Central Energy Fund role in expansion of oil and gas industry in South Africa & Africa

Meeting report

Election of Committee Chairperson
Ms Nosiphiwe Dinizulu Committee Secretary, assumed the role of Acting Chairperson and called on Members to nominate a Chairperson of the Committee.

Mr M Rayi (ANC, Eastern Cape) was elected as Chairperson.

The Chairperson in the interest of time asked the Central Energy Fund only to highlight key points in the briefing.

Central Energy Fund (CEF) on its role in the development and expansion of the oil and gas industry in SA and the African region
The delegation comprised of amongst others Mr Godfrey Moagi, Acting CEF Group Chief Executive Officer; Mr Sakhiwo Makhanya, General Manager CEF Group Strategy; Mr Mohsin Seedat, CEF Group Gas Commercialisation Manager; Mr Mike Du Pontes iGas: Chief Operations Officer; Mr Kgothatso Molaba, Manager: of the Group Chief Executive Officer (PetroSA); Ms Nontsikelelo Van Averbeke, PetroSA General Manager: Petroleum Resource Management; as well as Mr Tseliso Maqubela Deputy Director General: Petroleum Regulation Department of Energy.

The Committee was provided with an overview of the CEF Group. The role of the CEF was to search for appropriate energy solutions to meet the energy needs of SA, the Southern African Development Community (SADC) and the sub-Saharan African region, including oil, gas, electrical power, solar energy, low smoke fuels, biomass, wind and renewable energy sources. The current Group structure was elaborated upon. PetroSA, the Strategic Fuel Fund (SFF) and iGas amongst others formed part of the CEF Group. An overview of the oil and gas industry from a global, sub-Saharan and South African perspective was also provided. The reality was that SA did not have significant proven oil and gas reserves and produced oil and gas from coal and imported crude oil. It was thus a continuous challenge to ensure that there was feedstock for SA’s refineries. The CEF Group maintained a positive outlook as opportunities did exist amidst the challenges. One such opportunity was to form strategic partnerships with likeminded entities.

On international benchmarking the CEF had considered how Mexico and Norway had transformed their respective oil and gas sectors. Detail was provided on the various subsidiaries within the CEF Group such as PetroSA, the SFF and iGas. It was felt that SA as a country needed to leverage its competitive position in the development of its oil and gas industry. Some positives counting in SA’s favour was its stable economy, it had established good infrastructure and support services, there was also the availability of a skilled workforce in the upstream and downstream components of the value chain, opportunities for partnership right across the value chain and also the rapid development of clean or renewable energy resources. The African continent was blessed with natural resources but lacked regional planning and coordination which were hampering progress. As such value was lost. The CEF Group would over the next five years be making significant investments across its value chain to ensure future security of energy supply.

Discussion
Mr E Makue (ANC, Gauteng) pointed out that the briefing had spoken about challenges been encountered. He felt that there needed to be a mechanism to timeframe these challenges. On the project between SA and Mozambique on Mozambique supplying SA with gas he asked who was benefitting economically. Was it SA or Mozambique? In the old SA, Saldanha Bay had been a key point area where crude oil had been stored. The briefing now informed the Committee that gas was now being stored at Saldanha Bay. Was both crude oil and gas stored at Saldanha Bay? Where was the gas stored at Saldanha Bay coming from?    

Mr Moagi, on challenges experienced, said in the past SA had indigenous gas and had enough feedstock for refineries. Today SA did not have enough gas to speak of. Efforts were being made to look at alternative options. One such option was to import liquefied petroleum gas (LPG). Liquefied petroleum gas was purchased at market related prices. The cost of feedstock to run refineries has increased. A turnaround plan for PetroSA had been submitted to the Department of Energy. LPG was imported and was stored at Saldanha Bay. Another challenge identified was governance. Wiring of the CEF Group was being done to ensure that approval processes were followed. The Group needed to be aware of what was happening at subsidiary level.  He conceded that sometimes there were lapses in the system. It was a challenge across the Group. Work was being done on it with the Department of Energy and the Auditor General’s Office.

Mr Du Pointes stated that Saldanha Bay was not a storage place for gas at the moment. At least not until LPG was brought to Saldanha Bay.

Mr J Parkies (ANC, Free State) suggested that the Committee and the CEF set aside ample time to deal with the contents of the briefing comprehensively. On page 45 he asked whether permit holders were complying with legislation. Did the CEF have the capacity to ensure compliance? He asked that the CEF elaborate more on social economic development and on its social plan. On page 42 where development initiatives were spoken about he asked on Operation Phakisa how the CEF linked with other departments like the Department of Agriculture. If the Strategic Fuel Fund (SFF) Association was participating in an emergency response plan where personnel were to be trained, he asked when and for how long was the training to take place.  He asked whether oil pollution control equipment had already been purchased or was it still to be purchased. The CEF had also spoken about plans on enterprise development as did many departments that appeared before the Committee. The challenge was however often that skills and capacity was lacking. Was enterprise development on the periphery of what the CEF was working on?

Mr Molaba conceded that enterprise development could seem a bit superficial. PetroSA was looking at it. A lack of skills was an issue. For example, it was difficult to procure rigs from previously disadvantaged persons. There was a need to introduce black companies into the industry. Black companies were incubated. On the upstream there were black companies that were doing deep sea diving. Women were also being empowered. Black owned companies needed to be prioritised. Black businesses were being introduced across the value chain. There were many black companies that were now in oil and gas who ten years ago were not around. On skills development black reservoir engineers had been developed. 

Ms van Averbeke, on whether there was capacity to monitor compliance with legislation, answered that capacity was in place. She explained that the process started with the application. On a quarterly basis there was a technical consultative advanced meeting on compliance.

Mr Maqubela said there was capability on ocean management. Operation Phakisa was led by the Department of Environmental Affairs. The CEF tried to assist the Department of Environmental Affairs on huge oil spill training.

Mr W Faber (DA, Northern Cape) was disappointed that the Minister of Energy Ms Tina Joemat Petersen had not been present in the meeting. He felt she should have attended the meeting. There were many things going on which he wanted answers to. He had quite a few political questions to ask the Minister.  He remarked that the governance lapses which the briefing had alluded to were actually fraud against taxpaying South Africans. He wished to have asked the Minister whether she was conducting investigations. The main question would have been as to why the Public Finance Management Act (PFMA) had been violated with the illegal sale of oil. When would the findings of the Minister’s investigations be tabled in Parliament? He asked whether SA would be sourcing more gas from Mozambique. He also asked why Mossgas was operating at such a large loss to SA.

Mr Maqubela, on the review that was being done, said the intention was not to have a witch hunt. Processes needed to be followed. The review would be thorough. The review would most probably include a forensic investigation as well. The problem was that processes had not been followed. Something had gone wrong when the crude oil had been sold. The question was about how the process could go forward. The idea was to find out why processes had not been followed. He believed that there was a need for the Department of Energy, the Department of Mineral Resources, the Department of Environmental Affairs and other departments including the CEF needed to come together to decide what was going to happen in the gas and oil space. There was a lack of coordination at present. The oil being stored at Saldanha Bay did not belong to SA. It belonged to those to whom it was sold. There would be consequences following the sale of the oil.

The Chairperson responded that the Minister was not required to attend the briefing as it was not the Department of Energy presenting but only one of its entities.

Mr S Mthimunye (ANC, Mpumalanga) agreed that more time was needed to engage with the CEF. The Committee needed to be provided with its Strategic Plan and Annual Report.

 Mr Moagi said that strategic plans and annual reports would be provided to the Committee.

Mr B Nthebe (ANC, North West) asked what the difficulties on the Saldanha Bay Ikhwezi Project were. How far was it from approval? Was it achieving what it was intended to? He asked what the prospects of exploration in Ghana were. What were the cost implications? He pointed out that the briefing had not said much on transformation. Transformation needed to happen at grassroots level. How did the CEF and the Department of Energy feel about the proposal of shifting the licensing component to the Department of Minerals Resources? Special focus should be given to oil and gas. How did the CEF feel about it? He felt that SA had not reached the full potential of sourcing gas from Mozambique. The Chinese were also closing in on opportunities in Mozambique.

Mr Molaba said that PetroSA had not gone into processing in Ghana. PetroSA had acquired a producing field in Ghana and it was doing well. It was considered a good asset and investment. When strategic plans and annual reports were looked at then profit margins could be seen. 

Mr Maqubela said the Committee should offer its assistance to ensure that energy diplomacy was strengthened. The arrangement with Mozambique had been a sore point for the Mozambiquans as they felt that they had a raw deal. There were huge amounts of gas in Mozambique and they believed that this time around they would ensure that they benefitted. At some point there would be a need to account as a collective. On the decision taken that oil and gas needed to be regulated by the Department of Mineral Resources, the processes of Parliament in this regard was respected and the outcomes would be awaited. 

Dr Y Vawda (EFF, Mpumalanga) felt that the CEF had ambitious plans in place. The briefing had been silent about carbon credits. He pointed out that most renewable energy projects used a great deal of water. Did the CEF take it into consideration? He referred to the examples in the briefing of Mexico privatising its oil industry and Norway on the other hand nationalising theirs. He considered the Norway example as one of the finest models of nationalisation. The CEF was asked about the new gas pipeline from Mozambique to SA via KwaZulu-Natal. He stressed the importance on infrastructure development on rail. Was it being looked at?

Mr Seedat said the CEF could not really comment on the carbon credits issue since it fell within the ambit of National Treasury. The CEF chose to focus its efforts on preserving a low carbon trajectory on gas and renewables. The focus was on clean energy. He pointed out that on renewables there was low consumption of water. On gas turbine plants water consumption was also minimal. Desalination plants at coastal areas should be considered even though it was costly. There was cooperation with Transnet on rail and road travel.

Mr Moagi said that different countries’ best practises had been considered including the Norwegian model. There was cooperation with state owned entities like Transnet when it came to rail. 

Mr Du Pointes said that the new pipeline from Mozambique through Kwa-Zulu-Natal was 2600km long and amounted to $6bn-$7bn.Large country projects might go ahead or not. A great deal of financing was required. The project was still in its infancy stage.

Mr Parkies said that on each partnership there would be points of interest guaranteed. One of these could be skills development. What were the strategic objectives that should always be there?

Mr Nthebe, on sorting out governance issues, said consequence management needed to be considered.

Mr Moagi explained that there was a commitment from leadership and boards within the Group that consequence management would take place. Investigations were ongoing and would be concluded.

The Chairperson asked why the CEF had an Acting Chief Executive Officer. He also pointed out that the mandate of the CEF remained unchanged since 1977 and perhaps it was time to relook at it. The CEF was asked who its partners were on gas exploration. The briefing had spoken about reducing dependency on multinationals. How far was the progress on it? 

Mr Moagi also conceded that acting positions across the Group was a problem. The issue had been raised with the Department of Energy and was being addressed. The intention was to fill vacant positions within three months. On partnerships there were no firm decisions taken yet on specific partnerships. One of the key drivers was capital expenditure. Partners with deep pockets were needed. Skills, finance, knowledge and experience were important. The CEF had engaged with the Department of Energy on relooking at its mandate.

Mr Faber was concerned that SA only had a one-day reserve of fuel instead of the recommended 20-day reserve. The international standard was to have a 90-day reserve.

Mr Maqubela, on the number of reserve days of fuel, said that a presentation on its own was needed to do justice to the issue. The likelihood of SA running out of fuel was unlikely and he did not have sleepless nights over it. A vulnerability assessment would be done.

Mr Vawda said that perhaps there needed to be a joint effort to account to the Committee. Perhaps an inter-departmental team was needed. 

Mr Maqubela said there was an inter-departmental team in place. It also assisted with oversight. There was however the phenomenon that departments were inclined to protect their own turfs.

Committee Minutes
Minutes dated 6 September 2016 were adopted unamended and minutes dated 21 September 2016 were adopted as amended.

Oversight Report of the Committee on its visit to Johannesburg and Pretoria, 29 August 2016 – 2 September 2016
Mr Makue was hugely disappointed that the Oversight Report was not yet completed and that it would not be ready by the following day.

Mr Mthimunye too was disappointed and insisted that the Oversight Report should be ready by the following day.

The Committee agreed to that the Oversight Report should be ready and tabled by the following day.

The meeting was adjourned.