Tag Archive | Kevin Mileham

PetroSA part of new energy plan

…..article dated 2 September 2020…..

CEF to restructure both PetroSA and NECSA…..

In what appears to be the first serious attempt to organise and restructure the struggling state entity Central Energy Fund (CEF) and rescue what will now be branded as South Africa’s ‘national petroleum company’ in the form of PetroSA, Minister of Energy, Gwede Mantashe and the relatively new CEO of CEF, Dr Ishmael Poolo, faced a barrage of questions during their scheduled update to Parliament on the fortunes of the troubled group.  CEF appears to be handling two intensive recovery programme at the same time, including at last replacing a swathe of acting posts.

The  first, smaller programme will be the merger of the Nuclear Energy Corporation of South Africa (NECSA) with subsidiaries Pelchem and NTP Radioisotopes, for which a common board has now been established.   The programme includes a drive to return to profit recovering from the massive losses sustained by NECSA providing for a nuclear programme under the tenure-ship of Jacob Zuma’s presidency and which never materialised.

Project Inkwezi, remember?

The second recovery exercise is to sort out and re-build CEF’s entity, PetroSA, after its long-running saga of failure over the Mossel Bay gas-to-liquid venture.   Having had no CEO for 5 years and left to drift without any co-ordinated approach to the industry it was supposed to serve, PetroSA has been in the wilderness without a technical plan to re-establish its presence called for by Parliament for even longer.   Paralysis and ignorance on the part of successive ministers has also been to blame.

Involving billions of rands, the second issue is, by a long chalk, the most damaging to the national fiscus and although both matters are an acknowledged disgrace in terms of financial management, nobody in government, in this case both the Department of Mineral Resources and Energy (DMRE) and CEF, has come with a proper financial plan on the way forward or have been called to account for the mess.

CEF has also suffered SIU investigations into the illegal sale of oil stocks held by the national Strategic Fuel Fund (SFF), another of its entities, a numerous enquiries instigated by the Auditor General.

Top down

In inheriting the problems, Minister Gwede Mantashe has insisted that new management teams be found to head up not only CEF at the top but also for both NECSA and PetroSA in an attempt to bring fresh perspectives to the whole group.  This means, of course, that the Minister has also decided that both entities, NECSA and PetroSA, are to be saved  and this despite the enormous cumulative losses on the balance sheet of CEF.

Not only this, but he insists that the group moved into the black as a whole in the shortest time, but this is only made possible by the fact that it’s entities will have continue functionally bankrupt in the meanwhile.

In the case of NECSA, new appointments are about to be made, MPs were told.   In the case of PetroSA, CEF chairperson Dr Monde Mnyande announced earlier this year that Pragasen Naidoo had been appointed as CEO of what is now branded as the “new national oil company.”   Dr Mnyande said at the time that this move was the first step in “breathing new life in CEF”.    He said that more appointments would follow.

This month

In his first appearance before Parliament, the new CEO of CEF, Dr Ishmael Poolo and appointed by Dr Mnyande in May, told the Committee that a consortium of the three consultancies Mazars, Bayajula Services and US consultancy AT Kearney, are now contracted to assist CEF in the process of merging the entities of SFF and i-Gas into PetroSA.

On a second separate exercise of absorbing Pelchem and NTP Radioisotopes into NECSA, an announcement on the names of consultants to be used in this case would shortly occur, he said.

New Bill

A major refurbishing process was now being hastened in the case of PetroSA, Dr Pollo said, because of the advent of the Upstream Petroleum Resources Development Bill, the crux of which Bill was to allow for PetroSA to receive the benefits of “free carry” gas and petroleum exploration rights granted by the state, thereby fulfilling its mandate as the state’s contractual agent.

“Such a merger of interests, led by a strong PetroSA, would unlock the upstream petroleum economy”, Dr Pollo told MPs, “whilst also maximising the socio-economic benefits flowing from such arrangements and assisting the Minister in realising the state’s Integrated Resource Plan (IRP).”

Bare facts

In an earlier report back to MPs this year, CEF had confirmed that PetroSA had incurred losses totalling R20bn since 2014, mostly in its attempts to stave off shutting down Mossel Bay as a community in a downhill battle for additional gas for its gas-to-liquids refinery, which itself has also had a chequered production life.

Dr Pollo said that now PetroSA was currently producing at a rate of only 6,000 barrels per day, primarily due to shortages of gas from drilling and well operations in nearby coastal waters.    MPs were told by him that PetroSA’s headcount remained at the same level as it had been when producing at an earlier daily rate of 18,000 barrels. He drew attention to the fact that PetroSA was a relatively large company and it accounted for a large portion of CEF’s 1 800 employees.

Rescue plan

It was important for PetroSA to refurbish the refinery and upgrade its ability to take on more gas supplied as part of the overall plan for liquid fuels, Dr Poolo said, and the restructuring processes in respect of merging  SSF and i-Gas into one group was to start Sept. 1.   He said that CEF was exploring its options for either selling or finding a partner to assist with “the commercialisation” of the gas-to-liquid unit.

Dr Poolo concluded by telling MPs that he would return to Parliament in October and account to them on progress of the PetroSA stabilization programme.    During questions, labour issues immediately arose immediately because retrenchments would follow

Cold facts

The Minister said that PetroSA had three union movements involved and negotiations were underway regarding retrenchments which could not be avoided.  Only one of the three plants at Mossel Bay was operating and lay-offs were being limited to the smallest number possible, the unions “having acknowledged that over-staffing existed”. He had told unions that success with PetroSA would result in further employment at a future date.

Questions from both the EFF and DA concerned consultancy fees being paid.  Dr Poolo replied that on retrenchments, the internal teams had stated they were unable to be objective.  “Obviously they could not ‘self-amputate’ and consequently, for many other reasons as well, third party consultants were preferable” Dr Poolo confirmed that both SFF and i-Gas were viable units but that PetroSA was reporting a loss of R200m for 2019/2020.

Asset acquisitions

As to the future, MPs were told that both CEF and Sasol had indicated that talks on the sale of a stake in the Romco gas pipeline from Mozambique to South Africa were possible and discussions were well advanced.   Other assets of Sasol for sale were being considered as Sasol was offloading to raise cash.

Refurbishing the Mossel Bay refinery in order to be able to use liquid feedstock was also part of the restructuring considerations, Dr Poolo said, and CEF was further exploring its options to find a partner to assist with the commercialisation of the PetroSA gas-to-liquid unit.

New nucleus

On matters regarding the re-structuring at NECSA, David Nicholls, board chairperson, told MPs that an “appointment of an external service provider was imminent” in order to act as consultant in the process of merging Pelchem and NTP Radioisotopes into its parent body.  By eliminating the need for three boards and re-sizing, profitability would be seen sooner, he said

Nicholls added that in the short-term, losses of R239m in 2020-21 were projected bearing in mind that COVID-19 had cost an estimated R400m as a result of having on-board highly paid scientific experts but, nevertheless, the new NECSA was estimated to return to profitability in 2021-22, he felt.

He noted that in the meantime Pelchem was producing sanitisers in response to COVID-19 and that the Fund’s Ketlaphela Pharmaceuticals unit “was working hard toward the production of anti-retroviral medication at the soonest”.

DMRE tunes in

As the meeting progressed , a department of energy presence became evident as more members joined the meeting.  In a discussion on general energy matters, Tseliso Maqubela, Deputy DG, Petroleum and Petroleum Products Regulation, DMRE, was called upon to answer the question from MPs as to why the country had very recently “run short of diesel in such critical times”.

He told MPs that the reason was theft direct from the pipeline by “ a highly organised group”  in the Pretoria area, coupled with fuel unloading problems at the East London terminal due to a COVID-19 outbreak which had occurred.

In conclusion, Minister Mantashe, in answer to questions from Kevin Mileham (DA), committed DMRE to publishing an Integrated Energy Plan (IEP) before the end of the current parliamentary year. Mileham had pointed out that in terms of the Energy Act, a IEP was required from the ministry on an annual basis. Seven years had passed since the last energy plan and investors needed this.

Posted in Energy, Finance, economic, Fuel,oil,renewables, Public utilities, Trade & Industry, Transport0 Comments

NECSA says nuclear will come to SA

……may 15 2020……

A damaged NECSA plans its energy future

….. The South African Nuclear Corporation (NECSA), with an employee role beyond its capacity as a result of waiting  for a R750bn nuclear programme which never arrived, might be getting back on track with the possibility of nuclear down the track.  Having lost some extremely valuable and experienced, government is attempting, it seems, to be breathing life into this once highly successful operation nearly destroyed by political interference.

NECSA is a valuable but largely ignored nuclear component in the stable of the now combined  Department of Mineral Resources and Energy (DMRE), an entity which for the last ten years has been subjected to mismanagement, patronage, lack of management appointments and a considerable number of ministerial financial scandals.

After the years of waiting during the Zuma era, NECSA then lost and additional two years with the integration of the departments of mineral resources into energy but appears that DMRE , its parental department, has appointed a new board with new ideas on a NECSA future.

Bigger picture

The DMRE this year presented a plan to Parliament for an estimated budget of R9.3bn for the current financial year, 95% of which will be transferred as usual to its entities.

These will be Council for Geoscience National Energy; the Regulator of South Africa (NERSA), Central Energy Fund (CEF) (including PetroSA and the Strategic Fuel Fund or SFF):  the National Nuclear Regulator’s office(NERSA); NECSA itself; the National Radio-Active Waste Disposal Institute; Mintek and other smaller entities such as the Mine Health and Safety Council, the State Diamond Trader and the Diamond and Precious Metal Regulator.

Parliament therefore had to consider recently the period ahead covering 2020-2024 in the form of the Medium-Term Strategic Frameworks, or projections, for all these DMRE bodies.   This is no mean task in the light that may have suffered from the perambulations, thievery and in some cases, sheer ignorance resulting from the switchback ride of ten successive ANC ministers of energy and and ministers of mining.

Disjointed empire

Himself a  somewhat confusing and at times erratic Minster of Mineral Resources and Energy, Gwede Mantashe  is now trying to put back the combined pieces of the jigsaw representing DMRE into some sort order but until now he seems to have been dealing with the edges and corners pieces of the puzzle but not dealing with the centre section where the working parts are.

Nobody is ever quite sure, it seems, in the case of NECSA, what actually is going on in this somewhat secretive corner of government.    In this area, now that the Zuma myth of the “New Build Nuclear” has been dispelled thanks to a court order to this effect, the re-tasking and consolidation of Minerals Resources and Energy department has been mostly completed.

The magic word

However, the question of nuclear energy has once again arisen, mainly due to a passing comment from the Minister that nuclear was indeed to become at some time part of the energy mix.

Ears pricked up in the environmental lobby camp and energy experts said in aghast that the energy mix after years of debate was now fixed.  One must remember, of course, that the nuclear energy issue never really goes away in the light of Koeberg power station operations in Cape Town and and medical isotopes from Pelindaba, Pretoria.

Half a billion in the red

The NECSA subsidiaries are NTP Radio Isotopes, Pelchem, Pelindaba Enterprises and Safari-1. NECSA overall has suffered cumulative losses of R257.78m in the 2016/17 and 2017/18 financial years and is expected to announce an even larger loss of R294.27m for 2018/19, resulting in cumulative losses of R552.05m for the three-year period.

This was more than evident in NECSA recent presentation to Parliament which, as it turned out, was just an interim report and more of a wish list than anything else.   Nevertheless, the ‘plan’ does indicate a complete change of direction.

SOE problems

In the case of NECSA the return to  “normality” might be a little faster than the other problem child of Department of Mineral Resources and Energy (DMRE),  PetroSA.    Sadly, in NECSA’s case, many excellent scientific brains have gone elsewhere and an opportunity to establish SA excellence in the field of isotopes lost.

The frightful track record of losses came to a head in 2019 when it was stated in the NECSA annual report that “ the significant delay in any new nuclear power plant programme to be undertaken by NECSA had become irrelevant”.  This was established to be for experts hired but never deployed.  “Irregular and wasteful” as the Auditor General put it.

Turnaround plan

The NECSA board filed a report in 2018, signed by former chairperson Dr Rob Adam and former acting CEO Don Robertson, which attempted to return NECSA to its original mandate of to promoting radiation sciences and technology research which included a programme of the retrenchment of valuable staff as part of the process of slimming down.

Both Dr Adam and CEO Robertson then left NECSA having filed the report with new DMRE department but this gathered dust, it appears, since other priories in gas development and Eskom dramas must have occupied the mind of Minister Gwede Mantashe.  However, he subsequently and eventually appointed Ayanda Myoli as acting CEO of NECSA.

In his first attendance at Parliament, 19 May 2020, Myoli  told Parliament that NECSA that for the coming year, NECSA would have a turnover of more than R2bn in the 2020/21 but still carrying a projected net loss of R61m on its shoulders.

Possible profits

Myoli told MPs last week that the key financial objective in the short term was to reduce losses and to rehabilitate the balance sheet to enable it to fund its growth and expansion strategy.  Looking ahead he further told the Portfolio Committee that for year five of the plan ahead, NECSA expected to make R550m in net profit and by 2030, R1.4bn net profit.

Over the next 12 months, he said the group’s objectives included commercial subsidiary NTP Radioisotopes regaining its 20% share in the global market for Molybdenum-99 (Mo-99) medical radioisotopes, lost due a hibernation period when the station at Pelindaba was closed down in terms of UN requirements.   In the future NECSA is to increase its range of medical radioisotopes from three to four, Myoli added and continue support services include irradiating target plates from the SAFARI-1 research reactor.

 Competing with China

Another objective is to re-gear NECSA’s other subsidiary, chemical manufacturer Pelchem, who produce fluorochemicals in competition with China, and increase its revenues by R78m by building the necessary plant to enter the  commercial hydrogen fluoride industry, Myoli said.

With sister subsidiary Mintek, Pelchem would enter the antiretroviral drug market working with “international partners” Myoli then said, aiming to achieve a 35% share in the local ARV market and targeting to earn revenues in excess of  R721m per annum.

Re-entering nuclear

Ayanda Myoli stated that NECSA was not only to be responsible for the recreation of a nuclear fuel cycle in South Africa, protecting and maintaining the Koeberg installation but was proposing a new multi-purpose 2,500 GW nuclear reactor direction for the future.

In questioning NECSA, Kevin Mileham (DA) said he was particularly concerned that Ayanda Myoli had talked about a about 2 500 gigawatts nuclear reactor, small as that maybe compared with previous plans  of past president Jacob Zuma. This would fall, Mileham presumed, under the mysterious Pelindaba Enterprises, which according the, had hardly been mentioned in the framework plan at all for the next period. He asked for confirmation

Conflict on statements

DA’s Mileham said any nuclear reactor did not align with the IRP, which made no provision for 2 500 gigawatts from any new build projected. He said that NECSA must be working off the wrong version of the IRP and said CEO Ayanda Myoli had simply repeated what Minister Mantashe had announced a week ago when he spoke on this to the media. Mileham, as shadow minister of energy for the DA, wanted an official explanation in writing as this was the first time the issue had been raised in Parliament.

CEO Myoli responded that the IRP had delineated what plant ought to be commissioned up to 2030. He said the IRP does not list what goes beyond 2030. He added that even assuming DMRE, on behalf of NECSA, placed contracts in 2024 for any relatively small and supplementary new build nuclear programme, there would be nothing online before around 2030/32, after the current IRP period had expired.

Commenting as an individual, Myoli said that he felt that the current IRP had a weakness in this area  as it now considered inputs in process nine years from now, and for mega projects in energy nine years was absolutely nothing.

Further nuclear questions

Myoli said any ARV’s with Pelchem would be produced under licence from Macleod Pharmaceuticals Limited from India, currently the largest producer and supplier of ARVs and TB pharmaceutical products. Currently, they were awaiting the final concurrence from the Minister of Finance and the Minister of Health on this.

It seems Macleods  it is one of the ten largest pharmas in India owned by Dr Rajendra Agarwal & family producing generics for a range of diseases including asthma, osteoporosis and diabetes.  Agarwal’s older brothers Girdhari Lal Bawri and Banwari Lal Bawri are chairman and joint managing director respectively.

 Wrapping up 

In conclusion, the presentation said that the new strategy was intended to make NECSA “a world leader in nuclear radiation and related technologies and chemicals  by 2030”. The strategy set targets for the next 12 months, the next five years and the next ten years.

Although the meeting time was limited (the main problem with parliamentary virtual meetings) it was quite apparent that by no means had NECSA close to explaining its full programme for the future, nor in fact was it ready to disclose this in detail.

Posted in Energy, Enviro,Water, Finance, economic, Fuel,oil,renewables, Mining, beneficiation, Public utilities, Trade & Industry0 Comments

Hopes pinned on PetroSA comeback

…… may 15 2020…..

CEF outlines plan to save PetroSA

…… In a series of statements to Parliament’s Mining and Energy Portfolio Committee, acting CEO of Central Energy Fund (CEF), Lufuno Makhuba, surprised many with a promise of not only totally restructuring government’s stake in the energy sector but to save ailing oil and gas subsidiary PetroSA with major capital “re-vitalisation”.

He also hinted on plans to enter the fuel retailing industry as a major player, PetroSA currently owning only one fuel station in the Free State.

Pipe plans

Makhuba stated that it would be proposed that “the Transnet fuel pipeline” (which particular one was not named) should fall under the management of CEF with income re-routed accordingly.  The plan also was a request that PetroSA should move towards LNG developments and to execute liquid nitrogen gas (LNG) projects with “strategic partners”.  He also proposed that CEF should receive 25% of the national fuel levy.

In order to breathe new life into PetroSA, Lufuno Makhuba suggested that in addition a proportion of carbon tax funds should be re-directed by Treasury to assist in the “recapitalisation” programme as well as the previously mentioned pipeline income.  He said that CEF would acquire by transfer other state “energy assets” in order to build its portfolio income.

Makhuba told Parliament that the CEF was now “busy reducing operational costs and divesting in unnecessary  buildings” as a holding entity.   The liability on its books of an estimated figure of R8bn mainly arising from the PetroSA Mossel Bay gas to liquid operations would be “dealt with”.

The answer

“Until now”, he commented in his presentation, “CEF had had no operational plan, no strategic direction and has been subjected to a leadership vacuum.”    He said he and his colleagues were at the moment producing the final plan to solve the group’s two most pressing problems – that of restructuring the group so that activities were inter-connected and to provide for the principle that PetroSA becomes “a revenue producing National Oil Company as per its mandate”.

Lufuno said that the new plan would also involve integrating its subsidiaries Strategic Fuel Fund (SFF) and iGas with PetroSA.

Long time coming

Parliament has been demanding a plan during portfolio meetings for PetroSA for over two years, some attempts at doing this being attempted but always they had come before committee with neither Treasury approval or any form of accompanying financial plan. (ParlyReports in 2018/9 refer)  Parliament has rejected all over the months.

Lufuno said that the CEF group was still making an overall loss, and estimated R330m for 2018/9 which was an “improvement” on the R1.4bn net loss reported in the previous year, most of the loss attributable to  PetroSA. However, no actual numbers were  once again presented.

Right into the red

Makhuba, presumably speaking in his dual capacity as financial officer, his previous position at CEF, said the PetroSA deficit “weighs heavily on the group’s earnings and although PetroSA remains in the red, it had nevertheless improved on the losses reported in  previous years.   PetroSA recently suffered an “impairment” on its balance sheet of R14bn.

Matters to be dealt with in the next few weeks include deploying an external refinery team to optimise refinery operations at Mossel Bay. Other tasks include strengthening sales and business development and institute consequence management

Issues and problems at PetroSA are not being taken lightly,” he told his audience of MPs.  “We can’t have poor business performance, quarter on quarter, and not react as has been the case in the past.  The new plan deals with how to hold people to account and what to do with assets.”

Desperate stuff

In what sounded like a business rescue discussion, Monde Mnyande, acting chairman of CEF, (it appears on loan from SA Reserve Bank) said that CEF had established that in deciding what to do there were three options before them . The first was doing nothing at all, other than finding find R25m to finalise PetroSA accounts for the current year,  which option would probably collapse CEF in the process and lead to costing the taxpayer “billions in write offs” .

The second option was restructuring CEF but closing down PetroSA at a cost of some R15bn with the associated cost to the Mossel Bay and Eastern Cape economy.

Just money

The third option was to source R18bn from equity input and re-structure PetroSA with its new management developing a partnership strategy on the basis of new initiatives in the petroleum industry.

Monde Mnyande said that the third option was preferred but there was no intention of asking Treasury for this as a bailout for PetroSA.  What the new CEF board wanted would be the portfolio committee’s support for the restructuring process as described.

As far as PetroSA was concerned,  he said, such restructuring would involve inviting strategic partners to assist them with upgrading refinery operations, divesting from upstream blocks and investing in downstream activities.

Sasol story

Following this, a major case of misunderstanding by the media arose.  During questioning, Cheryl Phillips (DA,) said she knew that PetroSA only had downstream one filling petrol station in the Eastern Cape but asked if there was any plan for PetroSA was to build more petrol stations of its own or acquire such assets from others.  She reminded MPs of the aborted PetroSA deal with Petronas/Engen.

Monde Mnyande replied that he knew such assets did exist on the market at this moment and in particular he was aware that Sasol was selling such assets.  This sort of thing might be an example of the way PetroSA had to go, he said.

Due to misreporting in minutes and the what perhaps was said somewhat indistinctly by Mnyande, a head line emerged in Business Day that PetroSA was already involved in a deal with Sasol.  Mnyande never said this, confirmed by ParlyReport, and a CEF spokesman denied that he did a week later in a statement.

Looking back

Mnyande continued with his time slot stating that one of CEF’s biggest mistakes in the past was to think it could operate alone without the government and DMRE, especially during turbulent times at Mossel Bay. A great number its executives without experience were in acting roles and failed to follow the basic rules, he said.

In answering questions by Kevin Mileham (DA) on the illegal sale of national strategic fuel stocks by the Strategic Fuel Fund four years ago to a large oil trader-consortium, Lufuno Makhuba  replied that the contested sale was the subject of a court case nearing completion, the oil still being retained in storage in South Africa.       Chair Monde Mnyande said a new CEO, who was a woman well known in the industry, would be appointed as CEO for SSF shortly.

Let’s hear more

In general questioning, which is difficult in virtual, Mileham threw cold water at any plans to save PetroSA in the manner suggested since any such idea at the moment could not be loaded on to the taxpayer’s shoulders. However, he said the DA would await developments and finalisation of the plan before responding in full

He asked if, in the process of restructuring, whether it was CEF’s  plan to move the regulatory authority, the Petroleum Agency of South Africa, out of CEF to a new domain. As the meeting timed-out, the chairperson asked Lufuno to respond to Mileham’s question in writing.

Posted in Energy, Enviro,Water, Finance, economic, Fuel,oil,renewables, Public utilities, Trade & Industry, Transport0 Comments

Parliament censures CEF and PetroSA

….PetroSA, CEF and SFF mess gets worse…

Article circulated  5 May 2019…..

Despite the claim by new acting Group CEO, Sakhiwo Makhanya, that the Central Energy Fund (CEF) annual accounts for 2017/8 have “provided sufficient headroom for growth due to cost containment”, the CEF executive team was unable to convince  the parliamentary energy  committee chair, Fikile Majola, (now Deputy Minister of Trade and Industry) that CEF had a viable future in any energy scenario.

Read morePetroSA

Posted in Finance, economic, Fuel,oil,renewables, 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. Committee hears about Transnet transformation
  2. Post Office needs R2.1bn to cover losses
  3. Twin Peaks Bill awaits final public comment
  4. Communal land is ‘no-mans-land’ Parliament told
  5. New Audit Profession Bill tightens oversight
  6. Fight over Reserve Bank Bill shareholding

Earlier Editorials

Earlier Stories