Tag Archive | Strategic Fuel Fund

Central Energy Fund hatches fuel plan

A lot going on at Central Energy Fund…..

Central Energy Fund (CEF), the state utility which controls the Strategic Fuel Fund (SFF) and fosters PetroSA, cef logohas again been outside of a plan that has Parliamentary approval or, it appears, Treasury knowledge.    CEF falls under the aegis of the Department of Energy (DOE) and is therefore responsible to Minister of Energy, Tina Joemat-Pettersson.  Clearly there is much going on of which Parliament knows nothing – in recess as it is.

The history of CEF’s  problems go way back before the period during which  previous Minister of Energy, Ben Martins, held office and even before Ben Martins, as an MP was chairperson of the Parliament Portfolio on Energy. Most of CEF’s troubles appear to involve the fuel storage facilities  at Saldanha Bay on the West coast and PetroSA’s operation on the East coast, causing considerable negative comment from the portfolio committee and Ben Martins himself at the time. Sadly, Minister Martins was not chosen to remain by President Zuma.

tina-joemattQuite clearly a plan has been hatched to meet Cabinet ambitions.

Glaring omission

It was only after  Minister Joemat-Pettersson’s current budget vote speech did the investigative journalism of the newspaper media discover the sale of almost completely the entire SA reserve oil stock of the Strategic Fuel Fund (SFF) held at Saldanha Bay.

Not only was the sale concluded without any mention but the quantity of fuel involved appears to have been a major financial  decision  undisclosed in any cabinet statement.    It appeared that CEF had allowed SSF to sell 10 million barrels of crude — close to the entire stockpile — in a closed tender at the point that the oil price had bottomed at somewhere around R34 Brent.

It also appears that this was without the agreement of Finance Minister Pravin Gordhan and Treasury whosepravingordhan concurrence is needed under the Central Energy Fund Act.  How this will play with Treasury and the Auditor General is not clear, nor whether when and how CEF intends to replace this. The Democratic Alliance will no doubt be asking for answers in parliamentary question papers.

What the Minister said

It is interesting to note exactly what the Minister had to say to Parliament about SFF in holding back, it appears, on such major financial move. She told MPs that in line with the Presidential Review Commission on State Owned Entities (SOEs) that her Ministry had been working towards “a review of the composition of the CEF Group of companies.”

She went on to say, “Our work in this area includes the strengthening of the entities in the oil and gas sector and the stated policy objective of the creation of a stand-alone national oil company, using PetroSA as a nucleus.”
SFF had a good revenue base, she said.

saldanah bay 2“We shall finalise this work by October 2016”, Minister Joemat-Pettersson said and she would revert to Parliament on Cabinet views and strategies for a revised energy sector framework. “Accordingly, in 2015, the Ministry of Energy issued a ministerial directive for the rotation of strategic stocks in the SFF and this has resulted in an increased revenue base for SFF whilst at the same time maintaining stocks within our storage tanks for security of supply.”

Long term view

“This as a result, the Minister continued, “of a long term lease and contractual agreements with the buyers. The estimated revenue to accrue from this process is around R 170 million per annum, significantly boosting the balance sheet of the SFF.”

The Minister concluded that through the rotation of strategic stocks and trading initiatives the SFF had further consolidated its ability to be self-sustainable. “This has also allowed us to replace the unsuitable stock that we have been storing in our tanks which has been both uneconomical and did not contribute to security of supply.”

“The SFF will continue to ensure that it is able to respond to any shock in the market, whilst optimally making use of the opportunities presented in an evolving oil sector”, she concluded regarding West coast activities.No figures were given nor a clear indication mentioned that a sale had been concluded.

  SASAL LOGOHowever she was particular in supplying numbers regarding the joint venture between Sasol and Total when she said, ” Effective from 1 July 2006, Sasol Oil sold 25% of its shares to Tshwarisano LFB (Pty) Ltd, a broad based black economic empowerment consortium comprising of 150,000 direct shareholders and 2,8 million beneficiaries. The value of this transaction amounted to nearly R1.5 Billion, making it a significant BEE transaction in the liquid fuels industry.”

Trading nightmare

Therefore, the sale of nearly the entire reserve held by SFF, whether it is kept in the same tanks at Saldanha or not, at an oil price when at it’s very lowest, “suitable” or not, and being obliged by the Act to eventually replace it some later point should get an explanation.   However, it seems that there was an incentive to sell.

Also, to have to buy back at an oil price which is currently already well over double would appear to be completely against the tenets of the Public Finance Management Act; what the Auditor General is bound to call “fruitless and wasteful expenditure”; and contradictory terms of the Minister’s statement to Parliament that the SFF “has the jacob zumaability to be self-sustainable”. Unless, of course it is bolstered by external funds. 

Gas nightmare.

Parliament is of course closed for the election recess but no doubt there will be a parliamentary uproar on the subject – if not an investigation, which will come on top of the further current investigation of CEF’s activities as far as PetroSA is concerned.Once again the question will arise on how it was possible for PetroSA to continue with Project Ikhwezi when drilling for gas for two years in an area already defined by experts as impractical in lieu of fault lines in the projected gas field.

Central Energy Fund seen as politically driven

R11.7bn was the total “impairment” of PetroSA, the result of underperformance of Project Ikhwezi in its efforts to supply gas onshore to Mossgas. The total PetroSA loss for 2014/5 was in reality R14.6bn after tax. Currently a team comprising of industry experts is now defining a new strategy to save the PetroSA in its offshore struggle on the East coast, according to DOE reports to Parliament.

Roughnecks wrestle pipe on a True Company oil drilling rig outside WatfordThe experts were not named but the exercise is entitled Project Apollo and reports were also given to Parliament that the team has progressed well so far, said controlling body Central Energy Fund during 2015.

PetroSA was originally flagged by Cabinet some twelve years ago as “South Africa’s new state oil company”.     Last year, CEF described at the time PetroSA’s performance in their annual report to Parliament as “disappointing”, resulting in harsh criticism last year from the Portfolio Committee on Energy. The subject was not raised this year by the Minister in her Budget vote speech.

Failed deal

What, however, was raised in opposition questioning in the National Assembly by Pieter van Dalen, DA Shadow Deputy Minister of Energy, was Central Enegy Funds venture into the proposed purchase of Engen’s downstream activities from Malaysian company Petronas, known as “Project Irene”. This was understood to be the Cabinets secret plan to own the promised state oil company.

fuel tanker engenThe purchase from Petronas, who own 80% of Engen, was an attempt through Central Energy Fund to gain a foothold in the fuel retail and forecourt space by acquiring a stake in Engen, South Africa’s largest fuel retailer. The remaining stake is held by the Pembani Group.

First try

The board of PetroSA was repeatedly advised by both transaction advisers and the Treasury, according to Deputy Shadow Minister van Dalen, “that the proposal to buy the Engen stake did not make good business sense.”
“However,” van Dalen said to MPs, “the project was strongly championed by Minister Joemat-Pettersson and President Jacob Zuma. In the end, the deal fell through due to lack of financing.’These sort of things cannot go on”, he said.

The last word

This particular meeting in the National Assembly was completed by Shadow Minister of Energy, Gordon Mackay,gordon mackay DA attacking the Minister for “misleading the country on nuclear energy deals.”

He concluded after a long speech on the subject of the proposed nuclear build programme and what he referred to as “anomalies”, with the remark “We must ask ourselves Chair – why is our government doggedly pursuing this nuclear deal. It is clearly not a deal in the interests of the poor. It is clearly not a deal in the interests of business. It is clearly not a deal in the interest of the nation.”

Gordon Mackay did not know about the Chevron approach, or at least he did not indicate that he did.

Previous articles on category subject
Central Energy Fund slowly gets its house in order – ParlyReport
PetroSA on the rocks for R14.5bn – ParlyReportSA
Chevron loses with Nersa on oil storage – ParlyReportSA

Posted in Energy, Facebook and Twitter, Finance, economic, LinkedIn0 Comments

CEF hurt by Mossel Bay losses

CEF R3.4bn write down was “irregular” …..

PetroSA logoLosses incurred at the Central Energy Fund (CEF) gas to liquid facility at Mossel Bay operated by PetroSA have resulted in a revaluation of assets based on the expected life of the refinery but the impairment that resulted, to the tune of R3.4bn, was found to be “irregular” by the office of the auditor general (AG) when reviewing the CEF 2013/4 results.

CEO of CEF, Siswe Mncwango, appeared before the portfolio committee on energy together with the chief executives of subsidiaries PetroSA, iGas, the Strategic Fuel Fund (SFF), African Exploration and Mining (AE) and the licensing and regulatory petroleum body, PASA, to brief the committee on their annual report and to justify their financial performance in terms of the AG findings for the group.

PetroSA struggling

The key issue central to the impairment of R3.4bn, Mncwango said, was the necessity for subsidiary PetroSA, in terms of its mandate, to maintain its levels of gas feedstock at a sufficient level to meet strategic stock policy in the national interest.  It was necessary, he said, to undertake this accounting process in view of delays experienced in exploiting undersea gas fields.

He said, the plant started operating at Mossel Bay in 1992, the life of plant being estimated at 15 years, and then known as Mossgas. With the project not having the necessary funding for exploration at sea during its early years, the plant consequently became threatened far too early in its planned operating life.

Limited choices

CEF faced two financially driven options, Mncwango explained to parliamentarians.  There was a choice between running the plant at 50% capacity or to close it down, he said.  As the strategic need for gas feedstock was an imperative facing both CEF and PetroSA, it was decided to further explore the existing and nearby gas field area.

Project Ikhwezi was thus born but at this stage expensive drilling to greater depths and lateral drives have been encountered and with newly pioneered methods, this has resulted in major additional costs. However, PetroSA, in a briefing from their engineering head on the subject drilling expectations, indicated that they are confident that plentiful gas supplies are on the cards.

Long time drilling

The project involves tapping into gas reserves in Petro SA’s F-O field which is located 40km south-east of the production platform off the south coast of South Africa.  The first well drilled was finalised in 2013 and the final link between all wells is to be completed during 2014/2015, parliamentarians were told.

The delays that have been experienced have also negatively affected the finances of PetroSA, CEF said, and this had necessitated permission for a temporary impairment from national treasury. However, this was not certificated correctly according to the AG’s report and consequently the R3.4bn impairment became “irregular”.

Difficult waters

According to Andrew Dippenaar, PetroSA’s upstream acting vice-president, Project Ikhwezi may, and probably will, be producing in some eighteen months. The riskiness and speed necessary in trying to find gas in difficult waters has added to the problems, he said, on top of which the gas field is geologically problematic.

This has led to operating losses at refinery level with a result that some sort of accounting write off was necessary in the short term, despite this hurting PetroSA’s current cash reserves of R5.5bn. This amount will not be recoverable, CEF’s financial officer said but he was adamant that this was not a cash loss affecting the taxpayer, more a book entry. CEO Mncwango added that inherited delays in finding gas at sea in the immediate area close to the landing facilities had resulted in the current situation. These were many risks in oil and gas exploration, he said.

Chief financial officer of PetroSA, Lindiwe Bakoro, was insistent that as a result of long delays in exploration any hope of immediate profits might be delayed but long term viability had been planned for and this was expected.  Consequently, new valuations on assets were undertaken to re-gear the project with treasury permission.  However, Bakoro confirmed that PetroSA would await the final results of drilling and connection before any final write down-decision on the impairment took place.

Purchasing procedures

On other irregular expenditure items, totalling some R30m, that appeared in the CEF results noted by the AG, these again were for PetroSA.   Such were mainly as a result of the correct procedures not having been followed in terms of procurement procedure. 

The correct procedures were now followed throughout the CEF group, Mncwango said, and the AG had been satisfied on this subject, since the annual report had not been qualified. A specific “irregular” figure of R1.6bn was also reported for PetroSA in respect of its Ghana operations.

Again it was explained that this was a procedural and the necessary documentation on transfer of monies had been incorrectly processed.   It would appear that treasury permission had been applied for and granted in 2013 but the actual transfer of R1.6bn had taken place in 2014, a different financial year for the record. CEF reported that PetroSA, nevertheless, had shown a particularly good return for the first time on its Ghanaian liquid fuels investment, returning a profit for 2013/4 of some R560m

On or off. Who knows?

Asked if any discussions with Engen on downstream development in the name of PetroSA had progressed, CEF’s Mncwango said that any such discussions were confidential and he would not be drawn into further explanations since these were commercially sensitive, whether with Engen or any other body in the liquid fuels sector.

Ms. Nosizwe Nokwe-Macamo, CEO of PetroSA, concluded that steps were taken to effectively manage fruitless, wasteful and irregular expenditure and that the focus for the national fuels group in the period ahead included delivery on Project Ikhwezi and finalising funding arrangements for “downstream entry”.

Gas plan on the way

The meeting was attended by the deputy minister of energy, who said she was confident that steps taken by both CEF and PetroSA were in the interests of the national strategy on gas supplies and that cabinet were shortly to debate the gas utilization master plan (GUMP). This was in response to opposition members who had complained to the minister that South Africa’s liquid fuels and energy plans could not be finalised until the state’s future gas supply scenario was properly clarified.

Other articles in this category or as background

http://parlyreportsa.co.za/energy/petrosa-has-high-hopes-with-the-chinese/ http://parlyreportsa.co.za/energy/cef-still-has-its-troubles/ http://parlyreportsa.co.za/uncategorized/central-energy-fund-slowly-gets-its-house-in-order/

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


This website is Archival

If you want your publications as they come from Parliament please contact ParlyReportSA directly. All information on this site is posted two weeks after client alert reports sent out.

Upcoming Articles

  1. MPRDA : Shale gas developers not satisfied
  2. Environmental Bill changes EIAs
  3. Border Mangement Bill grinds through Parliament

Earlier Editorials

Earlier Stories

  • Anti Corruption Unit overwhelmed

    Focus on top down elements of patronage  ….editorial….As Parliament went into short recess, the Anti-Corruption Unit, the combined team made up of SARS, Hawks, the National Prosecuting Authority and Justice Department, divulged […]

  • PIC comes under pressure to disclose

    Unlisted investments of PIC queried…. When asked for information on how the Public Investment Corporation (PIC) had invested its funds, Dr  Daniel Matjila, Chief Executive Officer, told parliamentarians that the most […]

  • International Arbitration Bill to replace BITs

    Arbitration Bill gets SA in line with UNCTRAL ….. The tabling of the International Arbitration Bill in Parliament will see ‘normalisation’ on a number of issues regarding arbitration between foreign companies […]

  • Parliament rattled by Sizani departure

    Closed ranks on Sizani resignation….. As South Africa struggles with the backlash of having had three finance ministers rotated in four days and news echoes around the parliamentary precinct that […]

  • Protected Disclosures Bill: employer to be involved

    New Protected Disclosures Bill ups protection…. sent to clients 21 January……The Portfolio Committee on Justice and Constitutional Affairs will shortly be debating the recently tabled Protected Disclosures Amendment Bill which proposes a duty […]