In May 2013, the Namibian Government announced that oil had been discovered in the Walvis Bay Basin. Although millions of dollars have been spent in exploration drilling, there is no oil production to date.

Although this marks the beginning of the Namibian Oil industry, the country does not officially have any petrol reserves on its soil and has to import all petroleum demand in refined form from neighbouring South Africa.

Due to the fact that the Country does not have connections to regional petroleum pipes, it also has to depend entirely on South Arica regarding its route and supply source perspective. This has created a challenge to secure a more cost-effective alternative fuel supply.

Pricing of Petroleum Products
The Ministry of Mines and Energy coordinates the operation of the oil industry. It regulates fuel price stability through monitoring and monthly setting of petroleum prices while at the same time ensuring that the oil industry remains profitable and sustainable. A price build up is based on assumed landed cost. Landed cost refers to the total cost of the shipped product, which includes the purchase price, freight, insurance and any other costs up to the port destination.

International oil price changes have a direct impact on Namibian imported fuel products. The current fall in the international oil price has resulted in the Ministry of Mines and Energy’s decision to reduce the pump fuel price by N$1.00 /l retail for 95 octane unleaded petrol and by N$1.20 /l wholesale for diesel. The current petrol price is N$ 9.59 and the current diesel price is N$ 9.82.

According to the Ministry of Mines and Energy, the reasons for this price reduction include:

a) International crude oil prices and the exchange rate have a direct impact on the price of fuel. At the same time, demand has remained static due to a depressed economy and increased efficiency in vehicle usage.

b) OPEC oil producers have maintained production levels to reduce the international selling price and control competitors such as Russia and Venezuela.

According to The Ministry of Mines and Energy, the retail price of all petrol grades are gazetted at each price adjustment but diesel prices are controlled only at the wholesale level. The government plays no active part in the supply and distribution of petroleum products other than to control prices to ensure an optimum operating level for its commercial and private sectors.

Imports are monitored by the Ministry of Mines and Energy while the Ministry of Trade and Industry issues the necessary import permits. A process towards de-regulation of the downstream petroleum sector has already started with the abolishment of the RATPLAN, the amendment of the Petroleum Products and Energy Act, the drafting of the downstream petroleum regulations and so on.

Pricing Adjustment Mechanism
A quarterly price adjustment was introduced on 1 January 1997 to allow for a more accurate and efficient response to market pricing changes and to eliminate subsidies paid out to the NEF (National Energy Fund). The quarterly price adjustment is built-up using the spot price and the in-bond landed cost (IBLC).

The four main fuel suppliers in Namibia are:

• Shell Namibia Limited
• Engen Namibia (Pty)Ltd
• Puma Energy Namibia
• Total Namibia (Pty)Ltd

Diesel is clearly subsidised by the Namibian Government although Namibia imports all its refined diesel it is still cheaper than South African diesel which supplies the fuel.

Similarly, it is apparent that petrol is also subsidised by the Government. The significant drop in the fuel price is largely due to:

• The focus by OPEC producing countries on increasing their market share
• Slow and deteriorating EU economies and the slowing of Asian economies, leading to a significant reduction in demand levels
• Significant growth in the U.S. domestic crude oil production

As a result, there is an oversupply of brent crude oil in the market, and prices have dropped accordingly. There is uncertainty on how long this situation will continue and oil prices have once again increased to $61 per barrel.

Namibia Currency
The Namibian Dollar is on a par with the South African Rand currency – 1US$/11.6429 NAD and 1 US$= 11.6429 ZAR

The Namibian dollar has depreciated significantly against the US dollar in recent months. There has been a percentage change of 10% since May 2013 which is equivalent to 0.5 NAD for 1 US$.

The Future
Given the current situation, and taking into account the Brent Crude Oil predictions and currency exchange factors, Eqstra anticipates that the Namibian fuel price will increase between 6 – 7% until December 2015. The company recommends that an annual inflation of at least 7% is budgeted for fuel in 2015.

Eqstra also recommends that you review your fleet mix and operational costs at least every two years to ensure you optimise cost and efficiency within your fleet.