation of the petroleum industry to benefit more Batswana, Botswana Energy Regulatory Authority (BERA).

Established in 2016 BERA’s mandate is to provide an efficient energy regulatory framework for Electricity, Gas, Coal, Petroleum products, solar and all forms of renewable energy.

The refusal by BERA to grant BOL the license to be the main importer for fuel in accordance with Section 38 of the BERA ACT (2016) has been seen by many as driven by politics, corruption and selfish individual interests among others.

While BOL aims to be the sole provider of petroleum products in Botswana the implementation was expected to be done in stages starting from as little as 30 percent.

By procuring fuel directly from the source (Oman Trading, Middle East) BOL would end the monopoly of the multinational companies, control the supply chain, provide flexibility by diversifying supply routes through Namibia and Mozambique, and reduce the cost of fuel.

Currently Batswana owned companies constitute as little as five to ten percent of the petroleum industry with the rest falling under multi-national companies.

Part of the BOL strategic plans included renting out storage facilities to citizen owned companies as well as controlling depots in Namibia and Mozambique. The mandate of BOL has once again come under the spotlight as a result of the fuel crisis in the face of the COVID-19 pandemic.

The over dependence on South Africa for petroleum services has exposed Botswana’s vulnerability. When the six South African oil refineries fail to meet demand, the repercussions are felt in Botswana usually more so than in SA itself as demonstrated by the status quo.

Botswana imports 1, 2 billion litres of fuel from South Africa annually. BOL had aimed to supply at least 1 billion litres of the fuel.

Armed by government with the mandate to take over the supply of fuel, Botswana Oil Limited had every reason to believe the granting of the import license by BERA would be a forgone conclusion. The company set out to recruit the necessary workforce and build capacity for operational readiness. “The rejection of BOL’s application for an import license slowed down BOL’s plans of fitting and occupying the place as this would have meant using capital expenditure for the project. The partitioning and fitting of the office space would have cost a significant amount,” the company says in relation to the vacant office space at Peelo House in the CBD.

“The cost of fitting out the office translated higher than the cost of sitting out the initial contract without a guarantee that it would be extended.  On evaluation, BOL resolved against spending any further money on the office space and instead vacate the offices in accordance with the contract provisions.” 

By applying for an import license, the company says, the aim was to ensure that they execute the government’s objectives to transform the sector. By extension, BOL tells Sunday Standard, the government gets a significant control of imports of petroleum products into the country as was originally envisaged when the company was conceived.

“This would ensure security of supply and efficiency of petroleum products. In addition, with scale, BOL will have the leverage to reserve certain value chain activities such as fuel transportation to citizen companies as opposed to the current market structure where foreign registered trucks dominate imports into the country,” the Head of Stakeholder Relations, Mmipi says.

“It will be noted that the offices BOL currently occupy are not adequate for the team, with Senior Management sharing offices in groups of up to four, indicating a need for additional office space.”

The company however remains hopeful in their quest to be awarded the license.

“Should BOL give up the Peelo Place office space, and in the event of BOL being granted an import license, the process to secure office space would start all over again.” Botswana Oil have been engaging in a never-ending war with the regulator BERA for years now over the import license.

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