Tag Archive | Engen

Central Energy Fund hatches fuel plan

A lot going on at Central Energy Fund…..

Central Energy Fund (CEF), the state utility which controls the Strategic Fuel Fund (SFF) and fosters PetroSA, cef logohas again been outside of a plan that has Parliamentary approval or, it appears, Treasury knowledge.    CEF falls under the aegis of the Department of Energy (DOE) and is therefore responsible to Minister of Energy, Tina Joemat-Pettersson.  Clearly there is much going on of which Parliament knows nothing – in recess as it is.

The history of CEF’s  problems go way back before the period during which  previous Minister of Energy, Ben Martins, held office and even before Ben Martins, as an MP was chairperson of the Parliament Portfolio on Energy. Most of CEF’s troubles appear to involve the fuel storage facilities  at Saldanha Bay on the West coast and PetroSA’s operation on the East coast, causing considerable negative comment from the portfolio committee and Ben Martins himself at the time. Sadly, Minister Martins was not chosen to remain by President Zuma.

tina-joemattQuite clearly a plan has been hatched to meet Cabinet ambitions.

Glaring omission

It was only after  Minister Joemat-Pettersson’s current budget vote speech did the investigative journalism of the newspaper media discover the sale of almost completely the entire SA reserve oil stock of the Strategic Fuel Fund (SFF) held at Saldanha Bay.

Not only was the sale concluded without any mention but the quantity of fuel involved appears to have been a major financial  decision  undisclosed in any cabinet statement.    It appeared that CEF had allowed SSF to sell 10 million barrels of crude — close to the entire stockpile — in a closed tender at the point that the oil price had bottomed at somewhere around R34 Brent.

It also appears that this was without the agreement of Finance Minister Pravin Gordhan and Treasury whosepravingordhan concurrence is needed under the Central Energy Fund Act.  How this will play with Treasury and the Auditor General is not clear, nor whether when and how CEF intends to replace this. The Democratic Alliance will no doubt be asking for answers in parliamentary question papers.

What the Minister said

It is interesting to note exactly what the Minister had to say to Parliament about SFF in holding back, it appears, on such major financial move. She told MPs that in line with the Presidential Review Commission on State Owned Entities (SOEs) that her Ministry had been working towards “a review of the composition of the CEF Group of companies.”

She went on to say, “Our work in this area includes the strengthening of the entities in the oil and gas sector and the stated policy objective of the creation of a stand-alone national oil company, using PetroSA as a nucleus.”
SFF had a good revenue base, she said.

saldanah bay 2“We shall finalise this work by October 2016”, Minister Joemat-Pettersson said and she would revert to Parliament on Cabinet views and strategies for a revised energy sector framework. “Accordingly, in 2015, the Ministry of Energy issued a ministerial directive for the rotation of strategic stocks in the SFF and this has resulted in an increased revenue base for SFF whilst at the same time maintaining stocks within our storage tanks for security of supply.”

Long term view

“This as a result, the Minister continued, “of a long term lease and contractual agreements with the buyers. The estimated revenue to accrue from this process is around R 170 million per annum, significantly boosting the balance sheet of the SFF.”

The Minister concluded that through the rotation of strategic stocks and trading initiatives the SFF had further consolidated its ability to be self-sustainable. “This has also allowed us to replace the unsuitable stock that we have been storing in our tanks which has been both uneconomical and did not contribute to security of supply.”

“The SFF will continue to ensure that it is able to respond to any shock in the market, whilst optimally making use of the opportunities presented in an evolving oil sector”, she concluded regarding West coast activities.No figures were given nor a clear indication mentioned that a sale had been concluded.

  SASAL LOGOHowever she was particular in supplying numbers regarding the joint venture between Sasol and Total when she said, ” Effective from 1 July 2006, Sasol Oil sold 25% of its shares to Tshwarisano LFB (Pty) Ltd, a broad based black economic empowerment consortium comprising of 150,000 direct shareholders and 2,8 million beneficiaries. The value of this transaction amounted to nearly R1.5 Billion, making it a significant BEE transaction in the liquid fuels industry.”

Trading nightmare

Therefore, the sale of nearly the entire reserve held by SFF, whether it is kept in the same tanks at Saldanha or not, at an oil price when at it’s very lowest, “suitable” or not, and being obliged by the Act to eventually replace it some later point should get an explanation.   However, it seems that there was an incentive to sell.

Also, to have to buy back at an oil price which is currently already well over double would appear to be completely against the tenets of the Public Finance Management Act; what the Auditor General is bound to call “fruitless and wasteful expenditure”; and contradictory terms of the Minister’s statement to Parliament that the SFF “has the jacob zumaability to be self-sustainable”. Unless, of course it is bolstered by external funds. 

Gas nightmare.

Parliament is of course closed for the election recess but no doubt there will be a parliamentary uproar on the subject – if not an investigation, which will come on top of the further current investigation of CEF’s activities as far as PetroSA is concerned.Once again the question will arise on how it was possible for PetroSA to continue with Project Ikhwezi when drilling for gas for two years in an area already defined by experts as impractical in lieu of fault lines in the projected gas field.

Central Energy Fund seen as politically driven

R11.7bn was the total “impairment” of PetroSA, the result of underperformance of Project Ikhwezi in its efforts to supply gas onshore to Mossgas. The total PetroSA loss for 2014/5 was in reality R14.6bn after tax. Currently a team comprising of industry experts is now defining a new strategy to save the PetroSA in its offshore struggle on the East coast, according to DOE reports to Parliament.

Roughnecks wrestle pipe on a True Company oil drilling rig outside WatfordThe experts were not named but the exercise is entitled Project Apollo and reports were also given to Parliament that the team has progressed well so far, said controlling body Central Energy Fund during 2015.

PetroSA was originally flagged by Cabinet some twelve years ago as “South Africa’s new state oil company”.     Last year, CEF described at the time PetroSA’s performance in their annual report to Parliament as “disappointing”, resulting in harsh criticism last year from the Portfolio Committee on Energy. The subject was not raised this year by the Minister in her Budget vote speech.

Failed deal

What, however, was raised in opposition questioning in the National Assembly by Pieter van Dalen, DA Shadow Deputy Minister of Energy, was Central Enegy Funds venture into the proposed purchase of Engen’s downstream activities from Malaysian company Petronas, known as “Project Irene”. This was understood to be the Cabinets secret plan to own the promised state oil company.

fuel tanker engenThe purchase from Petronas, who own 80% of Engen, was an attempt through Central Energy Fund to gain a foothold in the fuel retail and forecourt space by acquiring a stake in Engen, South Africa’s largest fuel retailer. The remaining stake is held by the Pembani Group.

First try

The board of PetroSA was repeatedly advised by both transaction advisers and the Treasury, according to Deputy Shadow Minister van Dalen, “that the proposal to buy the Engen stake did not make good business sense.”
“However,” van Dalen said to MPs, “the project was strongly championed by Minister Joemat-Pettersson and President Jacob Zuma. In the end, the deal fell through due to lack of financing.’These sort of things cannot go on”, he said.

The last word

This particular meeting in the National Assembly was completed by Shadow Minister of Energy, Gordon Mackay,gordon mackay DA attacking the Minister for “misleading the country on nuclear energy deals.”

He concluded after a long speech on the subject of the proposed nuclear build programme and what he referred to as “anomalies”, with the remark “We must ask ourselves Chair – why is our government doggedly pursuing this nuclear deal. It is clearly not a deal in the interests of the poor. It is clearly not a deal in the interests of business. It is clearly not a deal in the interest of the nation.”

Gordon Mackay did not know about the Chevron approach, or at least he did not indicate that he did.

Previous articles on category subject
Central Energy Fund slowly gets its house in order – ParlyReport
PetroSA on the rocks for R14.5bn – ParlyReportSA
Chevron loses with Nersa on oil storage – ParlyReportSA

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Strategic fuel stock supply has problems

Foggy picture on fuel supplies…

Ageing refineries and failure to finalise financial planning with National Treasury on levies for strategic fuel stocks held in much-needed fuel storage facilities, are part of the problem faced by planners in the fuel industry and government, according to recent parliamentary meetings.

A confused picture emerged from a recent portfolio committee on energy during a meeting between Thembisile Majolacommittee and the Department of Energy (DOE) on behalf of the Strategic Fuel Fund (SFF).

Deputy Minister of Energy, Thembisile Majola, was present for the entire meeting as a participant in the debate, following the presentation on the strategic fuel stocks position by both DOE’s Deputy Director-General, Tseliso Maqubela, and Muzi Mkhize, Chief Director, Hydrocarbons Policy, at DOE.

CEO missing

In fact, not only was the outcome of the meeting unclear but occurred as an unscheduled event until the day in question.    It was also advised that that nobody in DOE knew the whereabouts of the SFF’s CEO, whose office had been found locked, whereabouts of the CEO himself unknown. He was suspected of being on the lookout for a new post, an apologetic member of SFF said.

Neither was the chairperson of SFF present or the main elected board, there being only one of six SFF board members at the meeting. The portfolio chairperson, Fikile Majola, confirmed that there had been major misunderstandings with parliamentary invitations but that did not explain the apparent disinterest by the SFF board itself in reporting to Parliament. The presentations were therefore purely by the Ministry and senior officials of the DOE.

Parliamentarians were told by DOE that strategic fuel stocks were defined as both crude oil and refined products and held by government and/or oil companies to cater for catastrophes or severe fuel supply disruptions.

The price of failure

Products to be kept as strategic stock included diesel, petrol, jet fuel and liquid petroleum gas (LPG).   As far back as 2006 it had been estimated that a “no stock” fuel crisis situation could result in a loss to GDP in South Africa of R1bn a day. This fact caused the Deputy Minister to remark that such a situation in 2015 “would make the current Eskom crisis seem like a walk in the park”.

Muzi Mkhize of DOE said strategic stocks would be released only upon declaration of a state of emergency by the Minister of Energy and were like an insurance policy. The SFF was responsible for the procurement, maintenance and management of strategic stocks held by government and oil companies likewise were responsible for the strategic stocks they held according to arrangements with the state.

The cost of storage

With regard to the financing of strategic stocks, a draft policy document was still being debated with National Treasury on the basis of a suggested levy of six cents per litre on petrol, diesel and jet fuel to finance procurement of stocks and the construction of storage facilities for refined products with operational expenses.

Tesliso MaqubelaTseliso Maqubela of DoE said the management by DOE of liquid fuels in the country was split into two divisions, policy and planning under one branch of  DoE and implementation, after approval by Cabinet, as another division. In that sense all members were present at the portfolio committee briefing, Maqubela assured parliamentarians, including Dr. Chris Cooper of Central Energy Fund under whom SFF used to fall and who was particularly acquainted with all issues. Present also was the CFO of SFF and the Chief Operations Officer.

Less in the cupboard

DDG Maqubela explained that it was originally required that South Africa keep 90 days of net imports but on an analysis of the current situation, it was proposed that the country keep a total of 60 days of strategic stocks and oil companies would be obligated to keep 14 days of refined products defined as strategic.

Africa now included

South Africa was a net importer of crude oil and refined petroleum products, he said, and currently over 50% of the country’s imported crude oil was from Middle Eastern countries whilst before it nearly all came from the Middle East. However, the country also now received 12% of its crude oil from Angola and 31% from Nigeria, which had changed the picture particularly as far as lead times and transportation were concerned.

Maqubela said there was no crisis in strategic stocks, “although there were emerging risks”. He reassured members, saying that on a day-to-day basis, he personally interacted with all the companies in the industry and there was certainly no crisis but the country did not have sufficient storage capacity for LPG.  This had to be resolved quickly and this was an immediate problem, he said.

“If the Chevron refinery went down for example, as it recently did, there would be more serious problemschevron tank in supplying the Western Cape with LPG. Therefore there needed to be an alternative for Chevron, which was why the DoE supported the granting of any foreign group such as Burgan Cape with a terminal licences for the construction of an import terminal and who had satisfactory BEE partnerships. The country could not rely on one facility for any products in any one area, he said.

Oil companies to keep refined product

The other issue, Maqubela said, was that the country was experiencing a lot of unplanned refinery shutdowns, primarily because of their age and the country needed a new refinery. The National Development Plan (NDP) stated that by 2017 a decision needed to be taken on refining, he remarked.

When one of the refineries at the coast had a problem, the country ran into “challenges” and one of the proposals which would be made at policy division level was that the strategic stocks policy needed to ensure that oil companies kept enough buffer stock at their own cost. The DoE believed, he said, given recent experiences that the country needed storage facilities to be built in key cities across the country, particularly in places such as Kimberley and East London.

chevron2Generated cash flows were used to maintain the infrastructure of keeping stocks and to fund all SFF’s operational expenditure. In 2014, the entity had generated R197 million from leasing its tanks for crude oil. Excess funds were transferred into cash reserves. The SFF received no allocation from government. In real terms, the R2.6bn revenue generated by the SFF in 1995 was more than ten times higher than the R198m revenue generated in 2015. SFF was a non-profit Section 21 company.

SFF’s operating costs between 2013 and 2015 had therefore been below budget. In the 2014/15 financial year, SFF’s revenue had been around R198m, as stated — a significant increase from the R93m in 2013/14.

In reserve

Mfano Nkutha, Chief Operations Officer, SFF, said SFF had two storage facilities at Saldanha and Milnerton, both in the Western Cape. Saldanha currently had six underground tanks holding 7.5m barrels each. Milnerton had 39 smaller tanks, holding 200 000 barrels above ground. There were no strategic stocks at the facilities. The SFF had an asset base where it accumulated interest on cash reserves and leased out storage space to crude oil trading companies.

Some of the new locations under consideration were Island View (Durban), Richards Bay port, East London, Cape Town port and Jameson-Park precinct. However, the basic matters still remained which were the finalisation of stock level requirements; some sort of agreement on funding and levies with National Treasury and feasibility studies for any proposed storage sites.

Southern African implications

In answer to the many questions from MPs, Maquebela said that in the broader context of energymapafrica&sa supplies, indeed the strategic fuel stocks policy framework had yet to be finalised but “all the time things were constantly changing in the global space and within the Southern African Development Community (SADC) region. These changes needed to be included in the policy framework”, he said.

“Botswana had been building huge storage tanks since 2010 as well and other private sector investments were in Coega and in Richards Bay. These had changed the scenario for the strategic stock framework.”      The multi-product pipeline had changed much, DDG Maqubela said, and historically disadvantaged South Africans (HDSAs) now operated in the fuel storage and fuel industry space but a policy was needed to look into a more integrated approach.

No one has shut shop.

Answering more questions, he said, “There needed to be a seamless release of stocks when the situation arose”. He commented on media reports and said that no refinery had been closed, and those which were currently not operating were on maintenance shutdowns. Chevron had not been closed — they were on a planned maintenance shutdown, he said, presumably referring to the verbal spat revealed in Parliament between Chevron, Burgan and DOE over the new Burgan terminal.

Every year, DDG Maquebela said, the DoE received a schedule of planned shutdowns from the oil companies, because shutdowns were required by law. The DoE’s role was to ensure that there were no overlapping shutdowns. The problem arose when the refineries did not stick to their schedules because of unforeseen circumstances, primarily those relating to the ageing infrastructure. Another problem which the country needed to explore was that the availability and reliability of rotating maintenance crews.

Overview of supplies

He said Chevron was currently operating at 30% capacity and Shell and BP had been experiencing some difficulties. Engen had recently undergone a planned maintenance shutdown, but it had come back on line satisfactorily, while Sasol Secunda was still dealing with a planned maintenance shutdown. PetroSA was operating at 50% capacity.

PetroSA logoIn answer to MPs questions on what had happened to DOE’s Coega refinery plan, Project Mthombo, Maquebela of DOE ducked the question by saying the NDP indicated that a decision needed to have been taken by 2017.   He added the DoE was not waiting until 2017 to make a decision, however. The building of the Mthombo refinery, which had been stopped, was being “reconfigured but there were some challenges in this regard.”

Priorities order of the day

Deputy Minister Majola said of the delay on the part of National Treasury was the splitting of the Department of Energy from environmental affairs and the fact that “electricity had become the main issue and Eskom’s challenges had taken priority in the energy space.”

She maintained much so many of the “challenges in DOE policy were concentrated under one branch it was therefore not humanly possible to manage all the work.” This was something which was impeding the progress of the DoE regarding policy, she said. There was also a misalignment between those who developed policy and those who implemented policy on a day-to-day basis. The DoE needed time to make a re-assessment of itself.
Other articles in this category or as background
Chevron loses with Nersa on oil storage – ParlyReportSA
Fuel price controlled by seasonal US supply – ParlyReportSA
PetroSA has high hopes with the Chinese – ParlyReportSA
SA aware of over-dependence on Middle East, says DOE – ParlyReportSA

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Parliament lists its recommendations to minister of energy

In a parliamentary report on the department of energy’s strategic report for the year 2011/2, of which the final recommendations will go to the minister of energy, a call was made for “loopholes” in the Petroleum Products Act to be expedited and to increase funding of both the nuclear regulator (Nersa) and the Nuclear Energy Corporation of South Africa (Necsa).

Both Nersa and Necsa had drawn attention in their annual budget vote presentations earlier to Parliament on the general shortage of funds appropriated in terms of Pravin Gordhan’s 2012/3 budget, Nersa complaining that their budget was so insufficiently funded as to become a “danger to South Africa”.

On the subject of Nersa, the final page of the committee’s report to the minister states that Nersa should have its “mandate increased” to cover “petroleum pipeline and piped gas” and also to deal with the “deteriorating electricity infrastructure situation”. The report also said that Nersa should involve itself in South Africa’s nuclear build programme, as should Necsa.

In the subject of electricity distribution, recommendations included the necessity of introducing urgently the smart grid plans which became evident during departmental presentations. They drew attention to the SANEDI plan, called by the Central Energy Fund a “Smarter Grid”, which was the integration of two main utility infrastructures in South Africa, the electricity grid and the existing information and the telecommunications infrastructure.

The committee drew the attention of the minister to their concern on the continued reliance on the Sasol pipeline carrying natural gas from Mozambique, asking the minister to note their views that gas exploitation would become a major issue in the development of Southern Africa.

They noted that refinery capacity figures were “very low”, as evidenced by the quantity and volumes being imported, and that storage capacity and infrastructure development in this area was therefore an immediate necessity. On refineries generally, the committee noted the “very encouraging stance” adopted by PetroSA on its own refinery project, “Project Mathombo”.

The committee drew attention to the work of the South African Supplier Development Agency (SASDA) to accelerate progress in the development of black suppliers in terms of BBEEE and economic growth plans of government but said that “Engen, BP, Shell and Chevron have not contributed at all to transformation in the areas where SASDA was involved”.

The recommendations to the minister pointed out that promises were made in terms of the agreements signed “but nothing has happened”. SASDA’s attempts to get the companies on board, “even after engaging their respective CEO’s, had proved fruitless”.

 

 

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