A question mark hangs over the involvement of Russia’s Gazprombank Africa in the feasibility study for the restart of PetroSA’s Mossel Bay gas-to-liquids refinery, according to mineral & petroleum resources minister Gwede Mantashe.
The refinery has been run on a care and maintenance basis since 2020 due to the lack of feedstock and costs the technically insolvent state-owned company hundreds of millions each year to maintain. It sought outside investors to restart it.
It is now about 15 months since the cabinet announcement in December 2023 that Gazprombank had been selected to refurbish the refinery at a cost of R3.8bn. The technical evaluation of the project was expected to be completed last year but the project has stalled.
The government and PetroSA were warned about the risks of entering into an agreement with Gazprombank Africa in the light of US sanctions against Russian companies as a result of Russia’s invasion of Ukraine.
The US announced in November that it would apply sanctions to Gazprombank and its six foreign subsidiaries, including Gazprombank Africa, as well as a number of other Russian financial institutions and officials.
At the time, PetroSA did not believe the sanctions would apply to SA on the grounds that no secondary sanctions were applicable. Now it seems that these very sanctions could be the reason for the government to pull out of the agreement.
Mantashe said in a written reply to a parliamentary question by DA MP Sphesihle Zondi that while Gazprombank Africa had not officially pulled out of the funding of the feasibility study, its ability to do so had to be considered in light of expanded US sanctions against the bank.
“The expanded US sanctions against Gazprombank Africa could significantly impact on its ability to fund the feasibility study,” the minister said.
“The department and/or PetroSA will convene a meeting with Gazprombank Africa to discuss its contractual obligations and re-evaluate other alternative partnerships. It must be noted that Gazprombank Africa has not officially pulled out of funding the feasibility study.”
The start date of the feasibility study would depend on the outcome of the meeting.
Reuters reported a few days ago that the parent company of the bank, Gazprom, posted a net loss of $7bn for 2023, its first since 1999, having suffered under EU bans on Russian gas exports. The company posted another loss in the first nine months of 2024, the latest period for which figures are available.
According to a January report by the amaBhungane Centre for Investigative Journalism Gazprom failed to deliver the $200m (R3.7bn) in funding it had promised to restart the refinery, or even the $3m (R56m) it promised to complete a bankable feasibility study.
No option
The report said PetroSA had told the Russians in August last year that if the bank failed to deliver, “PetroSA will have no further option but to recommend termination of any further engagements with [Gazprombank]”.
The cabinet’s endorsement of the deal with Gazprombank Africa in December 2023 was dependent on its final investment decision informed by a joint bankable business case based on a joint feasibility study of the project. It was envisaged that if the feasibility study was successful, the plant would return to production in 2026.
A final decision would depend on the refinery being commercially viable, which would require the output of 18,000-36,000 barrels a day. It would also depend on the capital investment needed to rebuild the refinery.
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