Tag Archive | Fikile Majola

PetroSA on the rocks for R14.5bn

Project Apollo plan to save PetroSA…

Sent to clients 6 Oct.…..A team comprising of industry experts is now defining a new strategy to save the PetroSA struggling offshorePetroSA logo gas project on the East Coast.   The experts were not named but the exercise is entitled Project Apollo and reports were given to Parliament that the team has progressed well so far, said controlling body Central Energy Fund.

Despite producing a balance sheet that shows a technical cash profit of R2.5bn in simplistic terms made up of revenue less operating costs, in reality PetroSA is clearly beyond business rescue in proper commercial terms unless it manages to get a bail-out from Treasury to save the troubled entity from written off “impairments” of R14,5bn. But business rescue is on the way it would appear.

R11.7bn of the “impairment” was as a result under performance of its Project Ikhwezi to supply gas onshore to Mossgas.

Reality sets in

The total loss for 2014/5 was in reality R14.6bn after tax.      Project Apollo will now tackle the main cause of the loss at Ikwhezi, options stated as including “the maximisation of a number of upstream initiatives; the utilisation of tail gas; and how the gas-to-liquid refinery itself can be optimised with the new, revised and “limited under-supply of feedstock.”

cef logoThe Central Energy Fund (CFE), acting as the parent body for PetroSA, told Parliament that it is applying for such assistance, PetroSA being flagged by Cabinet some twelve years ago as “South Africa’s new state oil company”. CEF described PetroSA’s performance as merely “disappointing”, which raised the ire of most parliamentarians.

Those present

To add pain to the proceedings for Deputy Minister of Energy, Thembisile Majola, and senior heads of the Department of Energy (DOE) also in attendance together with the full board of CFE represented by new acting Chairman Wilfred Ngubane, the auditor general’s (AG) highly critical findings were read out one by one to MPs of the Portfolio Committee on Energy.

All this resulted in the remark from Opposition member, Gordon Mackay, that PetroSA “instead of becoming afikile majola national oil company had become a national disaster”. Criticism was levelled at both CEF and PetroSA across party lines, Chairman Fikile Majola demanding that Parliament conducts its own forensic audit and investigation into the facts that had led PetroSA to achieve such spectacular losses.

It appears that in the total accounting of the loss of R14.6bn for the year under review, R1.8m was also incurred in the form of non-performance penalties; stolen items of R110,000; over payments in retrenchment packages of some R3m; and R55,000 stock losses. Irregular transactions in contravention of company policy amounted to some R17m, the AG noted.

Lack of industry skills

Although the AG’s report was “unqualified” in terms of correct reporting, lack of management controls and bad investments were identified by the AG as the problem. In fact, acting CEO of PetroSA, Mapula Modipa, clearly inferred that lack of skills generally in the particular industry, lack of background knowledge in the international oil investment world and lack of experience in upstream strategic planning had led PetroSA year after year into its loss situation.

Particularly referring to troublesome investments in Ghana, Equatorial Guinea and continued exploration and production at Ikhwezi resulting in the “impairment”, a sort of write down of assets totalling R11.7bn, reports have been submitted before to the Portfolio Committee on Energy over the last two years. Warnings were given.

However in this meeting the AG’s views on the subject were under discussion and the terminology used by the AG could only be interpreted, as put by MPs, as poor management decision-making, lack of knowledge of the oil industry and the appropriate management skills in that area.

Roughnecks wrestle pipe on a True Company oil drilling rig outside WatfordHowever, over the years going back over previous annual reports for the last five years with forwards by Ministers and Cabinet statements issued over the period, it becomes self-evident that the “drive” to establish PetroSA as a state entity in the fuel and gas industry was politically driven, coupled with (as acting CEO Mapula Modipa had inferred) inexperience in the top echelons.

Still the Mossgas problem onshore

However, self- evident this year were the declining revenues from the wells at sea supplying Mossgas, where it was stated that now one wells had been abandoned, three were in operation and two had yet to be drilled. Project Inkwezi, against a target of 242bn barrels per cubic feet (bcf) only delivered 25 bcf from three wells. A “joint turnaround steering committee” had been formed to help on governance issues, technical performance and the speeding up of decision making. But the bcf is unlikely to change

Part of the new plan has involved of a “head count reduction” and employees had been notified. It was admitted that PetroSA had an obligation to rehabilitate or abandon its offshore and onshore operations costed at R9.3m in terms of the National Environmental Management Act and a funding gap of R9.3m now had to be bridged in the immediate future to pay this further outstanding in terms of the Act.

Further forensic audit

The cross-party call for an independent parliamentary forensic investigation that was made (which included thegordon mackay DA chairperson Fikile Majola as the driver behind the motion) “will hopefully not just result in a blame game”, said Opposition MP Mackay “but get to the bottom of how such an irresponsible number of management decisions with public money took place over so long a period.”

Chairperson Majola (ANC) concluded “This amount of money (R14, 5bn) cannot just be written off without someone being responsible.” He added, “There has appeared much difference between the abilities of technical staff and the technical knowledge of the leaders and decision makers on the board of PetroSA.”

Minister of Energy, Ms Joemat-Pettersson, was again absent from the meeting. However, earlier, in the meeting, the Deputy Minister standing in for her, said “when all is said and done we intend staying in this business”.

Nil from Necsa

necsaA meeting following in the same day, following the CEF presentation, was a report from the Nuclear Energy Corporation (Necsa) which failed to happen because Necsa were unable to produce an annual report or any report, Minister Joemat-Pettersson having obtained an extension of one month to the end of October for the annual report to be ready. Chairperson Majola said that the meeting could not take place without a financial report since oversight of such report was their mandate.

Opposition members complained that not only had Parliament’s time been wasted but that the whole instruction for Necsa to be present “appeared to be a media exercise to show that the governing party was on the ball”.

A litany of problems
The extension for the Annual Report conclusion had been granted to the Minister in terms of the Public Finance Management Act (PMFA), a fact well known, but the media were present in strength in the morning not only for the CEF’s explanation for the PetroSA loss but in the afternoon for Necsa explanation of its loss as a regulatory body, in the light of current media reports on irregularities, staff resignations and dismissals.

Other articles in this category or as background
PetroSA has high hopes with the Chinese – ParlyReportSA
CEF hurt by Mossel Bay losses – ParlyReportSA
Better year for PetroSA with offshore gas potential – ParlyReport

Posted in Energy, Facebook and Twitter, Finance, economic, Fuel,oil,renewables, LinkedIn, Public utilities, Special Recent Posts, Trade & Industry0 Comments

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

Posted in Facebook and Twitter, Finance, economic, Fuel,oil,renewables, LinkedIn, Special Recent Posts, Trade & Industry, Transport0 Comments

Fuel price controlled by seasonal US supply

US refinery shut downs affect fuel price…..

US refineryThe current spike in the price of petrol is due of a number of international issues  compounding together but the primary cause is that at this time of year in the United States, a number of major US refineries close down for maintenance in order to prepare for the US summer surge in fuel sales.

This was said by Dr Wolsey Barnard, acting DG of the department of energy (DoE), when he introduced a briefing to the portfolio committee on energy on its strategy for the coming year.

In actual fact, the meeting had been called to debate the promised “5-point energy plan” from the cabinet’s “war room” which did not eventualise, the minister of energy also being absent for the presentation as scheduled. It appeared that the DoE presentation had been hastily put together.

“Price swingers” make perfect storm

Dr Wolsey BarnardDr Barnard said that it could be expected that the price of fuel would be extremely volatile in the coming months due in main “geo-political events” affecting the price of oil, local pricing issues of fuel products and possibly even sea lane interruptions. Price would always be based on import parity and current events in Mexico, Venezuela and the Middle East would always be “price swingers”, he said.

On electricity matters, his speciality, he avoided any reference to past lack of investment in infrastructure, but said that he called for caution in the media, by government officials and the committee on the use of the two expressions “blackouts” and “load shedding”.

Same old story

“Over the next two years”, he said, “until sufficient infrastructure was in place, there would have to be planned maintenance in South Africa” and referred to the situation in the US as far as maintenance of refinery plant was concerned. He said that also “unexpected isolated problems” could also arise with ageing generation installations, during which planned “load shedding” would have to take place.

He said he could not imagine there being a “blackout”.

Opposition members complained that the whole electricity crisis could be solved if some companies would cease importing raw minerals, using South African electricity at discounted prices well below the general consuming manufacturing industry paid, and re-exporting smelted aluminium back to the same customer. They accused DoE of trying to “normalise what was a totally abnormal position for a country to be in.”

Billiton back in contention

One MP said, “Industry was in some cases just using cheap South African electricity to make a profit”. Suchaluminium smelter practices went against South Africa’s own beneficiation programme, he said, in the light of the raw material being imported and the finished product re-exported. “It would be cheaper to shut down company and pay the fines”, the DA opposition member added, naming BH Billiton as the offender in his view.

Dr Barnard said DoE could not discuss Eskom’s special pricing agreements which were outside DoE’s control  and “which were a thing of the past and a matter which we seem to be stuck with for the moment.”

High solar installation costs

Dr Barnard also said that DoE had established that the department had to be “cautious on the implementation of solar energy plan” as a substitute energy resource in poorer, rural areas and even some of the lower income municipal areas.  DoE, he said, “had to find a different funding model”, since the cost of installation and maintenance were beyond the purse of most low income groups.

In general, he promised more financial oversight on DoE state owned enterprises and better communications.   There were plenty of good news stories, he said, but South Africa was hypnotising itself into a position of “bad news” on so many issues, including energy matters. He refused to discuss any matters regarding PetroSA, saying this was not the correct forum nor was it on the agenda.

Still out there checking

On petroleum and products regulation, the DG of that department, Tseliso Maquebela, said that non-compliance in the sale of products still remained a major issue. “We have detected a few cases of fraudulent fuel mixes”, he said, “but we plan to double up on inspectors in the coming months, especially in the rural areas, putting pressure on those who exploit the consumer.” The objective, he said was reach a target of a 90% crackdown on such cases with enforcement notices.

Maquebela added that on BEE factors, 40% of licence applications with that had 50% BEE compliance was now the target.

Competition would be good

On local fuel pricing regulations, Maquebela said “he would dearly like to move towards a more open and competitive pricing policy introducing more competition and less regulations.”

fuel tanker engenOn complaints that the new fuel pipeline between Gauteng and Durban was still not in full production after much waiting, Maquebela said the pipeline was operating well but it was taking longer than expected to bring about the complicated issue of pumping through so many different types of fuel down through the same pipeline. “But we are experts at it and it will happen”, he said.

Fracking hits the paper work

On gas, particularly fracking, DoE said that the regulations “were going to take some time in view of all the stakeholder issues”.

On clean energy and “renewables” from IPP sources, DoE stated that the “REIPP” was still “on track” but an announcement was awaited from the minister who presumably was consulting with other cabinet portfolios regarding implementation of the fourth round of applications from independent producers.

Opposition totally unimpressed

In conclusion, DA member and shadow minister of energy, Gordon McKay, said that the DoEgordon mackay DA presentation was the most “underwhelming” he had ever listened to on energy.   Even the ANC chair, Fikile Majola, sided with the opposition and said that DoE  “can do better than this.”

He asked how Parliament could possibly exercise oversight with this paucity of information.   DoE representatives looked uncomfortable during most of the presentations and under questioning it was quite clear that communications between cabinet and the DoE were poor.

When asked by members who the new director general of the department of energy would be and why was the minister taking so long to make any announcement on this, Dr Wolsey Barnard, as acting DG, evaded the question by answering that “all would be answered in good time”.

Other articles in this category or as background
Energy gets war room status – ParlyReportSA
Medupi is key to short term energy crisis – ParlyReportSA
Integrated energy plan (IEP) around the corner – ParlyReportSAenergy legislation is lined up for two years – ParlyReportSA

Posted in Electricity, Energy, Enviro,Water, Facebook and Twitter, Fuel,oil,renewables, LinkedIn, Mining, beneficiation, Public utilities, Special Recent Posts, Trade & Industry, Transport0 Comments


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