As we close the year and reflect on what has influenced the local oil industry, 2021 was a continuation of 2020 as the developments affecting the sector during both years were similar, more especially the backdrop defined by the COVID 19 Pandemic. The pandemic caused supply chain disruptions globally including in Botswana where fuel demand declined by over 30% for bulk consumers such as mines, construction and transport sectors and over 20% in the retail sector. There were signs of recovery towards the end of 2021 following the lifting of the State of Emergency.
Global developments were highlighted by the volatility in the crude oil prices which reached lows of US$35 per barrel and settling at around US$75 per barrel in 2020 and 2021 respectively. Other global developments affecting the oil industry in addition to supply chain disruptions included shortage of storage as most terminals did not have ullage. Closer to home, we experienced some of the hardships linked to supply chains that included pipeline shutdowns affecting the movement of product from Durban to Gauteng where most of the terminals for exporting to Botswana are located. Supply was also constrained by occasional border closures due to COVID 10 cases which affected the movement of trucks impacting on stock levels in country.
Globally, other challenges attributed to COVID 19 besides supply disruptions were the massive supply and demand imbalances leading to the closure of refineries because of the lack of demand and ullage in the storage terminals.
Reflecting on the past 2 years, there are several lessons learnt for the industry that must be addressed together with key stakeholders to improve efficiencies and business performance of both multinational and citizen owned oil companies. Addressing those issues will also ensure that the oil industry is able to effectively provide guarantees on security of supply as it is important for the country especially that Botswana is a net importer of petroleum products.
Central to issues faced by the industry is the regulation of fuel prices which is evidently not aligned to current market forces and best practices in the region. Despite the increase in international prices referred to earlier, Botswana’s pump prices remain one of, if not the lowest in the SADC region.
Using petrol as a benchmark, local retail price is around P11 per litre compared to the equivalent of P15 per litre in South Africa. For Botswana, despite the cumulative pump price increases for ULP 95 of P3.95 per litre in 2021, the under-recovery continues to put Government and the industry under pressure to increase pump prices by at least P1.50/liter to keep up with the ever-increasing international crude oil prices. As it stands, the difference is being footed by the oil industry which comes with a heavy burden on their working capital. Most concerning is that the under-recovery situation has resulted in some oil companies to struggle with importing fuel.
While acknowledging efforts by the Department of Energy and Botswana Energy Regulatory Authority (BERA) to address the massive under recoveries experienced by the respective oil companies, its important to prioritise the need to adopt a more effective and efficient approach for adjusting fuel prices which are also reflective of the movement in international prices.
The pandemic it can be argued also elevated some issues that the industry had to deal with but were previously not a priority. Key to these being citizen economic empowerment within the local industry especially in the transportation of fuel. At the height of the lockdowns especially in Botswana, South Africa and Namibia and the related travel restrictions, the shortage of bulk fuel transporters to bring product into the country and for local deliveries highlighted the dependency on non-local transporters which lead to some customers not receiving product.
The pandemic also accelerated the discussions on citizen economic empowerment within the industry noting that out of the annual 1.1 billion litres sold locally, almost 250 million litres is attributed to majority citizen-owned oil companies such as Kwa Nokeng Oil, Tswana Fuels and Petrohyper. The bulk of the fuel is handled by the multinational oil companies namely Puma Energy, Engen, Vivo Energy, Astron Energy and Total. State-owned Botswana Oil Limited (BOL) also played a significant role in complementing efforts to strengthen the country’s security of supply.
While the changing landscape has pushed for increased participation of citizen owned companies in the value chain, its important to acknowledge some “green shoots” evident in the increasing number of companies engaged in the value chain. For instance, a large chunk of the operational expenditure for respective companies goes to maintenance which was traditionally done in- house but has been out-sourced to citizen contractors. The majority of whom used to work for the multi-nationals and left to set up on their own companies. Other significant developments include the profile of the leadership of most of the oil companies which significantly changed over the years as most of these companies are now led by Batswana. The industry continues to provide an opportunity for developing skills and exposure in the petroleum sector for local engineers, accountants, marketers, and IT specialists.
Security of Supply is another major issue that must be finalized as a matter of urgency and these routes will enable the country to move away from the traditional supply routes as defined by the oil majors and independent traders. Going forward the industry and other key stakeholders must operationalize some of the identified alternative routes which include Mozambique and Namibia. While acknowledging that South Africa has served us well in the past and continues to be the primary source of product for the country, alternative sources are important for guaranteeing security of supply. Operationalising these will include changing the price build-up to reflect the costs for these routes and most importantly for them to be part of the normal supply chain instead of being utilized only in times of crises.
The shortage of fuel storage capacity is another issue which apparent during the pandemic and not only was this a challenge for Botswana, but for several countries. This also presents another opportunity for citizen participation in the industry through which oil companies, both citizen and oil majors, could lease third party storage constructed and operated by citizen-owned companies.
The reflections on the impact of the pandemic on the local fuel industry point to several opportunities as highlighted but there are challenges that the industry will have to grapple with. Globally, Working From Home (WFH) appears to have been well received and may likely continue post the pandemic and therefore less vehicles on the roads and therefore a decrease in petrol consumption. In the absence of data on the WFH in Botswana, one can only assume that it would impact on retail volumes that the phenomenon was to catch on.
Another topical area that was elevated during the pandemic was on the energy transition – referring to reduced dependence on fossil fuels in favour of renewables. Specific to our industry is that a number of vehicle manufacturers are accelerating their move towards Electric Vehicles (EVs) and though these are earlier days, the local oil industry should be studying long term impact of this development alongside the continued investment in the current facilities. Some consideration would be the inclusion of charging portals at existing services for hybrid vehicles and gradually migrate these retail sites to 100% charging portals.
Though the period in which fossils fuels will be a commodity of the past is not well defined, its important that the oil industry, Department of Energy and the regulator and other key stakeholders start looking at a number of scenarios with the goal of ensuring that Botswana is not left behind the march towards a world in which fossil fuels are no longer.
*Mahube Mpugwa is currently the Chief Executive Officer of Kwa Nokeng Oil and previously worked as the General Manager of BP Botswana and later Puma Energy Botswana. He has held various roles locally and regionally including with BP South Africa. He is also the Chairperson of the Botswana Oil Industry Association.
