The policymakers behind the recent statutory notice giving Botswana Oil (BOL) the exclusive right to import 90% of the country’s fuel, were evidently not interested in half-measures, or half-stepping.
From April 1 next year under the 90% “import quota,” BOL will exclusively import nearly all of the 1.2 billion litres of fuel consumed in the country annually, and resell this to retailers such as Engen, Total, Puma, Caltex and the wholesalers.
Policymakers were clearly swinging for the bleachers, as Americans say. Closer to home, the expression is “go big or go home”.
Government’s traditional stance in policymaking has been to err on the side of caution, or take trepidatious steps, but the recent Government Gazette announcing BOL’s upcoming takeover, indicates that policymakers went for a “make or break” approach.
Analysts this week said the boldness of the move would either yield “fantastic success or a spectacular disaster”.
“Acting as almost the sole fuel importer into the country, the BOL could use this economy of scale to negotiate prices of fuel down or at least secure discounts on some of the add-ons that contribute to the price of fuel,” an industry analyst told Mmegi.
“BOL is owned by government, and therefore it shares the state’s blue chip sovereign credit rating and has government’s full financial backing.
“This has to count for something in terms of negotiating terms and rates.”
The analyst, however, also added the almost inevitable flip side of the coin.
“It’s always a risk to have one sole major player in an industry as precarious as fuel, especially for a land-locked country.
“The devil will be in the details. Imagine if BOL gets trapped in tricky supply agreements and terms with suppliers who end up draining the state of resources.”
The latter scenario is not unheard of. In fact, as close to home as Namibia, the state-owned oil entity there found itself in all manner of trouble a decade ago, reaching the point of insolvency. Other than enjoying access to the sea, Namibia is similar to Botswana in terms of market regulation, the dominant private fuel companies operating there and size of the market.
Namibia’s state-owned oil firm, Namcor, secured a 50% import quota for its home market and separately entered into supply agreements with a fuel major, whom it later attempted to dump after running into steep losses. The High Court there blocked the termination and Namcor eventually went insolvent.
The government of Namibia eventually had to pay nearly 540 million Namibian dollars to terminate the deal with the fuel major, before spending another 260 million to revive Namcor.
The Namibian experiment lasted between 1999 and 2011, a period critics of the local move describe as a “spectacular disaster”. And that was with only a 50% import quota.
But what would “fantastic success” look like?
“The consolidation of a significant portion of imports through Botswana Oil will enable government to have side of market dynamics and be able to make key decisions on sourcing routes, including prioritisation of direct sourcing from oil producing countries, and to be able to put in place appropriate measure in the event of potential supply disruptions to ensure security of supply in the interest of the country,” Minerals and Energy minister, Lefoko Moagi, was quoted as saying by the Daily News when parliament approved the initial import quota last August.
In a detailed response to Mmegi enquiries recently, BOL representatives brushed aside fears of a concentration risk and said the parastatal was more than ready to take on the new, bigger role.
“Botswana Oil is ready and well-resourced for this task, having grown its volumes by over 65% during just ended financial year without the import mandate, making it one of the biggest importers in the country and an industry leader in volume growth as well as market share gain,” BOL spokesperson, Mpho Mokgosi told Mmegi in an emailed response to questions.
“Efficiency drivers that have been in place and enabling current importation of product to the country remain available to be accessed by BOL as evidenced recently when BOL supported the whole industry to avert a security of supply catastrophe.”
She continued: ‘Government, through BOL, is the biggest owner of storage capacity in Botswana with projects underway to more than double this capacity through the expansion of Francistown depot by 60 million litres and construction of a new depot in Gantsi.
“This will be achieved before developing the flagship Tshele Hills storage facility with a capacity of 187 million litres.”
BOL is confident of not tripping on the banana skin that put Namcor on its knees. Rather than a single supplier, BOL wants a field of partners it can deal with.
“The added responsibility will give the government required leverage, through BOL, to enter into bigger and longer-term supply contracts with a diversified pool of suppliers from diversified import sources.
“This will enhance bargaining power and reduce concentration risk, improving security of supply for the country,” she said.
Industry players are not impressed. They spoke this week to Mmegi but requested anonymity. The local fuel industry is too small and closed to make disparaging noises about regulators and BOL’s sole shareholder, the insiders explained.
Speaking off the record, they said besides allegations of a lack of consultation, for most players the move to 90% came as bolt from the blue, even though it was publicly known for years that BOL had been pressing for a dedicated import quota.
In 2021, BOL attempted to secure a 50% exclusive import quota from the Botswana Energy Regulatory Authority (BERA), but was only granted a conditional 25%. Last August, through a parliamentary amendment, BOL apparently secured an increase in the import quota to 50% import quota.
The bolt from the blue, industry analysts claim, is that at some point this figure was unilaterally bumped up to 90%.
“Some multinationals are questioning whether it’s worth continuing to do business in Botswana,” an industry insider told Mmegi.
Those who say the move will be a spectacular disaster echo these sentiments and add that the imposition of the import quota gives the appearance of “nationalisation,” a disincentive to private enterprise and a familiar ingredient in failed public policy.
“The manner in which the move to 90% is being done could send signals to other sectors that such sudden policy decisions can be taken without consulting those affected.
“This would dampen the country’s investment climate and in particular the consistency of policy that investors are always looking for.
“There are countries where investors wake up and hear that the state is taking 51% of the market.
“BOL can achieve its import quota, but at what cost to the broader economy?” the insider said.
BOL’s spokesperson rejects both the concerns around competition and market fair play as well as the idea that there was no consultation.
“The industry is regulated by BERA, including pricing regulation, and to this end BOL is not aware of any change in regulations that may affect competitiveness as well as any change in pricing structure,” Mokgosi said.
“As already indicated, consolidation of volumes will give Botswana Oil better leverage and bargaining power to negotiate better prices and terms for the benefit of everyone in the economy and hopefully create the much desired stability in the sector.”
She continued: “BOL’s understanding is that the publishing of the order in the government gazette is meant to give notice and enough time to consult the industry ahead of the implementation.
“BOL has a robust engagement plan to work with industry and all relevant stakeholders on implementation modalities and they will be fully on-boarded.”
Whatever robust engagement plan takes place between now and April, industry players do not expect fundamental changes to the “go big or go home” policy stance adopted for the fuel sector. Analysts told Mmegi that while the start date for the import quota could change during the “robust engagements,” it was unlikely government would back down from the 90%.
“BOL’s takeover is about prices, control and stability, but it’s also about citizen empowerment in an industry where large foreign multinationals have enjoyed total market domination for decades.
“Having made the announcement of the import quota and promised Batswana that they would benefit, it would be surprising if government subsequently retreated on the percentage,” an insider said.
BOL is already looking at the entry of citizen-led enterprises into all corners of the fuel sector and its related industries.
“The captive volumes will anchor the much-needed transformation of the sector to unlock opportunities for citizens to participate in the value chain of the petroleum industry which include but not limited to transport, logistics management, fuel supply, truck stops, customs clearing and many others so that they can meaningfully play a role in the industry,” Mokgosi said.
Whether a fantastic success or a spectacular disaster awaits, the result will not be because of a lack of determination.
