Defend Truth

AMABHUNGANE

Fight over state’s oil and gas assets reveals Gwede Mantashe’s growing conflict

Fight over state’s oil and gas assets reveals Gwede Mantashe’s growing conflict
Minister of Mineral Resources and Energy Gwede Mantashe . (Photo: Gallo Images / Ziyaad Douglas)

Two rival bills, both presented by the ANC, envisage very different futures for the state’s oil and gas assets and highlight the growing conflict in energy minister Gwede Mantashe’s portfolio.

Two government ministers are in a tug-of-war over the future of the state’s oil and gas assets.

In September 2023, 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). 

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.

Gordhan proposes to create a more independent holding company to manage state-owned entities – including Eskom, Transnet, Denel and CEF – that have been crippled by political interference and State Capture.

When we asked Mineral Resources and Energy Minister Gwede Mantashe about Gordhan’s proposal in October, he told us: “It’s a debate, that one… leave it to be exhausted internally.”

Asked if there was an ideological battle coming over CEF’s future, he said: “Yes. A big one.”

A month later, Mantashe presented his own Bill to Parliament: the South African National Petroleum Company Bill. 

If passed, Mantashe’s 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).

The rival Bills – both presented by the ANC – are now making their way through Parliament. 

A dirty diamond

The Central Energy Fund was established in 1977 with the mandate to “contribute to the security of the energy supply of South Africa”. 

Aside from PetroSA and iGas, CEF also manages the Strategic Fuel Fund, which looks after the country’s strategic stockpile of crude oil and controls around R11-billion in assets.

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.

While CEF owns valuable assets, it has also been plagued by mismanagement and scandal: PetroSA’s Project Ikhwezi blew R14.5-billion drilling for oil offshore in the early 2010s. 

In 2015, the Strategic Fuel Fund sold off the country’s strategic fuel stocks for $5-billion without approval.

In December, PetroSA announced it would enter into a R3.7-billion deal with Russia’s sanctioned Gazprombank.

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 SOEs from the control of individual ministers and make the president the sole shareholder representative.

“This would separate the state’s ownership functions from its policy-making and regulatory functions, minimise the scope for political interference, introduce greater professionalism and manage the state’s assets in a way that protects shareholder value,” Gordhan told Parliament in 2022.

This centralised shareholder model flows from the recommendations of the Presidential SOE Council, made up of government ministers and business leaders. 

But it is unpopular as it flies in the face of the decision taken at the ANC’s December 2022 elective conference to “place SOEs that operate in specific sectors of the economy under the relevant government departments”. 

Under this model, Eskom would be returned to the Department of Mineral Resources and Energy. 

Public enterprises spokesperson Ellis Mnyandu downplayed the conflict between the Bills: “The question of which SOEs will be transferred into the [state enterprises] holding company is a matter that is still to be decided upon.”

Even if Gordhan’s Bill does pass, Mantashe’s would ensure that there is little left of CEF for the state enterprises holding company to inherit.

Gutting CEF

The merger of CEF’s 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.

“[C]abinet approved the merger of iGas, PetroSA, and the Strategic Fuel Fund to form the South African National Petroleum Company (SANPC)… for the state to participate meaningfully in oil and gas developments,” he said. 

“[T]he final draft of the SANPC Bill has been submitted to the state law adviser for constitutional certification… We implore members to ensure its finalisation before the end of term of this administration.”

In practical terms, what this means is that “[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]” and “[a]ll assets and rights issued… or held by iGas, PetroSA and SFF… be consolidated and transferred to the [SANPC].”

On Wednesday, CEF said it expected the transfer to happen by August 2024, although the transfer of some of PetroSA’s troubled assets would take longer.

This would eventually leave CEF with just one commercial asset: the African Exploration Mining and Finance Corporation which owns Vlakfontein, a coal mine in Mpumalanga that supplies Kendal power station.

Asked how CEF felt about potentially being gutted by its own shareholder, spokesperson Jacky Mashapu said: “CEF as an implementing agent of the shareholder is 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.”

Eskom 2.0

When the South African National Petroleum Company Bill was gazetted in November, it was widely interpreted as Mantashe’s attempt to build an “Eskom 2.0” under his control.

Although the SANPC’s mandate is largely focused on petroleum – infrastructure, supply, storage, distribution, aggregation, marketing and trading – it has also been tasked with “providing for renewable energy” and “the acquisition, generation, manufacture, marketing or distribution of any form of energy”.

Initially, the SANPC’s 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.

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 “aggressive margin”. 

“The current corporate plan is premised on aggressive returns from the purchase and resale of purchased products [ie petrol and diesel],” CEF’s 2022 annual report noted. 

“PetroSA 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.” 

Eskom would like to do this in-house, but Mantashe has refused to grant it a diesel wholesale licence.

This has created a situation where one SOE (PetroSA) is allowed to cannibalise another (Eskom) and has placed Mantashe in the conflicted position of trying to reduce load shedding with one hand while allowing PetroSA to profit off it with the other.

Transparency would help to keep this conflict in check, but instead, this R24.5-billion-a-year industry operates in complete secrecy.

No tenders, just contracts

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.

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. 

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

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% of its business.

“PetroSA has not been granted a departure from reporting deviations and expansion,” a Treasury spokesperson confirmed in January.

Following our questions, Treasury wrote to PetroSA looking for answers. In February, we were told: “The National Treasury is still awaiting a response from PetroSA.” By mid-March, Treasury still had no update.

On Wednesday, the Auditor-General disclosed that PetroSA lost R11.5-million when it sold diesel to a “fictitious company”.

AmaBhungane has submitted three Promotion of Access to Information Act requests to PetroSA asking it to disclose the names of its diesel suppliers. PetroSA told us it could not read our first two requests and then ignored our third, handwritten, request.

Mantashe, meanwhile, has openly said he will never disclose PetroSA’s diesel suppliers.

“[I]f you want to expose the business of PetroSA, you’re basically killing it – you’re saying we must just kill it…” he told amaBhungane in October.

“PetroSA 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’m saying it’s a formula to close it down.”

The pastor

To be fair, transparency has proved fatal to some PetroSA deals.

In September last year, PetroSA approached Sanlam Investments to act as transaction advisers to set up a $160-million (R3-billion) facility to bankroll PetroSA’s diesel purchases.

PetroSA has severe cash flow issues. The annual report notes that “[a] material uncertainty exists regarding the entity’s ability to honour obligations as they fall due because of low cash reserves”.

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.

We estimate that for this service, Idwala would have earned 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.

But where Idwala’s funding would come from is less clear.

The company’s 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, it still shares an address with Edwards’ Perfecting Church International in Industria West outside Johannesburg.

At the time, PetroSA declined to comment on the deal, saying: “The information requested herewith is commercially sensitive, therefore, PetroSA will not be commenting…”

Although Sanlam stood to make R75-million in fees, it declined to participate in the transaction.

After amaBhungane sent questions, Idwala withdrew: “We are not continuing with the project, we’re not going to help PetroSA,” Edwards told us in November.

“There’s too much controversy around the entire issue. We’ve signed an NDA with the parties involved. It was an above-board deal. I don’t want to involve my name in anything that’s seen as dodgy or shady or corrupt. For the sake of my integrity.”

Similarly, PetroSA’s R21.6-billion deal with EquaTheza, exposed by amaBhungane in January, appears to be on the rocks.

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. 

Read more in Daily Maverick: PetroSA taps notorious political operator for massive offshore gas deal

But on Wednesday, PetroSA’s presentation to Parliament indicated that EquaTheza was already in breach of the agreement:

“Delayed deliverables on technical work programme by EquaTheza. Work presented to date by EquaTheza is not inspiring confidence that they can deliver.”

According to the presentation, EquaTheza was required to put up $12-million, but the payment date came and went “with no commitment on new date”. 

“By end March, PetroSA will seek way forward regarding dealing with EquaTheza due to their failure to deliver satisfactory technical work programme and funding solution.”

Director Barend Hendricks disputed PetroSA’s dire description of the deal and attributed the delay to PetroSA instead: “EquaTheza Oil and Gas dispute the breach. It is currently finalising the report as per the schedule and will submit on Monday.”

With other transactions, however, PetroSA has simply ignored the bad publicity and ploughed ahead.

In November, we reported that PetroSA was about to sign a R3.7-billion deal with Russia’s sanctioned Gazprombank to refurbish the gas-to-liquids refinery in Mossel Bay.

Despite the uproar, PetroSA went ahead with the transaction. DM

Gallery

Comments - Please in order to comment.

  • Lucifer's Consiglieri says:

    Mob family infighting, what’s new?

  • Pet Bug says:

    Frenetic scramble by the ANC get pass looting laws passed before the election.

    It will take time for the new government to get round to undoing these laws conceived purely to give their connected elite one last chance to fleece the state proper.

  • G. Strauss says:

    Anyone in SA who still believes that something is being done to stop corruption under this government should be exposed for the brainwashed fools they are, period.

  • Ian Gwilt says:

    Petrosa is a piggy bank
    And a lot of Piggies feed there
    Why not disclose the supplier of Diesel ?
    Previously when tenders were issued the supplier and price was known. Now it is a washing machine to extract money, extraction as the envelope is passed from the supplier to Petrosa
    Extraction on the delivery, Who delivers , Not Petrosa. They never see the product.
    Extraction in the hand over price to Eskom.
    Oink, Oink

  • Rae Earl says:

    A number of blind folded looters wandering around and whimpering about ‘commercially sensitive’ information which can’t be disclosed? Shure it can’t be disclosed as the cash conduits into ANC back pockets need to be hidden until either they’re kicked out of power or are able to set up a mutually beneficial coalition with another bunch of crooks in a new 5-year free for all gravy trough.

  • Geoff Coles says:

    Revaluation of assets….. didn’t Markus Jooste do that in his massive fraud.

    • Pieter Badenhorst says:

      It’s worse than revaluing assets. They reduced the liability for rehabilitation once their plants reach the end of their productive life, so less funds available to get the environment back to its original condition.

  • Senzo Moyakhe says:

    Greedy Mantush is watching Karpowership sliding away. Plan B required for his pension…

  • Middle aged Mike says:

    The sad reality is that everything that dollar couch guy, greedy and the rest of the crew are doing boils down to nest feathering with public money. They’ve been stealing for so long they probably don’t even think of it as such.

  • Rob vZ says:

    “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. 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 “aggressive margin”.

    In summary, this is our parasitic government making a profit from load-shedding. PetroSA is a completely rogue actor, embedded with sanctioned Russian interests. God help us all.

  • William Dryden says:

    Mantashe is determined to get his way so he has more power and time to mess up things before the ANC are voted out of government.

  • Bob Fraser says:

    Bob March 22nd 2024 at at 12:59
    This matter is much too intricate for an ordinary citizen to comprehend but a questionnaire which must be asked is how much has Mantashe already pocketed or will continue to pocked if and when all is finalized. Probably millions

  • Elroy Bramwell says:

    Ridiculous! Just sit together and come up with 1 Bill. Only one.

  • Tim Bester says:

    Remember SASOL? It escaped the grasping claws of African socialism, just in time…

  • Brian Cotter says:

    What is Pandor doing for setting up agreements for Petrochem Refineries.
    “TEHRAN, Aug. 25 2023(Xinhua) — Iran has reached an agreement with South Africa to “develop and equip” five refineries in the African state, said Iran’s President Ebrahim Raisi on Friday.
    The agreement was reached on the sidelines of the 15th BRICS Summit in Johannesburg, South Africa, the president of Iran said in a statement. Naledi Pandor being our queen of sucking to Iran and no doubt also facilitating their entry to BRICS.

    Under the agreement, the Iranian Oil Ministry will help to develop five refineries in South Africa by exporting “technical and engineering services,” said the statement.
    Earlier this month, Iran and South Africa convened the 15th session of the Joint Commission of Economic Cooperation in the latter’s administrative capital Pretoria, after a three-year hiatus due to the COVID-19 pandemic.
    During the meeting, Iran’s Foreign Minister Hossein Amir-Abdollahian and South Africa’s Minister of International Relations and Cooperation Naledi Pandor inked a document on economic cooperation. ”
    I do not believe there was a tender out for this so, I take this is as a typical geostrategic corruption where the state contracts direct with another state. I first found this term in South America, which if you check this on the web, China, Russia and Iran are the leading exponents of this corruption method.
    We had in the state capture years Chinese locomotives, after a suspect retender, Chinese Companies monopolised all the new SANRAL bridges after truly South African Companies were robbed.

  • Brian Cotter says:

    What is Pandor doing for setting up agreements for Petrochem Refineries.
    “TEHRAN, Aug. 25 2023(Xinhua) — Iran has reached an agreement with South Africa to “develop and equip” five refineries in the African state, said Iran’s President Ebrahim Raisi on Friday.
    The agreement was reached on the sidelines of the 15th BRICS Summit in Johannesburg, South Africa, the president of Iran said in a statement. Naledi Pandor being our queen of sucking to Iran and no doubt also facilitating their entry to BRICS.

    Under the agreement, the Iranian Oil Ministry will help to develop five refineries in South Africa by exporting “technical and engineering services,” said the statement.
    Earlier this month, Iran and South Africa convened the 15th session of the Joint Commission of Economic Cooperation in the latter’s administrative capital Pretoria, after a three-year hiatus due to the COVID-19 pandemic.
    During the meeting, Iran’s Foreign Minister Hossein Amir-Abdollahian and South Africa’s Minister of International Relations and Cooperation Naledi Pandor inked a document on economic cooperation. ”
    I do not believe there was a tender out for this so, I take this is as a typical geostrategic corruption where the state contracts direct with another state. I first found this term in South America, which if you check this on the web, China, Russia and Iran are the leading exponents of this corruption method.
    We had in the state capture years Chinese locomotives, after a suspect retender, Chinese Companies monopolised all the new SANRAL bridges after truly South African Companies were robbed.

  • Simon Winde says:

    A pastor, no tenders, billions of Rands, Gwede being Gwede, a bank. Deon could write a book about this.

  • Geoff Coles says:

    Why does Mantashe get away with it? Why doesn’t Ramaphosa do something.
    Why…internal ANC Cadre politics at the highest level

  • Jimbo Smith says:

    Mantashe epitomizes everything that’s wrong with this country; he and his DMR cadres have decimated our once proud mining industry. He opens his mouth and speaks in riddles, torturing truth and logic. How does a nation tolerate this level of incompetence?

    • Alex Avlonitis says:

      We had our spirits broken by the most tortuous lock down in the world. Rght after Cyril was sworn in. We were made helpless and humiliated and deprived of things we physically needed.

Please peer review 3 community comments before your comment can be posted

X

This article is free to read.

Sign up for free or sign in to continue reading.

Unlike our competitors, we don’t force you to pay to read the news but we do need your email address to make your experience better.


Nearly there! Create a password to finish signing up with us:

Please enter your password or get a sign in link if you’ve forgotten

Open Sesame! Thanks for signing up.

We would like our readers to start paying for Daily Maverick...

…but we are not going to force you to. Over 10 million users come to us each month for the news. We have not put it behind a paywall because the truth should not be a luxury.

Instead we ask our readers who can afford to contribute, even a small amount each month, to do so.

If you appreciate it and want to see us keep going then please consider contributing whatever you can.

Support Daily Maverick→
Payment options

Daily Maverick Elections Toolbox

Feeling powerless in politics?

Equip yourself with the tools you need for an informed decision this election. Get the Elections Toolbox with shareable party manifesto guide.