Tag Archive | gordon mckay

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

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Minister Joemat-Pettersson clams up on nuclear

Nuclear deals cannot be transparent

(published to clients 25 Sept)

In a meeting to explain intergovernmental agreements so far made by South Africa on the nuclear New tina-joemattBuild programme, Department of Energy DOE and DDG of Nuclear, Zizamele Mbambo, was completely overshadowed by the requests by Minister of Energy, Tina Joemat-Pettersson, to preface the entire presentation with her own comments. She also was to speak first in answer to the many direct and pertinent questions from Opposition MPs directed at DOE.

In both cases it became less and less clear how much the nuclear programme was going to cost the country.  Also it became unclear what stage the Cabinet had reached as far as decision making was concerned, causing the chairperson of the committee, Fikile Majola (ANC), to remind the Minister that Parliament was supposed to provide oversight on financial commitments to other countries and certainly must be consulted before any such agreements were signed.

Russia dominating events

p van dalenIn an acrimonious exchange between P Van Dalen (DA) in summarising the areas of co-operation between South Africa and the Russian Federation, France, China, South Korea and the USA, Van Dalen remarked to the Minister that the whole picture looked like “Russia versus the Rest”. He wanted to know why the Russian co-operation areas were more informed and more extensive. He gave the example of the Russian agreement offered naming the actual location sites in South Africa for three possible structures.

Minister Joemat-Pettersson responded that the “areas of co-operation still had to be finalised” with Japan, to which country she had yet to visit, and Canada. The Russian Federation had done a particularly good job, she noted. Little information was given for Chinese involvement, it being assumed that President Jacob Zuma’s visit to that country would result in an update. Media reports state that Japan is teaming with Westinghouse.

 Just to keep some happy

 The Minister complained that Opposition members were making the Ministry’s life untenable by constantly demanding information on the extent, the cost and the timing of the New Build nuclear programme when too much information given out would compromise the bidding process. She denied there was any preferred bidder in the process.

She said DOE was supplying information to the meeting, “going as far as they could without compromising the whole exercise” because the Opposition parties had been very demanding. But it was still too early to make all documents available.

No sense

Gordon McKay demanded to know how it was then that Minister of Finance Nene had, in a mediagordon mackay DA briefing recently, stated that the “country could not afford a nuclear build programme” and how it was to be paid for?      If nobody knew the cost, what was Minister Nene talking about, he asked.   He said that Parliament was having “to rely on second hand information from the media” and this was wrong because it represented non-disclosure.

He also wanted to know who it was in South Africa that was “qualified enough to make a judgment call on both selection of the of the winning bidder and also be satisfied on the cost to the taxpayer.”

It was at this point that a surprising fact emerged.     Despite the Minister’s stated inability to answer on total project costs, it was admitted by her that an “independent consultant” had not only completed and supplied a project modelling report but a financial model as well.

All will be revealed

koebergNo further information could be supplied, the Minister said, either on who this was and estimated costs but she promised that the Committee would be briefed once the vendor bidding process was complete. A date at the end of 2015 was promised for further information to be supplied to Parliament on costs, plus the independent modelling reports “in due course”.

The Minister stated that again and again that “transparency was her target as far as Parliament was concerned” but said that she was constrained by the nature of the bidding at this stage. She however confirmed that a nuclear contribution “probably greater than originally expected” had to be part of the energy mix if South Africa was to meet its COP 15 environmental targets agreed to internationally.

DOE has a schedule

Z MbamboDDG of DOE, Nuclear, Zizamele Mbambo in his presentation, confirmed to Parliamentarians that the department was at the stage of the completion of pre-procurement processes and that commencement of procurement would start in the second quarter of 2016, with finalisation of partners by the end of the calendar year.

The intergovernmental agreements at present being concluded were displayed and covered the technology to be selected and construction: research reactor technology and construction; financing and commercial matters; manufacturing, industrialisation and localisation; human resources and skills development; public awareness programmes; safety liability and licensing; nuclear siting and permitting; the nature of both front and back ends of the fuel cycle itself and non-proliferation matters.

 Waste disposal issues

Opposition members wanted to know why waste disposal was not raised as a requirement and DDG Mbambo explained that South Africa had already enacted legislation to adequately cater for this issue and was deeply involved in waste disposal, quoting the Koeberg model.
However, it was notable that France and the USA contained “waste management areas of co-operation” in this regard, whereas the Russian contribution referred to enhancing support for the current legislative and regulatory environment, once again indicating a clearer knowledge of local conditions.

The DOE presentation went no further than just enumerating on a comparative basis each bidder’sbrics partners technological and commercial contributions in broad terms. However, it was notable that the Russian proposals went further than others on the degrees of localisation in the form of manufacture of components and skills training. It also included the “joint marketing and promotion of produced products to third country markets.” A considerable number of South Africans were already in Russian training exercises as they were in China.

Uranium in Karoo

The South Korean proposals were noticeably different in the area of contributing towards desalination of salt water projects and support in various aspects of nuclear research and the exploration and mining of uranium. At this stage the Chines contributions were limited for reasons stated but, again, noticeable in China’s paper was the expression “the development of new technology for civil nuclear energy for the (SA new) build programme and Republic of China and other third world countries.”
Other articles in this category or as background
Nuclear partner details awaited – ParlyReportSA
Nuclear and gas workshop meeting – ParlyReportSA
Nuclear goes ahead: maybe “strategic partner” – ParlyReportSA
National nuclear control centre now in place – ParlyReportSA

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