Urgent action is required to merge the Central Energy Fund’s (CEF) subsidiaries into one national petroleum company, a move executives at the state-owned group say will result in R1.4bn cost-savings overlaps and lucrative new market opportunities.
In a presentation to the parliamentary committee for mineral resources & energy, CEF group CEO Ishmael Poolo said time was of the essence to merge PetroSA, the Strategic Fuel Fund (SFF) and iGas into one viable, revenue-generating company. Given solvency and liquidity challenges, particularly at PetroSA, immediate action is critical to ensure survival of the CEF, Poolo said.
"It’s important we really move with speed because the merger itself affords the group the capacity to isolate bad business from good business and deal with legacy issues over time, but then not hamper attracting new investment into the entity."
Poolo said progress had been made in the past five months to establish a national petroleum company.
The merger presents an estimated R1.4bn synergy potential, or cost-savings overlaps, and would create a bigger, viable petroleum company that could go after market opportunities worth between R60bn and R90bn, he said.
However, Poolo warned that any delays in merger approval by the cabinet posed a risk to operationalising the new company by April 1.
Loss widens
The CEF, in its latest available financials, showed its net loss had widened more than fivefold from R392m in 2017/2018 to just more than R2bn for the 2018/2019 financial year.
At another subsidiary, the African Exploration Mining and Finance Corporation, a probe found the CEO transgressed procurement policies and mismanaged company resources, resulting in his blacklisting from other state entities, which is now being arbitrated by the Commission for Conciliation, Mediation and Arbitration.
Meanwhile, the SFF in November last year succeeded in its court bid to have a dodgy 2015 deal to sell all of SA’s 10-million barrels of strategic stocks declared illegal. The court ordered the stocks to be returned and the traders involved be refunded what they paid. Subject to an appeal, however, is an adverse finding that the SFF should also reimburse the traders for hedging costs they incurred for the oil.
A criminal case related to the unlawful sale has been referred to the Hawks, whose investigation is at "a delicate stage", the portfolio committee heard.
A CEF forensic report presented to the committee offered a glimpse into the extent of the problems at each entity: all but one have been the subject of investigations into serious allegations ranging from mismanagement to money laundering.
At the CEF, an ongoing forensic investigation relates to misstatements and impairments in the annual financial statements, insubordination and alleged money laundering.
A probe at PetroSA continues over serious allegations of mismanagement in relation to human resources, procurement and contracts, feedstock and shutdown processes.
Mineral resources & energy minister Gwede Mantashe has described the once cash-flush PetroSA now as "a dog".
The group’s main operations are its Mossel Bay refinery, which produces liquid fuels from an offshore gas find, but the facility has been running out of feedstock. Attempts to find and develop further offshore gas — dubbed Project Ikhwezi — have failed and pushed PetroSA into financial distress.
PetroSA group CEO Pragasen Naidoo said the operations were not commercially sustainable for a number of reasons, including their costs structure and current market pricing of feedstock.
Naidoo said there was still a three-and-a-half-year supply of indigenous gas but it was not commercially viable for use in liquid fuels. Rather, PetroSA plans to direct this gas into gas-to-power initiatives in the Mossel Bay area.
Offshore gas
To make liquid fuels, gas will have to be brought in but this would depend on market prices and whether it makes commercial sense.
In a parallel process, PetroSA is "rigorously engaging" with oil and gas multinational Total regarding its two recent discoveries off the Mossel Bay coast.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.