Fuel tax may deplete petroleum fund, analysts warn
Isaac Pinielo | Tuesday July 11, 2017 15:47
The Fund, which is used by government to pay petroleum retailers the difference between the administered and prevailing fuel prices, was last year said to be in excess, hovering around P600 million. However, economists say the amount will eventually be exhausted, as the government will be drawing down from it to cushion the possible impact caused by the tax.
An economic analyst at Motswedi Securities, Garry Juma said while the fuel tax will not have an effect on pump prices in the short term, there is a likelihood that the Fund will dwindle in the long run.
“In the short term, we do not expect consumers to feel the effects of the fuel tax since it will be cushioned by the national petroleum fund,” he said. He nevertheless added that continuous drawing down from the Fund will lead to depletion and eventually leaving no other option but a hike in pump prices.
“That is when the consumers will start to feel the pinch of this fuel tax,” Juma said.
Again, he noted that any adjustment of pump fuel prices will depend entirely on the functionalities of the international crude oil prices, adding that for as long as the prices remain lower, the consumers will be spared.
Investment management firm, Kgori Capital also concurred that an immediate increase on pump price is not likely since it is expected to be offset through the petroleum fund for the short term, cushioning the effect of the tax.
It said this however could see increased outflows from the Fund, which could be unsustainable over the long term.
“Given the current downward trend of the oil prices, save for this past week’s gains, the cost of petroleum products at the pump is expected to remain relatively unchanged,” said Kgori Capital.
The firm said this would result in at least a 4 thebe per litre or P48 million per annum disparity that will have to be covered by the Fund and as such will necessitate a fuel pump increase to compensate petroleum product sellers for the tax.
In addition, the experts noted that due to the lack of a certain plan by the Organisation of the Petroleum Exporting Countries to reduce the current global supply glut, mainly driven by low cost production US shale drillers, the price will remain low or if there are any gains, they should be relatively subdued.
“We believe these key signals point to continued weakness through the rest of 2017. Very little could change fundamentally, between now and the end of the year, to affect inventories enough to promote a price rally,” the firm said.
The Ministry of Mineral Resources, Green Technology and Energy Security approved a fuel tax, which kicked on July 1, 2017. The tax will be at 17.5 thebe per litre, which will be in addition to the already existing fuel levy of 13.5 thebe per litre.
Due to an estimated annual consumption of 1.2 billion litres of petroleum products, experts said this tax should be able to raise P210 million per annum, which will be used to purchase stocks for Botswana Oil Limited, meet insurance premiums for government oil storage facilities, and construction other strategic storage facilities around the country.