Many uncertainties hover over the proposed investment of about R3,8bn by Russia’s Gazprombank Africa in the technically insolvent PetroSA.
The aim of the investment would be to refurbish PetroSA’s mothballed Mossel Bay gas-to-liquid refinery, which has been under care and maintenance since December 2020 because of a lack of gas feedstock.
The cabinet’s endorsement of the deal in December was dependent on its final investment decision — expected in September — which will be informed by a joint bankable business case. This decision will be based on a joint feasibility study of the project, which if successful would see the plant return to production in 2026.
Mineral resources & energy minister Gwede Mantashe said in an interview on Wednesday after an engagement between parliament’s mineral resources & energy committee and executives of the Central Energy Fund (CEF) group of companies — including PetroSA — that the amount Gazprombank Africa would invest and the terms and conditions for the investment would become known in April.
Gazprombank would share in the profits of the plant once it was operational. Mantashe said one of the requirements for an investment partner for PetroSA was that it involve a state-to-state relationship on a profit share rather than a shareholding basis. This would ensure that the asset remains in the hands of the SA government.
The tie-up is controversial in the light of Russia’s war on Ukraine. Russian parent company Gazprom is subject to US sanctions, and four international banks — Jeffries, JPMorgan, Macquarie Bank and Barclays — have already dissociated themselves from the deal. Australia’s Macquarie informed PetroSA that if it proceeded with the Gazprombank deal it would cancel its $40m loan offer.
However, PetroSA says it does not believe the sanctions are applicable to SA as there are no secondary sanctions. PetroSA acting CEO Sesakho Magadla told MPs Gazprombank Africa was conducting a feasibility study at its own expense. She had said earlier that the bank would spend several million rand to do technical studies to establish the business case for its investment.
She told MPs that a final investment decision would depend on the refinery being commercially viable, which would require the production of between 18,000 and 36,000 barrels per day. It would also depend on the capital investment required to rebuild the refinery.
Magadla expects a full technical evaluation to be completed in the next few months. Commercial viability will partly depend on the acquisition of feedstock for the refinery. But sources of feedstock have not been secured as PetroSA is not itself drilling offshore for gas.
Mantashe said a potential source was from French oil and gas giant TotalEnergies’ offshore gas fields, though this would require the development of infrastructure, as well as shale gas from the Karoo, which awaits regulatory approval. Gas could also be imported.
Magadla recently indicated that discussions with TotalEnergies were not progressing well due to disagreement on pricing. She told MPs PetroSA would remain financially challenged for as long as Mossgas was not producing commercially. Its liabilities exceed its assets by R6,3bn and material uncertainty exists about its ability to honour its obligations as they fall due because of low cash reserves.
Mantashe also spoke about the merger of CEF subsidiaries PetroSA, iGas and the Strategic Fuel Fund to form the SA National Petroleum Company (SANPC) which has been in the pipeline for about three years. He said this would provide a concentrated focus on the petroleum business and reduce expenses.
MPs were told that although there had been delays the merger transition was progressing steadily. The fair-value assessment of the assets to be released by the three companies on SANPC was under way. Employee transition planning was also taking place. The plan was for an effective date of August for the merger.
In the 2022/23 financial year the CEF group made a net profit of R1,7bn and has total assets of R35,4bn.
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