Sunday, July 5, 2020

Fuel prices drop on the back of a strong NPF

As global oil prices stage a recovery following Covid19 economic disruptions, the Botswana government has slashed retail fuel prices in a move that will offer reprieve to consumers and a sign that the country’s National Petroleum Fund (NPF) has been powered back to life after it was plundered three years ago.

On Friday, state owned regulator Botswana Energy Regulatory Authority (BERA) announced deep cuts in fuel prices, dropping the retail pump price of unleaded petrol 93 by P1.59, while unleaded petrol 95 will retail pump price has been reduced by P1.63. The price of diesel has decreased by P1.41 and paraffin prices have been lowered by P1.88 thebe.

BERA says the decrease in retail prices is due to the regulated retail pump prices being higher than the actual cost of petroleum products, which meant the government was able register high over recoveries in the NPF, where the funds are used to subsidise fuel prices, especially when actual costs start rising.

“While international oil prices have started recovering as a result of easing lockdowns globally, the cumulative slate over recoveries have been high. Therefore, there is need to manage these unit rates and align retail pump prices to the region,” BERA said in a statement.

The Covid19 outbreak, a disease caused by coronavirus, was this year’s major disruption, halting economic activities as governments implemented  tough interventions to curtail the spread of the pathogen. It was a double whammy for the oil industry which was expected to make a recovery following a challenging year where oil prices reduced, and stock inventories increased.

Brent crude oil, an international industry benchmark, averaged around $64 per barrel for 2019 against an average of $71 per barrel in 2018, ending the year at $67 per barrel. By January 2020, before Covid19 was declared a pandemic by the World Health Organisation, oil prices were trading at $69 per barrel, and as fears and panic about the virus started gripping nations, oil prices started plummeting, hitting the lows of $18 by April, and have since mounted a recovery in June to $39 per barrel, which is still below the past years oil price averages.

Though the petroleum product prices have been easing since 2018, the government did not fiddle much with the regulated retail pump prices, using the period instead to allow for funds to accumulate in NPF, which became a centrepiece of a major scandal in 2017 after nearly P250 million was transferred from the fund, allegedly at the instruction of the country’s intelligence organ and used to procure drones and other security appliances.

With the country’s main buffer depleted, the government increased retail pump prices in December 2017, then followed with two other hikes in October and November 2018. Though 2019 was ticked as a challenging year for the market, no adjustment was made to the regulated prices, the first sign that the NPF was now swelling at the seams.

In fact, in November 2019 the government paid the slate under-recovery amount owing to the Oil Marketing Companies (OMCs) in full, bringing to an end a period of extreme pressure on liquidity in the industry. The money owed was due to the OMCs selling fuel at a price that was lower than the market cost, and the government was supposed to plug this gap using some funds from the NPF.

The clearest indication that the NPF was in a good financial position came through in April this year when BERA reduced fuel prices marginally, decreasing petrol price by 13 thebe, diesel by 10 thebe and paraffin by 20 thebe. It was revealed in the same month that the NPF has nearly P265 million in reserves, marking a remarkable comeback since the P250 million was diverted in 2017. The NPF saga over the misappropriated funds is still playing itself at the courts of law, with little progress being made.

The latest fuel price cuts will also be a reprieve to citizens who have been reeling from the 22 percent increase in electricity tariff that was implemented beginning of April.

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Sunday Standard June 28 – 4 July

Digital copy of Sunday Standard issue of June 28 - 4 July, 2020.