Sale of SA’s strategic fuel reserves: DA calls for criminal inquiry

*Filling station in Cape Town, SA.

*Filling station in Cape Town, SA.

28 May 2016, Cape Town — Minister of Energy Tina Joemat-Pettersson is not big on transparency. Civil society lobby groups EarthLife Africa and the Southern African Faith Communities Institute had to drag her off to court because of government’s opaque massive nuclear procurement plan and our apparent long-term marriage to Rosatom.

In that instance, Joemat-Petterssson had attempted to illegally sidestep advice by the state law advisor that a crucial public participation process should take place. The Minister was meant to deliver responding affidavits in that court challenge by 13 May but unsurprisingly missed the deadline, prompting the lobby groups to approach the court to force her to do so.

We can be forgiven then for the huge trust deficit that exists when it comes to anything involving Joemat-Pettersson. And so it came to pass that Carol Paton in Business Day broke the news to the country on Thursday that in December the Strategic Fuel Fund (SFF) had quietly sold off close to the entire stockpile of the country’s crude oil reserve – 10 million barrels – in a closed tender without obtaining permission from the Treasury and at the bargain price of $28 a barrel.

The Central Energy Fund (of which the Department of Energy is a primary shareholder) manages South Africa’s reserves through the SFF. On Thursday, the DA was quick to respond to the sale disclosure, saying it was a violation of the Public Finances Management Act and that the party would refer the matter to the Auditor General in order to obtain a full report. The DA said it would also consider calling on Treasury to explore the institution of criminal charges against Joemat-Pettersson and Gamede.

“The illegal sale of the country’s strategic fuel stocks/reserves has left the economy exposed the one day of fuel available for cover when there is meant to be a buffer for 20 days. The international standards are at 90 days’ worth of fuel reserves,” said DA Shadow Minister of Energy Peter Van Dalen.

Even worse, said Van Dalen, is that the fuel stock was sold a $28 a barrel when the current price is around $49 a barrel and that this “risk exposure threatens to bring our economy to a complete halt as the economy will not function if South Africans cannot attend work or companies cannot function due to a lack of fuel, the estimated costs have been calculated at R1 billion per day to the economy.”

On 12 October 2015 parliament’s portfolio committee on energy met with the Department of Energy on behalf of the Strategic Fuel Fund. That rather chaotic meeting was attended by the Deputy Minister of Energy, Thembisile Majola, DOE DG Tseliso Maqubela and Muzi Mkhize, Chief Director, Hydrocarbons Policy, at DOE. The officials told the committee that as far back as 2006, estimations were that a “no stock” fuel crisis in South Africa could result in a loss to GDP of R1 billion a day.

Deputy Minister Majola remarked on that occasion that such a crisis “would make the current Eskom crisis seem like a walk in the park”.

In 2005/6 South Africa experienced a serious fuel crisis which saw trucks and cars stranded on highways, fishing trawlers bobbing out at sea and filling stations across the country run dry. That crisis, which cost the economy R1 billion a day, was caused by a shutting down of the country’s refineries to prepare for the production of cleaner fuels as well as a failure to maintain enough crude reserves. The country uses around 450,000 barrels a day.

Which is sort of why one can understand the note of slight panic in the DA statement in the slipstream of news of the bargain basement sale?

“Any form of embargo or fuel shortage will send our exchange rate plummeting and will result in further job losses, we cannot allow this to happen for a second time as we still dealing with the pernicious effects of a trampled currency following the surprise axing of the finance minister in December 2015.”

During her budget speech on 11 May, Joemat-Pettersson alluded to the sale stating that the Department “together with our state-owned entities has been focusing on leveraging the current low oil price environment towards ensuring that our country benefits optimally.”

“Accordingly, in 2015, we issued a ministerial directive for the rotation of strategic stocks by the Strategic Fuel Fund and this has resulted in the increased revenue base for SFF, whilst at the same time maintaining stocks within our storage tanks for the security of supply. This is in place through long-term lease and contractual agreements with the buyers. The estimated revenue to accrue from this process is around R170 million per annum, significantly boosting the balance sheet of the SFF,” she said.

In the event of a crisis, South Africa would have first dibs on the oil that would still be stored at SFF storage facilities at Saldanha and Milnerton. Saldanha has six underground tanks that hold 7.5 million barrels each.

The DA was having none of it saying that this explanation was not good enough considering the huge amounts involved.

“Under the PFMA, the sale of any significant state asset, which in this case amounts to R5 billion, requires approval from Treasury and it is also stipulated in the CEF Act. This feeds into a narrative that the CEF and PetroSA are in financial trouble and are looking for a cash injection. PetroSA has been plagued by projects that have gone south, including Ikhwezi and Irene,” said Van Dalen.

Energy DG Tseliso Maqubela revealed late on Thursday that the country’s strategic reserve had been sold to the Taleveras Group and the joint ventures of Vitol Energy Ltd. and Glencore Plc.

Also in a statement late on Thursday, the CEF said that the country still had access to 90 days of reserves – about a month more than was needed – compared with the 21-day buffer before the transaction. However, if we were needing to buy it back before midnight on Thursday we would have to pay $50 a barrel. That’s the risk the Minister Joemat-Pettersson and her department is apparently willing to take. In the meantime, Treasury referred the Daily Maverick back to the Department of Energy. Perhaps Minister Gordhan has, for now, much bigger fish to fry – as long as he’s got enough oil to do so.
*Marianne Thamm – Daily Maverick

About the Author