April 22, 2013 [All Africa] — Government continues to push to have a national oil storage facility as a strategic measure for economic stability, with the announcement of a further increase in the fuel levy for the construction of the planned national oil storage depot.
The current increase brings the national oil storage levy to 8 cents per litre. The country is working to build strategic oil reserves to be used to counter the unpredictable rise in fuel price.
“The National Energy Fund (NEF) has pledged to the nation to mobilise funds to build a national oil storage facility in Walvis Bay to ensure security of supply in the local oil market during hard times,” Minister of Mines and Energy Isak Katali said when he announced the increase last week.
The ministry granted a 3 cents per litre increase in the NEF levy “to execute that noble task”, adding to the 5 cents per litre increase granted in December 2012. The latest increase saw the petrol price going up by 10 cents per litre on April 10.
The national oil storage facility at Walvis Bay is to be built at a cost of approximately N$1.5 billion and will have a fuel storage capacity of 75 million litres.
Government is yet to call for tenders for interested companies to bid for the construction of the facility.
The facility will store fuel for use in emergencies that affect world oil production, storing up to six months of the country’s oil requirements.
Katali said the pledge by the NEF “would only be fulfilled if there is a substantial amount of money to invest in the project.” Oil prices have been giving the ministry headaches in recent years due to geo-political problems in the oil producing countries of the Arabian Peninsula and tensions in the Middle East.
At times the Ministry of Mines and Energy has been able to subsidise fuel to consumers with the proceeds in the NEF, whose primary objective is to subsidise the fuel price. However, this has not always been possible, with higher under-recoveries.
Under-recovery is a situation where reigning petroleum prices in international markets is higher than the price administered in the country. The Ministry of Mines and Energy has to pay the shortfall from the NEF.
Between April and November 2012 last year the ministry paid nearly N$200 million to the suppliers of petroleum products.
The total cost of subsidising the cost of transporting fuel to rural or far-flung areas of the country was about N$75 million for the same period.
Countries such as the USA, which has the world’s largest strategic petroleum reserves for emergencies, have been able to cushion price escalations and keep supply shortages at bay whenever needed.
In 2011, the US together with the member countries of the International Energy Agency, used the emergency reserves in coordination with its partners to offset disruptions in the world supply of crude oil that was due to Middle East unrest.
