Tag Archive | Mossgas

Overall energy strategy still not there

Feature article………….

DOE energy strategy in need of lead 

From closing parliamentary meeting….sent clients dec 15….   South Africa’s energy strategy problem is as much about connection as it is about the integration of supply resources, said Dr WolseyDr Wolsey Barnard Barnard, acting DG of the Department of Energy (DOE), when briefing the parliamentary select committee on DOE’s annual performance before Parliament closed in 2015

Of all the problems facing South Africa on the energy front, probably the most critical is the lack of engineering resources facing South Africa at municipal and local level, negatively affecting economic development and consumer supply, he told parliamentarians.

He particularly referred in his address to the fact that the main problem being encountered in the energy supply domain was the quality of proposals submitted by municipalities for supply development in their areas.     In many cases, he said, the entities involved totally lacked the technical skills and capacity to execute and manage projects and there was also, in many cases, a lack of accountability with reports not being signed off correctly and in some cases technical issues not resolved before the project started.

Doing the simple things first

Despite all the queries from Opposition members on major issues such as fuel regulation matters; nuclear development and the tendering processes; the independent power producer situation with clean energy connection problems and issues surrounding strategic fuel stocks; again and again (DOE) emphasised that nothing was possible until South Africa developed its skills in the area of energy (electricity) connections.

electricity townshipsThe quality of delivery in this area was “extremely poor”, Dr Barnard said, inferring that without satisfactory delivery of energy the burning issues of supply became somewhat academic. Localised development at the “small end” of the energy chain had to be developed, he said. This lack of skills was exacerbated by the “slow delivery of projects by municipalities and by Eskom in particular”, he said.

Eskom  in areas not covered by local government.

Dr Barnard said that there was a lack of accountability on reports provided; poor expenditure by most municipalities evident from the amount of times roll overs were called for and high vacancy rates in municipalities. Consequently, he said, the overall Integrated National Electrification Programme (INEP) was producing slow delivery of electrification projects requested of both local government and Eskom against the targets shown to MPs.

In probably the last meeting of the present Parliament before its recess, DOE spoke more frankly than has been heard for some time on the subject of its short, medium and long term energy solutions, including a few answers on the problems faced.

Frank answers

DOE explained it had six programmes focus which were outlined as the various areas of nuclear energy; energy efficiency programmes; solar, wind and hydro energy supply; petroleum and fuel energy issues, regulations and development electrification with its supply and demand issues.

DOE specifically mentioned that the Inga Treaty on hydro-power had come into force in the light of theinga fact that conditions to ratify the long term agreement between SA and DRC were satisfied and commercial regulations could begin in order to procure power. This would change the future of energy of solutions. This was a long terms issue but targets for the year on negotiations had been met.

Opposition members were particularly angry that a debate could not take place of nuclear issues and whether South Africa was to procure reactors or not. It was suggested by the Chair that maybe the outcome of COP21 might have given more clarity but MPs maintained that to make a decision DOE, as well as the Cabinet, “must know the numbers involved”.

DOE maintained silence on the issue saying as before that enumerating bid details would destroy the process. It was assumed by the committee at that stage that the then Minister of Finance must be grappling with the issue but MPs wanted an explanation to back up President Zuma’s State of the Nation address on nuclear issues, complaining that nobody in Parliament had seen sight of Energy Minister Joemat-Pettersson nor heard a thing on the issue.

Full team minus nuclear

Present from DOE, in addition to Dr Wolsey Barnard, Deputy DG and Projects and Programmes were Ms Yvonne Chetty, Chief Financial Officer; DG Maqubela, DG of Petroleum Regulations and DG Lloyd Ganta, Governance and Compliance.

On solar energy, DOE said some 92 contracts had been signed in terms of the IPP programmes. Forty of them were now operating producing some 2.2 megawatts of energy at a “cheap rate” when on line and solar germanythe grid being supplied but it became more expensive when not being taken up. Dr Barnard explained that South Africa was not like Germany which was connected to a larger EU “mega” grid in Europe where it both received and supplied electricity.

SA’s system, he said was rather a “one-way supplier”, solar energy being made available only when needed by the grid. But as SA grew economically, things would change.

He commented that the new solar energy station in Upington had not yet been completed but shortly it would not only be supplying energy “when the sun was shining” but, importantly, be able to stored energy for later use. This made sense with the purpose of the IPP programme, he said.

The big failure

On the issue of the PetroSA impairment of R14.5bn, subject raising again the temperature in the meeting, DG Lloyd Ganta of DOE explained that the PetroSA impairment had happened mainly for two reasons.
The first was that PetroSA had made a loss in Ghana to the value of R2.7bn, primarily, he said, due to the fluctuations in the price of oil, the price falling from $110 per barrel to $50 at the time shortly after their entry and at the point of the end of the first quarter.

Project IkwheziThe second reason was due to losses at Project Ikwhezi (offsea to Mossgas) where volumes of gas extracted were far lower than expectation, the venture having started in 2011. At the end of the 2014/5 financial year, only 10% of the expected gas had been realised. When parliamentarians asked what the new direction was therefore to be, the answer received was that engineers were looking at the possibility of fracking at sea to increase the disappointing inputs.

The financial reports from Ms Chetty of DOE confirmed the numbers in financial terms making up the loss,

Dependent on oil price

Acting DG Tseliso Maqubela then stressed that nothing could not change the fact that South Africa was an oil importing country but the country was attempting to follow the direction of and promises made on cleaner fuels and it had been decided to continue with the East coast extraction.

In terms of the NDP, DOE said that South Africa clearly needed another refinery for liquid fuels but

refinery

engen durban refinery

whilst an estimated figure of R53bn had been attached to the issue some time ago for the financing of such, the issue of upgrading existing plant had not been resolved with stakeholders.

Oil companies, he commented, had said that if the government were not to pay for this in part, especially in the light of fuel specification requirements also required to meet cleaner fuel targets set by international agreements signed by SA, the motorist would have to foot the bill as the country could not import clean fuel as such to meet all demand.

More refining capacity

“A balance has to be found with industry and a deal struck”, he said, the problem being that the motorist was at the end of the fuel chain and such a call would affect the economy. He said that possibly the refinery issue could be approached in a phased manner and at perhaps a lower cost.

In the meanwhile, cleaner fuels were a reality and already some traders had applied to the DoE for licenses to construct import facilities, one in Durban and one in Cape Town.

If traders were to bring in large quantities of clean fuels, he said, this would represent a complete change in the petroleum sector and an energy task team, made up of government and main stakeholders was at present putting together a full report on cleaner fuels and a strategy for the future.

LPG a problem

lpgThe Liquid Petroleum Gas (LPG) situation was different, he said, since in this area there was not enough production and import storage facilities and it was a question of short supply therefore to the market – a problem especially in winter.

Both propane and butane, the main constituents of LPG are used in the refining process in the far more complicated process of straight petroleum fuel production and with the economies of scale that have to apply to South Africa, this resulted in a high market gate price and insufficient quantities, he said.

Unfortunately, LPG was becoming very much the energy source of preference with householders,especially poorer homes, hence the pressure on government to find some way of introducing LPG on an a far larger scale and at a lesser price. The impression was given that LPG “got the short straw” in terms of production output numbers.

Nuclear non-starter

Again when the subject came round to nuclear matters, no officials present from DOE were in a position to answer MPs questions on why eight nuclear power stations should be necessary, if nuclear was indeed a necessity at all, and whether the affordability had been looked at properly – the chairman again suggesting that the matter be put off until reappearance of the Minister of Energy in the New Year.

Gas on back-burner, as usual

Finally, on questions of gas and fracking, DG Tseliso Maqubela said that government “was takingmozambique pipeline a conservative approach” inasmuch that any pipeline from Northern Mozambique to South Africa was not under consideration but that plans were afoot to expand existing pipelines from that territory in the South.

On fracking, as most knew he said, a strategic environmental assessment had been commissioned, basic regulations published and also the question of waterless fracking was a possibility, now being investigated.
Previous articles on category subject
MPs attack DPE on energy communications – ParlyReportSA
Eskom goes to the brink with energy – ParlyReportSA
South Africa at energy crossroads: DOE speaks out – ParlyReport
Gas undoubtedly on energy back burner – ParlyReportSA
SA aware of over-dependence on Middle East, says DOE – ParlyReportSA

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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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