Tag Archive | NECSA

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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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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Cutback in nuclear is not in critical skills, says minister

The Minister of Energy, Dipuo Peters, in responding to questions in Parliament on South Africa’s reserve of critical skills in the nuclear energy field said that any retrenchments in this area were in the light of the fact that the Nuclear Energy Corporation (Necsa) had made a commitment to the unions that the retention of critical skills would be a priority, should such retrenchment processes be inevitable.

She said that the department of energy (DoE), in partnership with the department of science and technology (DST), were both investigating possible plans for the retention of skills critical to South Africa’s nuclear build programme.

It became apparent recently that in order to meet the reduced appropriations in the current budget vote there was a pending retrenchment of 250 on the Necsa staff role but the Minister stated in response to the question that the department was working with the DST on a skills strategy for the nuclear programme in order to “balance risks of excess skills and skills shortages”.

In the response to the budget vote, Necsa indicated that it employed 2 179 workers, including 115 scientists, 69 engineers, 430 skilled workers, 328 semi-skilled workers, 139 management staff, 38 unskilled workers and had 23 directors. Earlier this year, as reported by ParlyReport, Necsa chairperson Sisa Njikelana told the parliamentary portfolio committee on energy that insufficient funding for the nuclear body in terms of the 2012/2013 budget vote placed South Africa at risk when it came to nuclear oversight in terms of its mandate. Necsa is set to receive R554m, less than its previous budget.

Parliament, in making its recommendations on the budget vote to the minister as a result of DoE presentations, reminded the minister that in their view both Necsa and the energy regulator, NERSA, were underfunded.

 

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NECSA isotope sales OK but group not financed correctly

More funding from the central fiscus was needed, said Don Robertson, Acting CEO of National Energy Corporation South Africa (NECSA). Robertson is charged with the task of promoting research and development in the field of nuclear energy and radiation sciences and technology in South Africa.

The corporation appeared “in limbo” as far as the future nuclear strategy of South Africa was concerned, he felt.

Robertson said NECSA was a repository of nuclear skills in South Africa and had to be in a position to advise the South Africa on future direction, turn-key projects and remain custodian of nuclear technology.

NECSA was in a position to commence the “New Build” programme that was envisaged into future strategic direction for South Africa.

Their mandate included fuel manufacturing and therefore energy supply, although it was not on any official government committee regarding “New Build”, Robertson said.

To this end, NECSA has “upskilled” the abilities of its staff, retaining the necessary staff and planning ahead from a human resources angle “but this has already positioned us into conflict with budgetary constraints”, he added.

Chairman Sisa Njikelena noted that it seemed as if NECSA was being ignored by ministerial decisions on nuclear strategy.

Clearly NECSA is underfunded, Robertson said. However, inasmuch that salaries and expenses halfway through the year exceeded budget, NECSA in the meanwhile had international accreditation for enrichment of nuclear fuel and importation of nuclear energy equipment. All of this was difficult in the light of the unconfirmed future development of nuclear capital investment in South Africa.

The task of NECSA included the processing source material, special nuclear material and restricted material and to reprocess and enrich source material and nuclear material. Don Robertson, in presenting his budget, said NECSA stood as the anchor for nuclear energy research, development and innovation in SA and participated considerably in the uranium value chain. It was also the task of NECSA to develop uranium conversion capabilities and simultaneously seek to obtain access to established uranium enrichment programmes, plus develop a strategy to develop nuclear fuel fabrication capabilities.

NECSA in the year under review received R548m (2011/2012) with next year forecast at a lesser sum of R487m. Commercial activity in the form of NTP Radioisotopes, the SAFARI-1 Reactor and the NECSA MTR fuel department have managed to maintain the NECSA group in a strong position, he said, and sales achieved R869m. The SAFARI reactor was successfully converted to low enriched uranium (LEU) fuel.

However in answer to questions, he said that NECSA “needed to be capitalised to a considerably greater extent “ if NECSA was to meet its future possible mandate, conduct its present activities under the current conditions and go into the future”. In conjunction with the USA government and IAEA, a security or nuclear safety staff training centre had been commenced, funded by these entities.

Training was being undertaken abroad for no charge, provided NECSA paid board and living expenses and South Africans were being trained in time for commencement of South Africa’s nuclear programme should this be commenced. The supply of low-enriched nuclear fuel was needed by many other countries, particularly by the USA. The development of this process in South Africa was being closely watched.

Meanwhile, the sale of isotopes was a major form of revenue with good development potential, he said, and there were also “excellent relationships” with most suppliers of fuel. The  NECSA sales strategy plan included a projected increases of sales from R194m (2011/2012) to R333m by 2014 and generalised NTP isotope group sales to R1,7bn by the same date.

“It would a fair assumption that the country will be following the route of  pressurised water reactor (PWR), technology insofar as energy supply was concerned, South Africa having discarded the pebble bed system. It was apparent that French and American technologies might be used, the cost of financing and extent being dependant on the number of reactors to be built, which number again was dependant on the amount of energy to be sold and/or exported.”

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