…….article dated 4 July 2021….

Minister to brief Parliament in August

Now that Cabinet has approved the Upstream Petroleum Resources Bill and the Department of Mineral Resources and Energy (DMRE) have indicated their policy and the purpose behind the proposed legislation in a government gazette, the first legislative move will be a briefing to the relevant portfolio committee by the Minister of Energy.  This will happen once Parliament resumes on 16 August following winter recess.

The Bill has the purpose, DMRE says, of “making provision for equitable access to and sustainable development of South Africa’s petroleum resources” and the plan is to form a company “to receive 20 percent carried interest in any exploration and production rights, and a percentage, yet to be agreed, of any petroleum sales from such resources”.

Very broad intentions

What the Bill does not state are the exactitudes of who does what, on what basis are permissions granted for exploration rights for how long and how the state will exercise any of its carried interest requirements, other than to say, “The State may elect to take its proportionate share of petroleum production in kind or in cash.”

There is a strong feeling that the Minister who is undertake the briefing to MPs, might not be Gwede Mantashe, given the possibility of a cabinet re-shuffle but this is a guess game heightened by the instability of the ANC NEC following the arrest of Jacob Zuma.

No doubt also, any merger of the Central Energy Fund (CEF) subsidiaries, Strategic Fuel Fund, iGas and Petrosa, as proposed in this Bill to form a state national petroleum entity, is more than unlikely unacceptable at the moment due to the present lack of approval by National Treasury, despite Cabinet approval of any such merge.   A repeat of the SAA project development saga echoes out loudly.

Regulations much later

Presumably, and for the moment, it will be DMRE that will handle the Bill’s proposed gas exploration application process; the permits and rights issuances that will be necessary; to record any transferability of these rights; and the participation by “black persons” in gas exploration projects in terms of B-BEE. The Bill remains a draft until it is formally tabled in Parliament.

It also seems, reading between the lines, that it will have to be the Strategic Fuel Fund (SFF) that will hold what is termed in the Bill as “transitional and strategic stock requirements for petroleum rights holders”.  However, to repeat, it will fall to PetroSA or the new entity to receive the percentage, yet to be agreed, of any sales of any petroleum produced as a result of the permits issued to gas exploration projects.  This is ambitious.

Big plans

At present, all three entities as individual SOEs are hopelessly understaffed both in numbers and technological development ability as presently structured, the entities probably being unable to handle any of the envisaged plans in current economic times. This was acknowledged by the holding entity, CEF, itself recently  Their presentation to Parliament on how the merged project is to be financed and on what basis it will operate in the fuel industry, is awaited with interest.

PetroSA in the meanwhile goes forward with an impairment on its balance sheet of R14bn, incurred as a result of ill-advised gas drilling operations carried out in a five-year plan to save its Mossel Bay GTL plant.

More plans

PetroSA chief, Pragasen Naidoo, came up with proposals recently, presented to a visiting parliamentary committee team who came to the Mossgas rwefinery site, to build a state of the art “mega refinery” at the site in Mossel Bay estimated to cost billions, taking PetroSA into a whole new world of global GTL production.  Naidoo’s attempted development plan however was torpedoed it seems  when Total recently put off their coastal gas development project in the Outeniqua basin.  DMRE is apparently still searching for a supplier. The ambition of DMRE to have a national refinery seems unending.

Only a private/public sector merge of sufficient proportion or a “between-nations” agreement with international finance support would appear to give Naidoo’s plan any possibility of providing such an enormous infrastructure-build.  Experts state that it is far too late for DMRE to even try and gain entry to the gas to liquid market, already sewn-up by the majors such as Shell International with their strategically placed ‘mega plants’ worldwide and who are sufficiently well-equipped to handle the antagonism  from the anti-carbons lobby, say experts, and world opinion on the subject of fuel refineries generally..

Going back, PetroSA’s 2020 annual report, it is stated for all to see, “In view of the Company’s balance sheet constraints, the risk of PetroSA’s inability to fund the long-term initiatives remains residually extreme”.  That PetroSA is still there is quite remarkable, presumably since it is funded in reality by the taxpayer.

BEE features

It also seems that the DMRE wish for the Upstream Petroleum Resources Bill has been in the making for over four years and is part of the governing party plan to control not only gas exploration licenses by taking a bite out of international development costs in exchange South Africa’s sea bed and shale mineral resources, but to add to black empowerment opportunities from all-comers to the market.

Looking at the bankrupt, demoralized and totally understaffed entity that is PetroSA now, any plan for a “national”refinery  seems a little far-fetched.  The small town of Mossel Bay has experienced the pain of too many such state revival plans in the past in respect of its Mossgas-to-liquid (GTL) plant, at one stage the largest in the world.  It is now experiencing, it is understood, a 40% labour cut as part of a wind-down. At the moment, either the taxpayer or CEF reserves are holding up the wallpaper, it is not quite clear.

Rodeo riding

The idea of a state fuel refinery has been around for some time.  This formed the basis of past minister of energy Jeff Radebe’s failed approach some three years ago made to Petronas to buy all Engen outlets.  Thus, presumably, it was hoped to provide a safe market for taxpayer’s investment.  Engen is of course rock solid, having been for several years South Africa’s most successful fuel retailer with some 1,450 service stations across sub-Saharan Africa. The failed bid plan added R30m to the PetroSA losses.

The Upstream Petroleum Resources Bill will now be the subject of intense scrutiny by MPs but the establishment of yet another SOE and at the same time in the highly competitive world of fuel refining and retailing, has been described as a disaster in the making in fuel retailing circles.

Going for gas

In approving the Bill, Cabinet has declared that the draft Bill provides the “legislative and regulatory framework to create a conducive environment for investment, growth and job creation in the upstream of petroleum resources market”, obviously referring to the gas exploration portion and receipts from market entrants.

Some of the objectives stated in the proposed legislation include “recognizing the right of the state to exercise sovereignty over all petroleum resources in South Africa and promoting equitable access to the country’s petroleum resources, facilitating participation by black South Africans in the upstream petroleum sector”.

The draft Bill further states that it will “provide for security of tenure in respect of exploration and production operations, ensuring that holders of production rights contribute to the socio-economic development of the areas in which they are operating and encouraging and promoting national development of petroleum resources by speeding up exploration and production”.

BEE conditions

On transformation, there is some attempt to solve the “once empowered, always empowered” status of a participating entity inasmuch that it is stated: “Every petroleum right granted must have a minimum of 10 percent undivided participating interest by black persons”.

However, the Bill adds in a further clause in the same section…“the dilution of black persons’ participation etc etc will not trigger a requirement for the holder of the petroleum right to augment black persons participation interest to 10% etc etc. “Where black persons exit from a specific petroleum right, the empowerment credentials of the specific petroleum right must be recognised for the duration of the petroleum right etc etc”, thus presumably avoiding another further equity search for replacement black shareholders.

On this subject, the Bill concludes that there must be in place “an agreement detailing exit mechanisms and black persons financial obligations”.

 

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