Business Botswana has expressed concern in its submission with regards to Botswana Oil (BOL) request to acquire exclusive import rights for all petroleum products.
Botswana Oil Limited, a government-owned company has applied to the regulator, Botswana Energy Regulatory Authority (BERA) seeking permission to be the sole importer of petroleum products, in the process rattling the status quo. At a public hearing on the matter last week, business advocacy group, Business Botswana said they support the empowerment and participation of citizen oil companies in the value chain including retailers’ truckers and marketing companies. However, it states that in as much as it is a worthy objective that should be taken forward by BOL, it would not be necessary to conform to an import monopoly status.
“We propose that citizen companies be given access to BOL storage facilities to import and store fuel to improve capacity,” Chief Executive (Acting) Business Botswana, Norman Moleele said in a written submission.
In their application, BOL said there is need to ensure security of import supply of fuels at national level, the achievement of volumes for sufficient economies of scale, and the need to support citizen participation in the petroleum industry. Moleele says there is a much healthier way to approaching the matter without necessarily adopting monopoly status.
“The two issues, citizen empowerment and an exclusive license should be kept separate. We propose for BOL to rather be resourced adequately where there are funding gaps, to discharge its developmental objectives of supporting citizen owned companies.” He says the objectives and arguments of BOL are all valid, but they do not warrant for an exclusive licence for them to be achieved. In fact, granting BOL the license could bear negative implications that could counteract the possible benefits. The business body maintains that exclusive rights conflicts with the government and Business Botswana shared objectives of promoting the private sector as an engine of growth and encourage foreign direct investment (FDI).
“The granting of the monopoly exclusive license on a state-owned enterprise would undermine government’s role to promote the growth of the private sector and foreign direct investment. It only undermines the basic tenets of Botswana’s economic system; namely, trade openness, economic competitiveness and private sector led growth,” he says. Speaking of competitiveness, Competition Authority’s Gideon Nkala says the petroleum market is presently competitive with significant number of importers and the issuance of the license to BOL will change it to a monopolistic one which will further work to weaken the participation of existing suppliers.
“The license application comes at a time when there are already existing players in the petroleum sector and most of them are vertically integrated to the value chain and the existence of such a licence would have a negative impact on effective participation in other segments of the value chain.” BOL application for an exclusive licence rests on the need to consolidate the country’s petroleum product requirements, by way of leveraging economies of scale and consequently passing on benefits to consumers. They are hopeful that with such a development, the country will be better placed to ensure that there is minimal loss of tax revenue which are currently lost through international companies who procure product in South Africa, instead of local procurement channels. According to Nkala, having a single source of supply will not only disable current local importers of petroleum-based products to include, Kwa Nokeng, Castrol but could result in them completely disinvesting in the market. Also, he says the decision to have a single source of supply could be a disincentive for petroleum foreign companies who all are a source of Foreign Direct Investment for the country.
He cites that already there are players that presently bound by contracts with downstream customers.
“There is significant degree of uncertainty on what would happen to such contracts post the granting of an exclusive licence to BOL,” he says
One other factor that raises qualms for the authority is that like any monopoly, monitoring of their efficiency is extremely problematic and therefore should be discouraged.
“By their very nature monopolistic markets under competition law principles are discouraged as they have a potential to lead to prices that are higher than can be justified based on the cost of production and prices that are relatively higher than they would be if the market was competitive. He further alludes that import competition is an incentive that promotes and improves technological innovation and improved product quality.
“BOL will no longer be exposed to such competition which is an important factor in product pricing” The different bodies further recommend to the regulatory board that they should thoroughly give evidence of guarantee that indeed the public interests benefit that will be accrued from the issuance of the license will outweigh the benefits of the current competitive market structure of the petroleum structure locally.
The Botswana fuel supply market remains dominated by international oil companies (IOCs) whose objectives according to BOL, remain tied to the maintenance and expansion of the profitability of their retail and commercial functions with limited presence in remote areas.
BOL maintains that the supply margin from BOL being the only supplier will benefit the country as opposed to the current scenario when the benefits accrue to IOCs and their training companies and then repatriated out of the country. More benefits will include, tax on supply margins, dividends for the government, retention and re-investment of profits in infrastructure, 49percent of BOL being owned by citizens of Botswana and opportunities for the consumer benefitting through reduced pump prices.