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Crunch time for R82bn PetroSA refinery

Sep 30 2012 16:12 City Press - Max Matavire

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Johannesburg - Delays in the implementation of the R82bn crude oil refinery at the Coega industrial development zone (IDZ) in Port Elizabeth could plunge the country into a “fuel crisis” similar to the energy crunch currently facing Eskom, according to national fuel parastatal PetroSA’s chief executive, Nosizwe Nokwe-Macamo.

Speaking to Port Elizabeth-based captains of industry and organised business formations, Nokwe-Macamo likened the anticipated fuel crisis, which she says will arise if government fails to prioritise its Project Mthombo, to the current energy crisis.

She said the current situation South Africa found itself in of importing vast amounts of liquid fuel annually to meet demand would be reversed if Project Mthombo was implemented.

PetroSA’s plan is to have the refinery operational by 2019/20. 

If this does not happen, PetroSA foresees a looming crisis because no new refineries are being built, but demand for environmentally friendly fuels is increasing as industry grows. 

The parastatal is anxious not to repeat the mistakes by electricity provider Eskom, where government delays in building new power stations are now being felt. 

The parastatal and the provincial government are frustrated by the fact that the national government has still not committed itself to a deadline.

A department of energy report titled Energy Security Masterplan, Project Mthombo was initiated as far back as 2007. The report recommended that “a greater proportion of South Africa’s liquid fuels should be produced domestically”. 

This has still not happened.

Since then, various preliminary feasibility studies have been done.

The report said that, owing to the scale of the project, it had to be financed by a variety of debt and equity providers. 

Last year, government approved the project, but has not given the official go-ahead to start securing funding.
 
Now there is a joint study between PetroSA and Sinopec, a Chinese state-owned energy company, to finalise the refinery’s projected capacity, configuration and costing.

The Nelson Mandela Bay Business Chamber has also thrown its weight behind PetroSA, saying it believes the project will bring “significant up- and downstream benefits in job creation, long-term poverty relief and industrial diversification”.

About 27 500 direct and indirect jobs are expected to be created during construction, and 18 000 direct and indirect jobs when it’s operational. 

Business and the national oil company said they were anxiously awaiting government’s go-ahead for the project which, on completion, would deliver 360 000 barrels of oil a day, making it the largest crude oil refinery in Africa.

Nokwe-Macamo said: “South Africa is already importing vast amounts of liquid fuel annually to meet demand.

“The figure is set to increase exponentially as the country’s current refineries will need to be upgraded to produce cleaner fuels, as required.

“PetroSA strongly believes that South Africa cannot afford to keep postponing the implementation of Project Mthombo.

“There is massive interest from neighbouring countries as the project will have the capacity to alleviate fuel demands for the entire sub-Saharan region.”

Government, Nokwe-Macamo said, had proposed the implementation of cleaner fuel standards by 2017, adding that refineries would need to spend billions in modifying processes and would therefore not meet 
this deadline. 

She said all refineries in the country would have to be modified somewhat to enable them to produce fuels that were more environmentally friendly.

Nelson Mandela Bay Business Chamber chief executive Kevin Hustler this week told City Press his organisation echoed PetroSA’s warning to government, adding the state could not afford a further postponement on the start of construction.

“We believe the project will bring significant up and down-stream benefits in job creation, long-term poverty relief and industrial diversification. 

“The chamber views Project Mthombo as a significant opportunity for the region in terms of its potential for wide-ranging socioeconomic impact on the Eastern Cape.

“The chamber recognises Project Mthombo’s role in securing South Africa’s liquid fuel supply,” said Hustler.

Eastern Cape Economic Development, Environmental Affairs and Tourism MEC Mcebisi Jonas said the region needed a decision (from national government) within a year. 

“As soon as studies are concluded, we want to see an urgent decision so that the project can be put into motion, and be up and running by 2019,” he said.

PetroSA vice-president of new ventures Jorn Falbe told City Press that the project was still in Phase 1, adding that when it will become operational depended on the outcomes of an environmental impact assessment and case studies. 

Phase 1, currently being undertaken and expected to be completed at the end of this year, involves a joint study being conducted by PetroSA and Sinopec, which will prepare the final business case for the project, which will lead into the front-end engineering design stage. 

Phase 2 would include more detailed cost estimates, and is expected to be completed at the end of next year.
 
The last phase will be the procurement processes, which are expected to be completed at the end of 2014.

Falbe said construction was expected to take four years, with operations beginning in about 2019 or 2020.

Nelson Mandela Bay Metropolitan Municipality - comprising Port Elizabeth, Uitenhage, Despatch, Seaview and the surrounding semirural areas - has a population of 1.5 million, with unemployment standing at 35%. 

The Eastern Cape is one of the poorest provinces after the Northern Cape. The implementation of Project Mthombo is expected to make a huge dent in unemployment. 


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