…… may 15 2020…..
CEF outlines plan to save PetroSA
…… In a series of statements to Parliament’s Mining and Energy Portfolio Committee, acting CEO of Central Energy Fund (CEF), Lufuno Makhuba, surprised many with a promise of not only totally restructuring government’s stake in the energy sector but to save ailing oil and gas subsidiary PetroSA with major capital “re-vitalisation”.
He also hinted on plans to enter the fuel retailing industry as a major player, PetroSA currently owning only one fuel station in the Free State.
Makhuba stated that it would be proposed that “the Transnet fuel pipeline” (which particular one was not named) should fall under the management of CEF with income re-routed accordingly. The plan also was a request that PetroSA should move towards LNG developments and to execute liquid nitrogen gas (LNG) projects with “strategic partners”. He also proposed that CEF should receive 25% of the national fuel levy.
In order to breathe new life into PetroSA, Lufuno Makhuba suggested that in addition a proportion of carbon tax funds should be re-directed by Treasury to assist in the “recapitalisation” programme as well as the previously mentioned pipeline income. He said that CEF would acquire by transfer other state “energy assets” in order to build its portfolio income.
Makhuba told Parliament that the CEF was now “busy reducing operational costs and divesting in unnecessary buildings” as a holding entity. The liability on its books of an estimated figure of R8bn mainly arising from the PetroSA Mossel Bay gas to liquid operations would be “dealt with”.
“Until now”, he commented in his presentation, “CEF had had no operational plan, no strategic direction and has been subjected to a leadership vacuum.” He said he and his colleagues were at the moment producing the final plan to solve the group’s two most pressing problems – that of restructuring the group so that activities were inter-connected and to provide for the principle that PetroSA becomes “a revenue producing National Oil Company as per its mandate”.
Lufuno said that the new plan would also involve integrating its subsidiaries Strategic Fuel Fund (SFF) and iGas with PetroSA.
Long time coming
Parliament has been demanding a plan during portfolio meetings for PetroSA for over two years, some attempts at doing this being attempted but always they had come before committee with neither Treasury approval or any form of accompanying financial plan. (ParlyReports in 2018/9 refer) Parliament has rejected all over the months.
Lufuno said that the CEF group was still making an overall loss, and estimated R330m for 2018/9 which was an “improvement” on the R1.4bn net loss reported in the previous year, most of the loss attributable to PetroSA. However, no actual numbers were once again presented.
Right into the red
Makhuba, presumably speaking in his dual capacity as financial officer, his previous position at CEF, said the PetroSA deficit “weighs heavily on the group’s earnings and although PetroSA remains in the red, it had nevertheless improved on the losses reported in previous years. PetroSA recently suffered an “impairment” on its balance sheet of R14bn.
Matters to be dealt with in the next few weeks include deploying an external refinery team to optimise refinery operations at Mossel Bay. Other tasks include strengthening sales and business development and institute consequence management
Issues and problems at PetroSA are not being taken lightly,” he told his audience of MPs. “We can’t have poor business performance, quarter on quarter, and not react as has been the case in the past. The new plan deals with how to hold people to account and what to do with assets.”
In what sounded like a business rescue discussion, Monde Mnyande, acting chairman of CEF, (it appears on loan from SA Reserve Bank) said that CEF had established that in deciding what to do there were three options before them . The first was doing nothing at all, other than finding find R25m to finalise PetroSA accounts for the current year, which option would probably collapse CEF in the process and lead to costing the taxpayer “billions in write offs” .
The second option was restructuring CEF but closing down PetroSA at a cost of some R15bn with the associated cost to the Mossel Bay and Eastern Cape economy.
The third option was to source R18bn from equity input and re-structure PetroSA with its new management developing a partnership strategy on the basis of new initiatives in the petroleum industry.
Monde Mnyande said that the third option was preferred but there was no intention of asking Treasury for this as a bailout for PetroSA. What the new CEF board wanted would be the portfolio committee’s support for the restructuring process as described.
As far as PetroSA was concerned, he said, such restructuring would involve inviting strategic partners to assist them with upgrading refinery operations, divesting from upstream blocks and investing in downstream activities.
Following this, a major case of misunderstanding by the media arose. During questioning, Cheryl Phillips (DA,) said she knew that PetroSA only had downstream one filling petrol station in the Eastern Cape but asked if there was any plan for PetroSA was to build more petrol stations of its own or acquire such assets from others. She reminded MPs of the aborted PetroSA deal with Petronas/Engen.
Monde Mnyande replied that he knew such assets did exist on the market at this moment and in particular he was aware that Sasol was selling such assets. This sort of thing might be an example of the way PetroSA had to go, he said.
Due to misreporting in minutes and the what perhaps was said somewhat indistinctly by Mnyande, a head line emerged in Business Day that PetroSA was already involved in a deal with Sasol. Mnyande never said this, confirmed by ParlyReport, and a CEF spokesman denied that he did a week later in a statement.
Mnyande continued with his time slot stating that one of CEF’s biggest mistakes in the past was to think it could operate alone without the government and DMRE, especially during turbulent times at Mossel Bay. A great number its executives without experience were in acting roles and failed to follow the basic rules, he said.
In answering questions by Kevin Mileham (DA) on the illegal sale of national strategic fuel stocks by the Strategic Fuel Fund four years ago to a large oil trader-consortium, Lufuno Makhuba replied that the contested sale was the subject of a court case nearing completion, the oil still being retained in storage in South Africa. Chair Monde Mnyande said a new CEO, who was a woman well known in the industry, would be appointed as CEO for SSF shortly.
Let’s hear more
In general questioning, which is difficult in virtual, Mileham threw cold water at any plans to save PetroSA in the manner suggested since any such idea at the moment could not be loaded on to the taxpayer’s shoulders. However, he said the DA would await developments and finalisation of the plan before responding in full
He asked if, in the process of restructuring, whether it was CEF’s plan to move the regulatory authority, the Petroleum Agency of South Africa, out of CEF to a new domain. As the meeting timed-out, the chairperson asked Lufuno to respond to Mileham’s question in writing.