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Cape Town – PetroSA’s net loss of R1.4bn in the 2016/17 financial year has cast doubt on whether the state-owned entity would be able to continue operating, the Auditor General said in its report to Parliament.
SA's national oil company said in its recently-released annual report that it experienced a “challenging financial year” with production volumes and sales volumes “not living up to expectations” along with the price of Brent crude oil falling year-on-year.
The entity’s revenue was 34% lower in 2016/17 than in the previous financial year, while sales decreased by R3.4bn compared to the 2015/16 financial year.
Apart from its losses, PetroSA also faces a funding shortfall of R7.4bn relating to a provision in environmental legislation that requires companies to have upfront funding available for abandonment, decommissioning and rehabilitation in the event of a plant shutdown.
PetroSA’s holding company - the Central Energy Fund (CEF) – has committed to assist it to close the funding gap. Both PetroSA and the CEF have been mired in controversy for months, manly due to governance and operational issues.
In July, the CEF appointed a new interim PetroSA board to appease financiers of the state-owned entity and in an effort to bring stability back to the SOE.
The CEF board, in turn, was rumoured to have itself been suspended in August, but the claim was subsequently denied by the Energy Department.
The fund made a net loss of R599m in the 2016/17 financial year, the its integrated annual report shows.
The loss, which represents an increase of 216% from the previous financial year, is attributed to a collapse in the entity’s profit margin due to PetroSA’s losses.
Declining reserves
PetroSA’s declining gas reserves have had a significant impact on the CEF’s profit margin it said in the report, and could be ascribed to PetroSA’s new business model whereby condensate rather than gas is processed.
The CEF’s revenue is by and large derived from the sale of petroleum products, and the sale of petroleum products in turn is under strain due to declining gas reserves.
A turnaround plan for PetroSA is currently being developed, which is focused on converting the refinery from gas to condensate operations. However, the condensate business has lower profit margins, which means that the CEF will need to reduce its operational costs to remain profitable.
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