Two government ministers are in a tug of war over the future of the state\u2019s oil and gas assets.<\/p>\n\n\n\n
In September last year, public enterprises minister Pravin Gordhan gazetted the National State Enterprises Bill which, if passed in its current form, would remove the Central Energy Fund (CEF) and its valuable oil and gas assets from the control of the Department of Mineral Resources and Energy (DMRE).<\/p>\n\n\n\n
CEF is the holding company for PetroSA, which owns the rights to offshore oil and gas fields, as well as iGas, which owns a significant stake in the Rompco pipeline that imports gas from Mozambique.<\/p>\n\n\n\n
Gordhan\u2019s proposal is to create a more independent holding company to manage state-owned entities \u2013 including Eskom, Transnet, Denel and CEF \u2013 that have been crippled by political interference and State Capture.<\/p>\n\n\n\n
When we asked energy minister Gwede Mantashe about Gordhan\u2019s proposal in October, he told us: \u201cIt\u2019s a debate that one, leave it to be exhausted internally.\u201d<\/p>\n\n\n\n
Asked if there was an ideological battle coming over CEF\u2019s future, he said: \u201cYes. A big one.\u201d<\/p>\n\n\n\n
A month later, Mantashe presented his own bill to Parliament: the South African National Petroleum Company Bill.<\/p>\n\n\n\n
If passed, Mantashe\u2019s bill will gut CEF and move its oil and gas assets into a new state-owned entity controlled by his own department: the South African National Petroleum Company (SANPC).<\/p>\n\n\n\n
The rival bills \u2013 both presented by the ANC \u2013 are now making their way through Parliament.<\/p>\n\n\n\n
A dirty diamond<\/strong><\/strong><\/p>\n\n\n\n The Central Energy Fund was established in 1977 with the mandate to \u201ccontribute to the security of the energy supply of South Africa\u201d.<\/p>\n\n\n\n Aside from PetroSA and iGas, CEF also manages the Strategic Fuel Fund, which looks after the country\u2019s strategic stockpile of crude oil and controls around R11-billion in assets.<\/p>\n\n\n\n On Wednesday, it presented its annual results to Parliament, declaring a R1.7-billion profit. The profit, however, is somewhat artificial as PetroSA reevaluated its rehabilitation liability, which put R2.7-billion back on its balance sheet. Without this, the group would have been R1-billion in the hole.<\/p>\n\n\n\n While CEF owns valuable assets, they have also been plagued by mismanagement and scandal: PetroSA\u2019s Project Ikhewzi blew R14.5-billion drilling for oil offshore in the early 2010s. In 2015, the Strategic Fuel Fund sold off the country\u2019s strategic fuel stocks for $5-billion without approval. In December, PetroSA announced it would enter into a R3.7-billion deal with Russia\u2019s sanctioned Gazprombank<\/a>.<\/p>\n\n\n\n Part of the motivation for the National State Enterprises Bill is to prevent a repeat of these kinds of scandals. Critically, the Bill would also remove SOE\u2019s from the control of individual ministers and make the president the sole shareholder representative.<\/p>\n\n\n\n \u201cThis would separate the state\u2019s ownership functions from its policy-making and regulatory functions, minimise the scope for political interference, introduce greater professionalism, and manage the state\u2019s assets in a way that protects shareholder value,\u201d Gordhan told Parliament in 2022.<\/p>\n\n\n\n This centralised shareholder model flows from the recommendations of the Presidential SOE Council, made up of government ministers and business leaders.<\/p>\n\n\n\n But it is unpopular as it flies in the face of the decision taken at the ANC\u2019s December 2022 elective conference to \u201cplace SOE\u2019s that operate in specific sectors of the economy under the relevant government departments\u201d. Under this model, Eskom would be returned to the Department of Mineral Resources and Energy.<\/p>\n\n\n\n Public enterprises spokesperson Ellis Mnyandu downplayed the conflict between the bills: \u201cThe question of which SOEs will be transferred into the [state enterprises] holding company is a matter that is still to be decided upon.\u201d<\/p>\n\n\n\n And even if Gordhan\u2019s bill does pass, Mantashe\u2019s would ensure that there is little left of CEF for the state enterprises holding company to inherit.<\/p>\n\n\n\n Gutting CEF<\/strong><\/strong><\/p>\n\n\n\n The merger of CEF\u2019s subsidiaries has been on the cards for years. In May last year, Mantashe told Parliament that Cabinet had approved the merger of three CEF subsidiaries: iGas, PetroSA and SFF.<\/p>\n\n\n\n \u201c[C]abinet approved the merger of iGas, PetroSA, and the Strategic Fuel Fund to form the South African National Petroleum Company (SANPC). \u2026 for the state to participate meaningfully in oil and gas developments,\u201d he said.<\/p>\n\n\n\n \u201c[T]he final draft of the SANPC Bill has been submitted to the state law advisor for constitutional certification\u2026 We implore Members to ensure its finalisation before the end of term of this administration.\u201d<\/p>\n\n\n\n In practical terms, what this means is that \u201c[e]very person who is in the service of iGas, PetroSA and SFF on the date this Act takes effect must be transferred to the services of the [SANPC]\u201d and \u201c[a]ll assets and rights issued \u2026 or held by iGas, PetroSA and SFF \u2026 be consolidated and transferred to the [SANPC].\u201d<\/p>\n\n\n\n On Wednesday, CEF said it expected the transfer to happen by August 2024, although the transfer of some of PetroSA\u2019s troubled assets would take longer.<\/p>\n\n\n\n This would eventually leave CEF with just one commercial asset: the African Exploration Mining and Finance Corporation (AEMFC) which owns Vlakfontein, a coal mine in Mpumalanga that supplies Kendal power station.<\/p>\n\n\n\n Asked how CEF felt about potentially being gutted by its own shareholder, spokesperson Jacky Mashapu said: \u201cCEF as an implementing agent of the shareholder, it’s not better placed to make pronouncement on any policy related matters. In this instance, we believe that both DMRE and DPE are better placed to answer all these questions.\u201d<\/p>\n\n\n\n Eskom 2.0<\/strong><\/strong><\/p>\n\n\n\n When the South African National Petroleum Company Bill was gazetted in November it widely interpreted as Mantashe\u2019s attempt to build an \u201cEskom 2.0\u201d under his own control.<\/p>\n\n\n\n Although the SANPC\u2019s mandate is largely focused on petroleum \u2013 infrastructure, supply, storage, distribution, aggregation, marketing and trading \u2013 it has also been tasked with \u201cproviding for renewable energy\u201d and \u201cthe acquisition, generation, manufacture, marketing or distribution of any form of energy\u201d.<\/p>\n\n\n\n Initially, the SANPC\u2019s main business will be supplying diesel to Eskom: in the 2022\/23 financial year, PetroSA generated R24.5-billion in revenue, largely by selling diesel to Eskom to burn in its Open Cycle Gas Turbines.<\/p>\n\n\n\n In the past, PetroSA would have refined its own product, but now it merely buys diesel and sells it to Eskom and other SOEs at an \u201caggressive margin\u201d.<\/p>\n\n\n\n \u201cThe current corporate plan is premised on aggressive returns from the purchase and resale of purchased products [i.e. petrol and diesel],\u201d CEF\u2019s 2022 annual report noted. \u201cPetroSA continues to explore and attract new business for the supply of finished products, particularly with state-owned entities, which will further improve the downstream business and related margins.\u201d<\/p>\n\n\n\n Eskom would like to do this in-house, but Mantashe has refused to grant it a diesel wholesale licence.<\/p>\n\n\n\n This has created a situation where one SOE (PetroSA) is allowed to cannabilise another (Eskom), and has placed Mantashe in the conflicted position of trying to reduce loadshedding with one hand while allowing PetroSA to profit off it with the other.<\/p>\n\n\n\n Transparency would help to keep this conflict in check, but instead this R24.5-billion a year industry operates in complete secrecy.<\/p>\n\n\n\n No tenders, just contracts<\/strong><\/strong><\/p>\n\n\n\n PetroSA stopped issuing competitive tenders for diesel in February 2022. A new tender was issued in September 2023, but seemingly never awarded. Instead, over the past two years, PetroSA has operated outside the law.<\/p>\n\n\n\n The Public Finance Management Act allows departments and SOEs to award contracts without a tender but requires that they file an expansion or deviation notice after the fact with National Treasury.<\/p>\n\n\n\n Those notices are published every quarter by the Office of the Chief Procurement Officer and provide a fascinating insight into when, where and how government is skirting the rules.<\/p>\n\n\n\n PetroSA continued to file expansion and deviation notices with Treasury throughout 2022 and 2023 but failed to disclose the lucrative diesel contracts that account for 90 percent of its business.<\/p>\n\n\n\n \u201cPetroSA has not been granted a departure from reporting deviations and expansion,\u201d a Treasury spokesperson confirmed in January.<\/p>\n\n\n\n Following our questions, Treasury wrote to PetroSA looking for answers. In February, we were told: \u201cThe National Treasury is still awaiting a response from PetroSA.\u201d By mid-March, Treasury still had no update.<\/p>\n\n\n\n On Wednesday, the Auditor-General disclosed that PetroSA lost R11.5-million when it sold diesel to a \u201cfictitious company\u201d.<\/p>\n\n\n\n AmaBhungane has submitted three Promotion of Access to Information Act (PAIA) requests to PetroSA asking it to disclose the names of its diesel suppliers. PetroSA told us it could not read our first two requests, then ignored our third, handwritten, request.<\/p>\n\n\n\n Mantashe, meanwhile, has openly said he will never disclose PetroSA\u2019s diesel suppliers.<\/p>\n\n\n\n \u201c[I]f you want to expose the business of PetroSA you\u2019re basically killing it, you\u2019re saying we must just kill it\u2026\u201d he told amaBhungane in October. \u201cPetroSA is trading with fuel and that is a highly contested space in the market. Now, nobody in that market will publish their suppliers or their consumers, nobody. Now you want PetroSA to do that, and I\u2019m saying it\u2019s a formula to close it down.\u201d<\/p>\n\n\n\n The pastor<\/strong><\/strong><\/p>\n\n\n\n To be fair, transparency has proved fatal to some PetroSA deals.<\/p>\n\n\n\n In September last year, PetroSA approached Sanlam Investments to act as transaction advisors to set up a $160-million (R3-billion) facility to bankroll PetroSA\u2019s diesel purchases.<\/p>\n\n\n\n PetroSA has severe cashflow issues. The annual report notes that \u201c[a] material uncertainty exists regarding the entity\u2019s ability to honour obligations as they fall<\/p>\n\n\n\n due because of low cash reserves\u201d.<\/p>\n\n\n\n Sanlam was not asked to put up cash for the new facility; instead the funding would come from a company called Idwala Energy, which would allow PetroSA to borrow up to R3-billion at a time, and repay the loan up to 45 days later.<\/p>\n\n\n\n We estimate that for this service Idwala would have earn between R60-million and R500-million over three years, as it would be guaranteed at least one vessel per month, according to a leaked term sheet.<\/p>\n\n\n\n But where Idwala\u2019s funding would come from is less clear.<\/p>\n\n\n\n The company\u2019s sole director, Harold Edwards, is an evangelical pastor who bought the company in 2019. In 2021, it secured a diesel wholesale licence from the DMRE, but to date, still shares an address with Edwards\u2019 Perfecting Church International in Industria West outside Johannesburg.<\/p>\n\n\n\n At the time, PetroSA declined to comment on the deal, saying: \u201cThe information requested herewith is commercially sensitive, therefore, PetroSA will not be commenting\u2026\u201d<\/p>\n\n\n\n Although Sanlam stood to make R75-million in fees, it declined to participate in the transaction.<\/p>\n\n\n\n After amaBhungane sent questions, Idwala withdrew: \u201cWe are not continuing with the project, we\u2019re not going to help PetroSA,\u201d Edwards told us in November. \u201cThere\u2019s too much controversy around the entire issue. We\u2019ve signed an NDA with the parties involved. It was an above-board deal. I don\u2019t want to involve my name in anything that\u2019s seen as dodgy or shady or corrupt. For the sake of my integrity.\u201d<\/p>\n\n\n\n Similarly, PetroSA\u2019s R21.6-billion deal with EquaTheza, exposed by amaBhungane in January, appears to be on the rocks.<\/p>\n\n\n\n In December, PetroSA appointed Theza Oil & Gas and Equator Holdings to develop its offshore oil and gas fields. As part of the deal, the newly formed joint venture, EquaTheza, would be required to source up to R21.6-billion in funding.<\/p>\n\n\n\n\n