Tag Archive | Mossel Bay

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.

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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.

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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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