Decline in global crude oil prices and government controlled margins that cushion the oil companies from inflationary increases in operating expenditure has negatively affected Engen profits leading to 11.4 percent decline in the year ended December 2018.
Engen Botswana Chairman, Dr Shabani Ndzinge stated that the group expects decline in profits from P299.2 million recorded in the year ended 2017 to P265.2 million in 2018. “This is mainly attributable to the decline in global crude oil prices in the latter part of 2018 and no adjustment in the government controlled margins that cushion the company from inflationary increases in operating expenditure,” said Ndzinge.
The results would be published by 31 March. Crude oil prices declined by 11.4 percent to 57, 36$ per barrel in December, from 64, 75$ per barrel in November 2018. In its first half of 2018, the group recorded 44 percent increase in profit before tax to P101, 1 million, compared to the same period in the prior year. This was attributed to inventory gains being higher than the comparative period in 2017 due to movements in international crude oil and finished products prices.
The company stated that sales volumes in 2018 were lower than those recorded in 2017 mainly due to inconsistent supply of LPG from the company’s refinery in Durban. Statistics indicate that the slate receivable from government increased from P226 million to P305 million as of June 2018. Presenting the results last year Engen Managing Director, Chimweta Monga said,” While government made some payments to the industry towards the slate under-recovery in the second quarter of 2018, a substantial amount remains unpaid thereby affecting the liquidity of the oil marketing companies,” he said.
Engen Botswana, the country’s only-listed oil company, is delighted that government has established an energy regulatory authority, BERA, to level the playing field. The Act to establish the Botswana Energy Regulatory Authority (BERA) was passed by parliament last year. The Authority could not begin operations in the same year due to non-availability of funds.
BERA is among others tasked with ensuring fair competition within the industry. “Engen Botswana welcomes the recently established Botswana Energy Regulatory Authority (BERA), hoping that this body will stabilise the local petroleum product market, and ensure that technical and economic standards are followed,” Chairman, Dr Shabani Ndzinge wrote in the group’s latest annual report.
He said his company is looking forward to seeing how this BERA unfolds in 2017, ‘especially as the proliferation of retail petrol stations continues to grow’ Meanwhile, Freddie Motlhatlhedi an energy advisor, in the department of energy has told government’s Daily News that, BERA is expected to start operations this month (June).
Over the years, players in the energy sector, especially in the industry have complained that government’ setting of prices for their petroleum products in most cases works against them, resulting in limited profit margins. According to Ndzinge, the growth in the energy sector provides challenges, which comes with new and varied competition. Engen, which has a market capitalisation of P1, 5 billion will not sit down and let players overtake it.
“It (competition) also allows Engen Botswana Limited to showcase its industry-leading distribution logistics capability, retail excellence and innovation – factors that we believe will continue to differentiate us from the competition,” wrote Ndzinge who is also Vice Chancellor (finance) for Botswana International University of Science and Technology (BUIST).
Engen’s Managing Director, Chimweta Monga wrote in the 2016 annual report that more and more retail filling stations for well-known brands and independent entities are mushrooming, thereby keeping them on their toes. The closure of some mines, such as BCL and Tati Nickel mines has affected commercial sales at the company. “Retail sales were also affected in these areas due to a decline in purchasing power by local residents as a result of the difficulties encountered by the mines,” said Monga.
In the past year, Engen piloted the 1Card system to a number of selected customers. The system, which will be launched countrywide this year, will enable individuals and companies to load credit on to a ‘swipe card’, and use it to pay for fuel and related services at any service station in the Engen retail network.
The company remains strong despite the fragile economic recovery which has dampened consumers’ confidence. For the year under review, Engen recorded a profit after taxation of P132million up , by 21 percent year on year. ‘