Tag Archive | Tseliso Maqubela

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

Competition Commission gets to know LPG market

 DOE holds off on LPG regulatory changes…

Sent to clients 25 Oct….In a briefing to the Portfolio Committee on Energy on the report by the Competition Commission (CC) into the Liquified Petroleum Gas (LPG) sector, acting Director General of the Department of Energy (DOE), Tseliso Maqubela, has again told Parliament that the long-standing LPG supply shortages are likely to continue for the present moment until new import infrastructure facilities come on line.

He was responding to the conclusions reached by the CC but reminded parliamentarians at the outset of the meeting that the Commission’s report was not an investigation into anti-competitive behaviour on the part of suppliers but an inquiry, the first ever conducted by the CC, into factors surrounding LPG market conditions.

Terms of reference

In their general comments, the Commissioner observed that the inquiry commenced August 2014 on the basis that as there were concerns that structural features in the market made it difficult for new entrants and the high switching costs for LPG gas distributors mitigated against change in the immediate future.

They worked on the basis that there are five major refineries operating in South Africa, these being ENREF in Durban, (Engen);

refinery

engen durban refinery

SAPREF in Durban, (Shell and BP); Sasol at Secunda; PetroSA at Mossel Bay; and CHEVREF in Cape Town (Chevron). There are four wholesalers, namely Afrox, Oryx, Easigas and Totalgaz.

Wholesalers different

As far the wholesalers are concerned, in the light of all being foreign controlled, CC also observed that transformation was poor, but this was not an issue on their task list, they said. They had assumed therefore that BEE legislation was difficult to enforce and that the issue had been reported to the Department of Economic Development, the portfolio committee was told.

Price regulation at the refineries and at retail level is supposedly determined by factors meant to protect consumers, the CC said, but their inquiry report noted no such regulations specifically at wholesale level. This fact was stated as being of concern to the CC in the light of known “massive profits in the LPG wholesaling sector”.

Structures

Commissioner Bonakele said, “We started the inquiry because of the worrying structures of the market but in benchmarking our market structures with other countries and we found LPG in SA was not only unusually expensive but was indeed in short supply. Why? When it is so badly needed, was the question, he said

The CC established from the industry that about 15% of LPG supplied is used by householders and the balance is for industrial use.   In general, they noted that there were regulatory gaps also in the refining industry but regulatory requirements were over-burdening they felt and contained many conflicts and anomalies.

The CC had also reported that the maximum refinery gate price (MRGP) to wholesalers and the maximum retail price (MRP) to consumers were not regulated sufficiently and far too infrequently by DOE.

Contentious

There needed to be one entity only regulating the entire industry from import to sale by small warehousing/retailers, they said. The CC suggested in their report that the regulatory body handling all aspects of licensing should be NERSA .

As far as gas cylinders were concerned, Commissioner Bonakele noted in their report that there are numerous problems but their criticism was that the system currently used was not designed to assist the small entrant. The “hybrid” system that had evolved seemed to work but there was a “one price for all” approach.

DOE replies

In response, DG Maqubela confirmed that the inquiry had been conducted with the full co-operation of DOE into an industry beset with supply and distribution problems, issues that were only likely to change when there were “adequate import and storage facilities which allowed for the import of economic parcels of LPG supplied to the SA marketplace.”

When asked why local refineries could not “up” their supply of LPG to meet demand, DG Maqubela explained that only 5% of every barrel of oil refined by the industry into petroleum products could be extracted in the form of LPG. Therefore, the increase in LPG gas supplied would be totally disproportionate to South Africa’s petrol and diesel requirements.

Going bigger

Tseliso Maqubela, previously DG of DOE’s Petroleum Products division, told the Committee that two import terminal facilities have recently been commissioned in Saldanha and two more are to be built, one at Coega (2019) and one at Richards Bay (2021). These facilities were geared to the importation of LPG on a large scale.

He said, in answer to questions on legislation on fuel supplies, that DOE were unlikely to carry out any amendments in the immediate future to the Petroleum Pipelines Act, since the whole industry was in flux with developments “down the road”.
It would be better to completely re-write the Act, he said, when the new factors were ready to be instituted.

Rules

On the regulatory environment, DG Maqubela pointed out that for a new refinery investor it would take at least four years to get through paper work through from design approval to when the first spade hit the soil. This had to change. The integration of the requirements of the Department of Environmental Affairs, Transnet, the Transnet Port Authority, DTI, Department of Labour, Cabinet and NERSA and associated interested entities into one process was essential, he said.

On licencing, whilst DOE would prefer it was not NERSA, since they should maintain their independence, in principle the DOE, Maqubela said, supported the view that all should start considering the de-regulation of LPG pricing. He agreed that DOE had to shortly prepare a paper in on gas cylinder pricing and deposits which reflected more possibilities for new starters.

MPs had had many questions to ask on the complicated issues surrounding the supply, manufacture, deposit arrangements, safety and application of cylinders. In the process of this discussion, it emerged, once again, that LPG was not the core business of the refinery industry and what was supplied was mainly for industrial use. The much smaller amount for domestic use met in the main by imported supplies for which coastal storage was underway over a five-year period.

Refining

DG Maqubela noted that on Long Term Agreements (LTAs) between refineries and suppliers, DOE in principle agreed with the Commission that LTAs between refiners and wholesalers could be reduced from 25 years to 10 years, to accommodate small players. Again, he said, this would take some time to be addressed, as was also an existing suggestion of a preferential access of 10% for smaller players.

All in all, DG Maqubela seemed to be saying that whilst many of the CC recommendations were valid, nobody should put “the cart before the horse” with too much implementation of major change in the LPG industry before current storage and supply projects were completed.

However, the current cylinder exchange practice must now be studied by DOE and answers found, Tseliso Maqubela re-confirmed.
Previous articles on category subject
Overall energy strategy still not there – ParlyReportSA
Gas undoubtedly on energy back burner – ParlyReportSA
Competition Commission turns to LP gas market – ParlyReportSA

Posted in BEE, Energy, Finance, economic, Fuel,oil,renewables, LinkedIn, Trade & Industry0 Comments


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