The value chain of Botswana’s lucrative petroleum services industry has stagnated under the dominance of foreign multinational companies, however through Botswana Oil Limited (BOL), more Batswana can benefit from the state owned company’s sole distributorship of fuel, according to the company’s CEO Willie Mokgatlhe.
BOL was established to support the Government of Botswana to achieve two broad, national economic objectives. These objective are to ensure the security and efficiency of fuel supply to Botswana and to promote active citizen involvement in the petroleum industry, Mokgatlhe elaborated further.
BOL is wholly owned by the Government of Botswana, represented by Ministry of Mineral Resources, Green Technology and Energy Security and incorporated under the Companies Act of Botswana. Its mandate is to ensure security and efficiency of supply of petroleum products for Botswana, manage state-owned strategic fuel reserve facilities, strategic stocks, bulk storage and distribution of petroleum products. It also serves to assist emerging companies in the petroleum sector to participate meaningfully in the industry and to also achieve fuel self-sufficiency and diversification of the economy.
The security of petroleum services according to Mokgatlhe goes beyond who actually controls the importation of petroleum products, which he said should be done locally for the benefit of Botswana.
The petroleum services industry is segregated into three sections: the importation of petroleum products, the transportation of these products and finally distribution and maintenance. Currently, foreign multinationals dominate the entire value chain and the only area where locals benefit is in the licensing of filling stations which government has reserved for Batswana, Mokgatlhe added. While Batswana own filling station licenses in the current operating environment, they still have to lease these franchise rights to operate from big international brands like Shell, Engen or Total.
Botswana consumes around 1.2 billion liters of fuel annually, according to Mokgatlhe. However, the current model where fuel is ordered from a big supplier outside the country means that local license holders and the government do not fully realise the full potential gains from the value chain. According to Mokgatlhe, when importing fuel into Botswana, the supplier benefits from supply margins, which is a fee that is then shared between the supplier and Botswana’s national coffers. Should the importation of fuel be solely procured by BOL, the country and indeed local license holders would benefit more than the status quo, he reasoned.
The dominance of multinational means they are in a better position to set pricing, which further limits local participation in the industry. Adding the dominance of foreign owned trucking companies into the equation means the value chain for Botswana and local fuel entrepreneurs is further depreciated.
At supply level, multinationals also dominate and compete directly for bulk fuel tenders for heavy industries like mining and aviation to name a few. This becomes increasingly problematic when they supply the same fuel to smaller, local distributors whilst competing with them for the same procurement tenders.
Mokgatlhe explained that as Botswana Oil becomes the sole distributor fuel in the country, the playing field will be leveled and revenues for the Botswana Government increased through better supply margins.
However, the future rollout of BOL’s mandate is not without its skeptics. At recent a public hearing conducted by the The Botswana Energy Regulatory Authority (BERA), Botswana Oil was denied their application for an exclusive license to be the sole importer of fuel into Botswana. They cited BOL’s failure to demonstrate that it had the necessary capacity to assume the sole distributorship due to lack of technical skills and financial constraints.
Even though Mokgatlhe cited section 38 of the 2016 Botswana Regulatory Act, which affords BOL the opportunity to hold sole distributorship, BERA still found the organisation’s submission lacking. BERA felt that BOL’s assertion that the value chain would be greatly improved through its position as sole distributor was speculative as there was little evidence to support the claim. Botswana Oil was given 30 days to appeal the decision denying them the license.
Addressing the most contentious issue of its lack of financial capacity Mokgatlhe said government has converted BOL debts into equity, which has cleaned BOL’s balance sheet. “This means we can now seek successfully financing from financial institutions to fund our operations,” he said. BOL can also benefit from the 17.5 thebe per litre which government has created to ensure that BOL buys stock and assist in building additional storage facilities. “We are positive that this is enough for us to fund operations and fulfill our mandate,” he said.
He further revealed that BOL has been working with foreign oil companies in the Middle East which he said have agreed to give BOL stock on credit and even transport the fuel directly into Botswana. “We will be buying straight from the source, which will give us huge discounts so we make fuel affordable here,” he said.
With regards to technical capability, Mokgatlhe said after they import the fuel, they will use the combined 20 million liters storage capacity owned by various oil companies in Botswana including Government’s strategic storage facilities in Francistown and in Gaborone.
Since BOL took over the management of oil supply, Mokgatlhe said, Botswana has never run out of fuel since 2013. “Almost every year in South Africa, they run out of fuel, but through strategic reserves here, while oil companies run out of fuel government through BOL sells to them from the reserves, which they later re-fill,” he concluded.