Tuesday, December 7, 2021

Botswana’s oil retail industry at its most fragile ever

The manner with which Botswana Government is handling the country’s petroleum retail industry is creating a lot of anxiety, unease and jittery among many interests.

To be most concerned are the motorists!

But so too should be the retailers and their shareholders a majority of who reside offshore.

This Government attitude, if it does not change will undermine long-term investments in this sector and also pose a lot of risks to the jobs ÔÇô all in equal measure.

Fast growing fuel international prices also mean that in the end, there is also a big risk of getting the country caught up in inflationary pressures downhill when Government is no longer able to subsidise fuel prices.

At the bare minimum, most at stake really are the retailers operating in the country.

Government owes them in excess of P1 billion.

This is money accumulated as variance between market price and Botswana’s selling price which is heavily subsidized.

Government, through the National Petroleum Fund is supposed to pass the variance to retailers as calculated using their volumes sold.

For a long time this has not been happening.

In the meantime these oil companies continue to buy on a cash basis.

It necessarily means that for these companies to continuing trading they have to get money from elsewhere to make up for the money owed them by Botswana Government.

Natural sources of such money are the shareholders as loans and commercial banks most likely as overdrafts.

Either way, the money comes with conditions that include a cost to the facilities issued.

More importantly such facilities are neither open-ended nor infinite.

This means that at any rate retailers are under pressure from shareholders and banks both of who would want answers on the conditions of this growing credit to Botswana Government.

For Botswana Government the risks are at multi-level.

Government cannot allow floodgates through wholesale increases without inciting chronic inflationary pressures.

This would also pose new political pressures that elsewhere have led to collapse of Government.

But staying for too long without honouring payments to oil companies also raises reputational risks for Botswana.

It will not be long before questions of legal guarantees and legal protection for these international companies doing business in Botswana.

Even after paying the money owed to oil companies there is a need for far-reaching structural overhaul of Botswana’s fuel subsidies.

They are in the long-term not sustainable.

They are a hangover of Botswana’s golden past. And do not reflect the changed realities that have brought us to an austere current scenario where public funds are frugal and the country is no longer awash with cash.

For Botswana and indeed for oil companies being owed, the situation is being made doubly perilous by recent plunder of the National Petroleum Fund.

For some Botswana is fast degenerating into a political risk.

Commercial banks that bankroll these oil companies would no doubt spend sleepless nights on when they will get their money as lent to these companies.

Of course for banks some comfort can be derived from the knowledge that ultimately the final guarantor is the Botswana Government.

That unfortunately cannot be said about motorists who under the circumstances do not really know what the future holds for them.

Botswana can easily juggle around its finances and raise money to pay the over a billion Pula that it owes oil companies.

But it is the consumer of the oil products who shall one day be called upon to foot the bill ÔÇô one way or another.

Fuel prices in Botswana are too low, especially when compared to South Africa and indeed the world.

These low prices are notwithstanding the long distance between Botswana and the seaports.

It might be time the Botswana Government starts asking itself about the long-term sustainability of these low prices, especially in the face of drastic price increase s in South Africa that are now happening almost on a monthly basis.

A risk analysis would be in order. And this risk analysis might have to be conducted not just by the political leadership, but also by the technocrats at  Ministry of Finance who are basically the country’s fiscal guardians, by the Bank of Botswana who the Monetary policy authorities and of course by the officials at the Ministry responsible for energy who are the one versed with international crude price fluctuations and projections and also being the ones at the coalface of interactions between Government and the oil retailers.

The strengthening of the US Dollar is something that can be ignored out of the whole equation.

Botswana’s changed economic situation has long made some politically-inspired subsidies long overdue.

As a country we can for some time delay to implement the overdue and all too necessary changes that reflect such reality ÔÇô but not forever.

Next year Botswana will have what early indications promise to be a momentous General Election.

That will no doubt have a role to play in what decisions are ultimately taken.

But it is still important for our political leaders to play political expediency games with the country’s economy.

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