Fossil Fuels Gas

Six months set aside for merger of CEF’s oil and gas subsidiaries into ‘Newco’

Six months set aside for merger of CEF’s oil and gas subsidiaries into ‘Newco’

Photo by Creamer Media
The PetroSA GTL refinery in Mossel Bay

18TH AUGUST 2020

BY: TERENCE CREAMER
CREAMER MEDIA EDITOR

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The process of merging the State-owned entities of PetroSA, Igas and the Strategic Fuel Fund (SFF) into an “integrated national petroleum company” will formally begin on September 1, with six months having been set aside for the creation of a Newco that is “commercially viable”.

All three entities are currently subsidiaries of the Central Energy Fund (CEF), with PetroSA in the throes of a long-running financial and operational crisis that has left it technically insolvent.

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CEF CEO Dr Ishmael Poolo told lawmakers on Tuesday that a consortium of external advisers had been selected to help with the implementation of the restructuring, for which a R65-million budget had been allocated.

The restructuring had also received Cabinet approval.

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Poolo stressed that the consortium had been selected following a competitive process and confirmed that it was being led by international management consulting firm Kearney and supported by Bayajula and Mazars.

The advisers had been tasked with developing a detailed corporate strategy for the Newco, as well as a streamlined operating model that sought to extract efficiencies through the development of shared services systems and a common information technology platform.

Poolo said it was premature to offer details of the savings, but told lawmakers that these would be quantified and communicated at a further meeting of the Portfolio Committee on Mineral Resources and Energy.

In parallel, efforts were under way to “stabilise” PetroSA, which had become a serial lossmaker ever since the spectacular failure of a project, dubbed Project Ikhwezi, to secure additional gas for its gas-to-liquids refinery in Mossel Bay.

The company had also not had a permanent CEO for five years.

Earlier this year, CEF confirmed that PetroSA had incurred losses of R20-billion since 2014 and was currently producing at a rate of only 6 000 bbl/d, owing primarily to a shortage of gas.

The facility’s headcount, however, remained at the same level as what it had been when it was producing at a daily rate of 18 000 bbl. PetroSA accounts for a large portion of CEF's 1 800 employees.

Mineral Resources and Energy Minister Gwede Mantashe indicated that he had visited PetroSA during the Covid-19 lockdown and that, during a meeting with the refinery’s three labour unions, there had been an acknowledgement that PetroSA was overstaffed.

The Minister confirmed, therefore, that there would have to be retrenchments, while noting that only one  of PetroSA’s three plants was operating.

“It is a necessary transition, painful as it is, but we must go through the transition with the aim of creating a more healthy entity,” Mantashe told lawmakers, while stressing that both Igas and SFF remained financially sound.

Poolo said engagements with labour were being initiated with a view to limiting job losses.

Initiatives were also under way to secure yet more concentrate as an alternative feedstock for the refinery and to assess the conversion of other units to operate using concentrate.

EYEING SASOL’S ROMPCO STAKE

He also stressed that, besides stabilising PetroSA, Newco would seek to establish a basis for future growth and that CEF was, thus, considering acquiring assets being disposed by JSE-listed group Sasol.

Sasol had already indicated that talks on the sale of its stake in the Rompco gas pipeline from Mozambique to South Africa were well advanced.

Poolo noted that Igas was also a shareholder in the pipeline and that there was a desire at CEF to increase its stake in the asset.

No further clarity was provided as to the future status of the other entities operating under the CEF umbrella, but Mantashe did hint to the possible future exit of the African Exploration Mining and Finance Corporation, which mines coal.

The Minister argued that it was probably not appropriate for the Department of Mineral Resources and Energy, which regulates the mining sector, to continue to have a mining entity in the portfolio of State-owned companies falling under the department’s authority.

Oil and gas exploration and production activities, meanwhile, were regulated by the Petroleum Agency of South Africa, which continues to fall under the CEF group of companies. 

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