The country is pulling in a number of different directions trying to sort out the issues regarding Eskom, but a new red flag is flapping on the horizon, this time in the petroleum sector.
The problems illustrate the operational issues at the state utility. Crude refining capacity has been declining, refining plant is ageing and inefficient, investment into new capacity has stalled, and loss-making state-owned enterprise PetroSA’s senior management is facing corruption charges. It looks all too familiar.
According to the SA Petrol Industry Association (Sapia), crude oil refining capacity has declined from 513,000 barrels per day (bpd) in 2007 to 508,000 bpd in 2017, having risen from 368,000 bpd in 1994. Synthetic fuel production capacity has remained static at 195,000 crude oil equivalent barrels per day since 1994. According to the energy department the country fulfils its fuel requirements from gas (5%), coal (39%) and imported crude oil (56%).
SA has six refineries, of which four are for crude oil, the biggest capacity-wise being Sapref in KwaZulu-Natal, which is owned jointly by BP and Shell. The refineries have old and inefficient refining infrastructure and storage management. Michelle Jackson, SA energy director at Turner and Townsend, has noted that this ageing infrastructure is operating well below capacity.
Policymakers are urged to push for more rapid reform and restructuring in this sector, or SA may soon be dealing with a national fuel shortage.
Regulations regarding Clean Fuels II were gazetted in terms of the Petroleum Products Act of 2012 indicating it would come into effect on July 1 2017 with the aim of reducing sulphur levels in petrol and diesel to less than 10 parts per million (ppm). With plant as aged as that of the refineries, it is hard to imagine how these could meet environmental standards.
Sapia executive director Avhapfani Tshifularo argues that the estimated cost of upgrading the existing refineries, most importantly to meet Clean Fuels II specifications, is R40bn, and that capacity could be increased more cheaply by upgrading refineries rather than building new ones.
This is on the back of Project Mthombo, a proposed refinery to be built in the Coega industrial development zone near Port Elizabeth.
In a briefing in February to the portfolio committee on energy on the audit outcomes of PetroSA for 2017/2018, the auditor-general said the company could be expected to continue running at a loss and expressed concern over its ability to continue as a going concern.
PetroSA ran at losses of R1.4bn in 2016/2017 and R14.5bn in 2015/2016. In addition, the company is required to put aside reserves to account for depletion of cash reserves during statutory refinery shutdowns.
Most transport fuel in SA is produced in coastal areas, despite most of it being consumed inland, especially in Gauteng. The plant age, investment delay and management issues at the refineries will cause higher costs for consumers as the cost of operating refineries escalates due to operational inefficiencies.
Similar to the woes at Eskom, the Central Energy Fund (CEF), the parent company of PetroSA, appointed a new interim board in July 2017 after a series of resignations and allegations of mismanagement and governance issues. If it looks like a duck and quacks like a duck, it is most likely a duck — a sitting duck at this rate.
Policymakers are urged to push for more rapid reform and restructuring in this sector, or SA may soon be dealing with a national fuel shortage issue on top of Eskom’s power supply problems.
• Skenjana (@sifiso_skenjana) is founder and financial economist at Afra Consultants. He is completing a PhD in finance for development.
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