South Africa will suffer a loss of at least R3.3-billion because of the illegal sale of the country's strategic fuel reserves in December 2015 and January last year, a confidential forensic audit report the government has kept under wraps for months has concluded.
The audit report, which has been leaked to Business Times, officially gives the lie to former energy minister Tina Joemat-Pettersson's repeated statements that the fuel stock was not sold but "rotated" - the industry term for replacing the fuel.
In fact, South Africa will now have to cough up about R6.483-billion to replace the 10million barrels of strategic crude oil sold.
Contacted on Thursday and confronted with the difference between her version of events and the audit findings, Joemat-Pettersson said: "I have not seen the audit report, so I cannot comment on it."
In July, the report, by auditing firm KPMG, was provided to Joemat-Pettersson's successor, Mmamoloko Kubayi - who in turn was removed on Tuesday after only seven months in office.
Damning findings
Kubayi never released the damning audit findings to the public, and did not reply to questions put to her this week.
The oil is still physically in South African tanks, but no longer belongs to South Africa, having been sold and in some instances resold by the new owners.
But according to DA MP Gordon Mackay, the DA has been reliably informed that the three companies that have bought the oil are all now insisting on lifting the oil - which is theirs, after all - from the South African tanks and physically removing it. He added that any attempt to get those companies to allow South Africa to buy back the oil at the price they paid for it was unlikely. Furthermore, the oil had already been resold.
Higher price
A case in point is Nigerian conglomerate Taleveras, which has sold its part of the oil to the Bank of France at a much higher price.
The report states that:
The contracts entered into regarding the sale of the fuel stock are rendered invalid by a failure to comply with regulatory approvals, including those resultant from the Public Finance Management Act (PFMA) and the Companies Act;
Of the 10 million barrels sold, the equivalent of 1.2million cannot be pumped out for a variety of reasons - but the oil must still go to the buyers. So South Africa will have to purchase 1.2 million barrels of oil at market prices (currently around $56 per barrel) and hand it over to the companies which bought it for rock-bottom prices of between $26 and $30 a barrel;
Despite what Joemat-Pettersson has claimed, the audit finding confirms that "the purported stock rotations amounted to stock disposals";
The discounts offered to buyers of the strategic fuel stock did not tie up to the relevant oil prices, the way they were arrived at is unclear, and the matter of pricing requires further investigation;
The sales were backed up by new stock, as required by regulations, exposing the Strategic Fuel Fund (SFF) to market risk;
The SFF would have to reimburse the buyers of the fuel stock with the price of sale plus any costs the buyers incurred, plus any losses they suffered, including from selling on of the stock, such as Taleveras's sale to the Bank of France;
Although South Africa received about $300-million for the sale of the stock, the cost to replace it will be $486-million plus the sale and replenishment of the 1.2million barrels which cannot be pumped out of the tanks, which adds a cost of $58-million for a total loss of $244-million (R3.3-billion); and
To this, legal costs must be added.
Another leaked report, done by law firm Allen and Overy, made similar findings, but added that the sale was concluded without required concurrence from National Treasury, the SFF's board, and a special resolution by the Central Energy Fund. It also found that SFF executives liaised directly with Joemat-Pettersson instead of going through its own board.
This was evident from minutes of board meetings, "in which the board noted its concern that it was not aware of certain things until correspondence between the executive management and the Minister was included in the disclosures to the board".
This was improper because the PFMA Act requires the accounting authority, the board of directors of SFF in this instance, to perform certain tasks unless it properly delegates its powers, the report said.
Further investigation
The KPMG audit report found that even though the sale of fuel stock must be recognised as done, it is unclear how the cash consideration was accounted for, and that several additional disclosures are required to finalise the financial statements at issue.
Mackay said: "If unfair discounts were given and resultant losses were suffered by the state, the Public Finance Management Act requires investigations on losses accrued and on consequence management.
"The almost R7-billion needed to replenish the strategic fuel reserves must be found in the SFF's funds, augmented by money the National Treasury must find. This will require painful trade-offs regarding the country's pressing needs.
"Everything points to political interference, with the country and its people losing out to ANC mismanagement."
New Energy Minister David Mahlobo said he had not been briefed on the report yet and therefore could not comment on its findings at this stage.
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