Tag Archive | oil imports

Electricity connections not making targets

No hope of meeting Zuma’s promises…

elec poleThe inability of municipalities and local government to bring electricity to the poor and for the department of energy (DOE) to meet its promised target of electricity to all households by 2015 was a subject which dominated the DOE’s annual report to Parliament recently. New Minister of governance and traditional affairs, Pravin Gordhan, will have this issue before him as he tackles local government problems as will new minister of public enterprises, Lynne Brown.

Ms Nelisiwe Magubane, DG of DOE was reporting on the activities of her department for the 2o12/13 period and neither the minister of energy, Ben Martins, or his deputy, was present, much to the chagrin of portfolio  committee energy committee chairperson, Sisi Njikelena, who reported angrily on the subject.      DOE was reporting on its annual report and second quarter achievements.

Success with avoiding Middle East for oil

In noting that the year had been dominated by fluctuating oil prices, Ms Magubane noted that South Africa had succeeded in switching 41% of its oil imports to the African continent.

DG Magubane also reported that the electricity supply situation had improved in the country and the department’s own household electricity connection programme had also improved, mainly thanks to Eskom, but there was a large backlog that still existed due to lack of accountability by municipalities. This was a worrying factor for the country, she said. On this subject, further reports followed.

Other DOE targets met

Dr Barnard

Dr Barnard

On clean energy as far as the year was concerned, she reported that in August financial close had been received from twenty eight of the independent power producer (IPP) bids: the biofuels blending regulations had been drafted; the draft pricing arrangements started; and a nuclear safety report compiled and submitted as a result of lessons learnt from the Fukushima disaster.
 Dr Wolsey Barnard took up the issue of DOE’s poor record on electricity connections and said that bearing in mind the lack of skills and training at local government, it “was a miracle that South Africa had achieved so much”.

Aside from the fact, he said, that the government financial year was different to the municipal year, which made a mockery of funding programmes and targets, he said dealing with municipalities was “extremely difficult”  but nevertheless “for each seventy seconds of each day there was a connection some here in South Africa”.

Treasury must ring fence local funding

On the problematic relationships with local government, Dr Barnard said DOE was doing as much as it could “but you can pull a rope but you can’t push it and that was the trouble in dealing with local government officials”.   He said he looked forward to the day when National Treasury’s promised Bill “ring fencing” funds was promulgated “and then we might get somewhere”, he said.

He noted that each municipality had to sign a contract to get funding in the first place, providing business plan, “but sometimes we get to a place to install for a lot of homes built and there is no sub-station or any hope of connecting to the national grid”.

Cabora Bassa dam debt at R1

nelisiwe magubaneMs Magubane confirmed that in the annual reports a loan to Mozambique for the Cabora Bassa dam had been written down to R1 with the permission of Treasury. This loan was in respect of money loaned in the ‘sixties and it was clear that the Mozambique government could not pay. However, the question of re-payment of this loan would be re-raised, she said.

On queries why there seemed so little interest in gas exploration by government in Mozambique, whereas other countries seemed to have “got their foot in first”, Muzi Mkhize, chief director of hydrocarbons, said that “unlike other countries, we do not subsidize our national oil exploration effort and, in any case, the quest of dealing with countries was a foreign affairs matter and country to country relationships had to come first.”

SA to meet Mozambique on gas exploration

Sisi Njikelana said that this was a totally unsatisfactory answer and called on Mkhize for a better explanation to his committee.  Mkhize admitted that South Africa was “meeting Mozambique on a government to government basis on gas exploration matters in mid-October”.

When asked what had happened to the nuclear safety report, deputy director general of nuclear, DOE, Zizamele Mbambo, said that this was a security document but it had been acted upon.

The Eskom representative was asked to speak on the subject when a question was raised about the Koeberg Nuclear plant by a Cape Town MP, and the Eskom official reported that a “fortnightly nuclear safety committee met in the area with all representatives present” and that the meeting was chaired by a person drawn from the local community.

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Fuel prices: SA remains at mercy of global facts

No relief at present….

cl;eanerfuels1In the light of vacillating fuel price but with a strong upward trend, Robert Maake, hydrocarbon energy chief, department of energy affairs (DOE), briefed the portfolio committee on energy on fuel prices and why these were so volatile at present. There was little relief in the short or medium term, he said. The discussion was part of a generalised overview of the liquid fuels industry in South Africa.

He pointed to the fact both the Egyptian and Iraqi situations, coupled with unrest in Southern Sudan, illustrated the fact that South Africa, as a net importer of oil, was highly sensitive to such geopolitical instability. A combination of other factors also contributed to a lack of major relief on the horizon.

Fixing the price to continue

There was no escaping the fact that in a country such as South Africa, which is likely to remain as a net importer and where both the price elements and formula used to reach to adjust pricing are published, the import parity system, i.e. fixing prices based on a comparison of what it would cost to import refined fuel and land same, would continue into the foreseeable future, Maake said.

Over and under recoveries by the importers at the month’s end would therefore continue to affect the consumer coupled with the appropriate time lag to carry out monthly adjustments. There were a number of issues totally out of the importer’s control such as demurrage where loading and unloading due to weather and port inefficiencies; the rand/dollar rate and the cost of levies – a lot of countries having far less factors contributing to cost –  and a lot having unrelated cost levies, such as road accident fund contributions.

Subsidies not for us

However, the major fact affecting costs at the moment was geopolitical instability, Maake said, and the playing fields being altered completely insofar as purchases were concerned. Some countries, such as Nigeria, had tried subsidization but in that environment enormous quantities of fuel were moving across borders and smuggling was a big industry, he noted.

Maake said that in South Africa, both Singapore and Amsterdam remained major refining and wholesaling/storage zones and prices were very much correlated or bench marked to these areas and how much they were selling their refined fuel for. On illuminating paraffin there was a strong possibility that a price reduction of two rand would shortly be signed off as agreed to by the minister.

State mostly outside fuel infrastructure

When asked why the government was not buying oil for consumers from cheaper suppliers in Africa, DOE replied it did not buy foreign oil from any country for consumer use. Only the private fuel companies imported for consumer use and government bought only for strategic oil stock reserves.

He added that it was difficult to move the private companies to African crude since crude as presently purchased was geared to refining abilities, since oil differed much in its makeup and nature. Consequently, the type of crude and what zone it came from was critical since most SA refineries were geared to Arabian light crude as distinct from heavier crude from other areas.

Cushioning fund

Also asked was whether price hikes could be avoided by building up reserves when the price dropped and not passing these on to the consumer, DOE said they were rather looking at the issue of having an annual adjustment with more notice of change in order to assist business and industry generally by creating more stability and planning ability .

Also asked was why DOE “could not assist in cleaning up the LPG gas value chain with some use of a similar reserve and also doubling up on safety”, the reply was that there was a government review, including stakeholder workshops, in progress and expected outcomes were that some form of consumer assistance would result.

Sasol profits

Again, the question was asked that in the light of the fact that Sasol was using a natural resource, in this case coal, and producing profits because of lower costs, why could this additional margin of profit achieved not be used to protect the poor as a state subsidy. The reply was that Sasol’s contribution was so low in terms of market share in fuel sales that such plans as introducing any radical market changes were not either feasible nor did it make market sense.

DOE said that a much more interesting proposal would be the eventual introduction of shale gas to local market product figures, bringing up issues such as export parity pricing. But at present he said, and in the short term, the local production factor was only about 6% and therefore Sasol did not really feature in such economics.


 The principle therefore still applied, Maake said, as had been the case for many years, that if Sasol were to offer a branded pump price on a competitive basis for lower prices they would be presumably be totally stripped of their ability to supply at all in a very short time and thus would be threatened financially as a valuable contributor to exports. Such a situation was a non-starter, he said

The chair asked whether, as in Australia, more emphasis could not be given to ensuring that no collusion takes place in the industry and asked the DOE what their relationship was relationship was with the Competition Commission locally. DOE said that they were most interested in the Australian system and how they monitored import costs with a double check system to ensure no collusion. However, the lack of players in South Africa has led to the belief the collusion is not such a major issue in this country.

Parliamentarians again complained that department of energy was still failing to produce a national energy strategy to underwrite the entire industry in all its aspects. More certainty was called for, said one opposition member.

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SA aware of over-dependence on Middle East, says DOE

engen durban refinery

    With 60-70% of South Africa’s oil supply coming from the    Middle East and most gas emanating from Mozambique, “engagements” were also taking place all the time through PetroSA with Venezuela, Egypt, Ghana and Algeria, said Elizabeth Marabwa, the new chief director of energy international relations, department of energy (DOE).

She was addressing the parliamentary committee on energy recently giving an update on “ international energy relationships”.

Factors guiding such  relations and consequently DOE policy were energy security imperatives; access to information; skills and capacity issues both in local and nearer African countries; access to funding and the upward pressure of the cost of energy.

Insofar as gas was concerned, DOE said that development of trading structures with Mozambique was an ongoing process, as were recent arrangements with the Namibia Gas Commission.

In Angola, PetroSA and Sonangol were exploring areas of co-operation in both gas and oil and there was a general increase in trading in petroleum products within the Africa continent, particularly with Angola and Nigeria as far as crude products were concerned and, as stated, in Mozambique with gas.

A memorandum had been signed between PetroSA and SINOPEC in September last year developing what was known as the Mathombo project which was located at Coega.  In Venezuela, arrangements with South Africa were at a level which Marabwa described as “near producing” assets.

On renewable energy sources, Marabwa said much was taking place in sub-Saharan Africa on the issue of wind and hydro development and on the subject of hydro energy, major developments where taking place with the DRC in terms of an MOU signed in November 2011 regarding supply from the Grand Inga project.

Grand Inga, Marabwa said, had a potential output of 40,000KW of hydro electricity.

DOE noted that Sasol was playing a large part in solar and LED energy access domestically and the Storage Action Group was now fully effective grouping insofar as clean energy input was concerned.   Marabwa listed some ten clean energy initiatives that her department was dealing with.

DOE also confirmed that US$20bn was now available in terms of a broad spectrum of possible requirements for the energy sector from China in terms of a recent agreement with PetroSA.    They were working with “experienced Chinese oil and gas companies”, she said.

Under questioning about exactly what the specific projects were with China, she was not specific and told parliamentarians that “matters were at a very early stage”.   A forum on energy needs involving SA and China was to meet annually, she said, and the development programme itself involved the China Development Bank.

In the case of Denmark, she told parliamentarians, an MOU on wind energy has been signed but no figure was attached to this particular agreement by DOE.

On nuclear issues, Marabwa said that DOE had taken an active interest in lessons learnt from the Fukushima accident.   To date, bi-lateral agreements and MOUs had been concluded Algeria, Korea and China.    Access to funding for nuclear projects to meet the SA agenda, and what was referred to as “soft loan possibilities”, had been arranged with Denmark, UK, Germany, Norway and the European Investment Bank.

She was asked what a “soft loan” was by MPs but without any financial DOE person available, Marabwa said she did not want to answer this.

Marabwa said DOE would continue with the agreed renewable energy strategy according to its “master plan” and now being carried down into the various regional initiatives. DOE had held many workshops and signed a number of “working agreements” in the areas of bio-fuels and food security.

Electricity interconnectivity through adequate transmission lines in the entire sub-Saharan region was also within the sphere of DOE’s current energy interests, she said.

Marabwa supplied the committee with graphs and stats on the demand and supply energy power situation in SADC countries; SADC power pooling forecasts and a map of potentially viable cross-border transmission projects in the region with approximate costings in US dollars.

Total value was in the region of US$300bn of such projects, which figure some MPs said should be disregarded. One MP said that the Grand Inga project in DRC, a major portion of this figure, has been dragging on for so long, its cost was not relevant any more.   A list of SADC approved energy infrastructure projects was also shared with the committee by Marabwa, which included such projects as the Kudu gas power project in Namibia; hydro projects in Zimbabwe, Zambia and Mozambique; and the electricity transmission backbone lines through these territories.

She talked of a Malawi-Mozambique power line to be developed and possible electricity link ups with Kenya and Tanzania as far as the East African grid was concerned.

Under further questioning regarding relationships with Iran over oil supplies, Marabwa said that cabinet was meeting on this subject “at the moment” and she could not give any answer on this critical subject and it was unlikely that even a cabinet statement would an indication of the position until Iran’s next moves were known.

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