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Cape Town – An investigative report into the R14.5bn financial losses that PetroSA incurred in the 2014/15 financial year will not be made public and will only be presented to a closed parliamentary meeting.
Fikile Majola, chairperson of the Portfolio Committee on Energy, said on Tuesday the information contained in the forensic report contains “commercially sensitive” information and he had therefore decided that it would be presented to MPs in camera.
“We have to balance Parliament’s right to know with the obligation to safeguard the affairs of our public entities,” Majola said.
Democratic Alliance MP Pieter van Dalen and Inkatha Freedom Party MP Jan Esterhuizen however objected to the decision, saying PetroSA manages public money and therefore MPs should be able to report back to their constituencies as to how taxpayers’ money is being spent.
“I would have liked for us to have a meeting beforehand to discuss if the information contained in the forensic report is indeed ‘secret’,” Van Dalen said.
Two weeks ago, the Energy Committee sent home a delegation from the Department of Energy and PetroSA before they could discuss a watered-down version of a report explaining the losses PetroSA had incurred.
READ: PetroSA fails to deliver report on project which lost billions
At the time the delegation, which consisted of acting PetroSA CEO Siphamandla Mthethwa, chairperson Bhekabantu Ngubane and energy director general Thabane Zulu, was supposed to convey the details of a complete forensic report after an investigation into an impairment of about R14bn. However, they only presented their own summary of the original report.
Majola ruled on Tuesday that the board of PetroSA should be allowed to make a presentation to MPs on PetroSA’s impairment, while the details of the forensic report will be heard in two weeks' time in a closed meeting.
Botched project
Previously, PetroSA said the impairment of R14.5bn in the previous financial year, which led to the substantial losses, was ascribed to poor management of Project Ikhwezi – a project that entails the finding of new gas deposits under the sea off Mossel Bay to feed PetroSA’s Mossel Bay gas-to-liquids refinery.
Three out of the five drilling wells yielded a modest 25 billion cubic feet of gas out of an expected 242bn cubic feet. In the mid-2000s PetroSA still had a cash balance in excess of R10bn, but the project has since put its balance sheet under considerable pressure – to such an extent that the Mossel Bay refinery risks closure in March next year.
Project Ikhwezi was expected to deliver the first gas in March 2013, which would have extended the refinery’s lifespan to 2019. The first deposits however, were only available some 21 months later by December 2014. A number of top executives were fired due to the botched project.
The situation was made worse by the drop in oil prices since 2014, as well as higher capital costs.
According to the report, Project Ikhwezi wasn’t subjected to the required due diligence and corporate management processes because of the urgency to deliver gas to the Mossel Bay refinery.
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Risk management was inadequate, the board wasn’t notified in time of various problems, and there were delays in the delivery of equipment. In addition, a number of contractors were changed.
Although PetroSA has managed to limit its operating loss in the 2015/16 financial year to R449m, the state-owned entity is facing an R8.8bn funding shortfall which needs to be bridged by February 2017, its most recent annual report showed.
The funding gap related to the fact that PetroSA is legally required to have upfront funding for the abandonment, decommissioning and rehabilitation in the event of a plant shutdown.
PetroSA, however, doesn’t have enough cash reserves, and has only set aside R1.9bn of the estimated R10.7bn requirement.
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