fuel Petroleum

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SA’s new state-owned enterprise: The National Petroleum Company

SA is set to get a newly formed SOE, with PetroSA, the Stategic Fuel Fund and iGas poised to merge into the National Petroleum Company.

fuel Petroleum

Photo: Pixabay

South Africa is set to have a new State Owned Enterprise (SOE) on the books, with cabinet having approved the rationalisation of three major oil and gas firms to conglomerate as the National Petroleum Company. 

Cabinet has given the green light for the merger, following a virtual meeting on Wednesday 10 June for PetroSA, the Strategic Fuel Fund (SFF) and iGas to be merged into one single National Petroleum Company.

National Petroleum Company was promised by Ramaphosa

The move follows a pledge by President Cyril Ramaphosa in his State of the Nation address in February, where he said that consolidation of some of South Africa’s 740 SOEs should become a priority of the 2020 mandate.

“We must examine the institutional design that should continue to support SOEs and their developmental mandates and there should be greater and more effective attention of operational efficiency, integrity and functionality of our SOEs, and ensuring that people who are fit for purpose are appointed to various positions,” said Ramaphosa in his State of the Nation address. 

This consolidation of thee of the country’s largest – and among the most troubled – SOEs is set to assist with the production of fuel and encourage foreign investment into the sector. 

“This gives effect to the announcement made by President Cyril Ramaphosa in his State of the Nation Address on 13 February 2020, to repurpose and rationalise a number of State-owned enterprises to support growth and development,” the Cabinet statement read.

Troubled times for fuel companies  

There have been lingering complications with two of the companies set to merge, with PetroSA experiencing a variety of financial issues and the SFF engaged in a nasty court battle where they are seeking to invalidate its controversial 2015 sale of SA’s strategic oil stocks.

PetroSA’s financial troubles have led analysts to suggest that the company faces the risk of not being able to continue operating in future. 

The SFF have become the subject of controversy after 10 million barrels of reserves were irregularly sold off for below-market prices in 2015. 

The matter was the subject of a forensic investigation and, in April 2020, the SFF announced it would launch a court challenge to invalidate the sale.

DA convey concerns

Not everyone is completely convinced by the proposed merger though, and the Democratic Alliance (DA) have said that a few questions need answering. 

 Kevin Mileham MP, DA Shadow Minister of Mineral Resources and Energy, said that the Department of Mineral Resources and Energy need to clarify the following: 

The Department of Mineral Resources and Energy also needs to answer the following questions regarding this merger:

  • Why has the SFF been included into this consolidation, when it’s primary mandate is to oversee the country’s strategic fuel reserves and ensure security of supply?
  • Why has the Petroleum Agency of SA (PASA) not been broken up, in order to incorporate its commercial aspects into this new entity, and its regulatory aspects moved to NERSA?

“While there may be certain benefits in such a merger, this decision could create a potentially unfair competitive advantage for the new entity, despite the highly competitive nature of the petroleum sector,” said Mileham. 

“The public and Parliament deserve nothing less than full transparency on what the consolidation of these entities will entail.”

National Petroleum Company establishment must be transparent

He noted the challenges facing PetroSA as a possible cause for scepticism, and demanded that the process be conducted with full transparency. 

“This is especially true, given the profitability and cash flow challenges that are being experienced by PetroSA. Combining one bad entity with reasonably performing ones could end up in all of them being dragged down.”

“The last thing that the South African economy and the taxpayer need is another bloated and dysfunctional state owned entity (SOE) sucking the fiscus dry with bailout after bailout.” 

“We, therefore, need complete transparency on the financial implications, potential revenues and expenditures, and a comprehensive business plan for this new structure.”