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Cape Town – The board of the Central Energy Fund (CEF) wants a court to declare an illegal sale of South Africa’s strategic oil reserves void, and plans to launch a forensic investigation into the Strategic Fuel Fund (SFF) and PetroSA.
An audit report first leaked to Business Times and in Fin24's possession shows that South Africa will lose about R3.3bn due to the illegal sale of the country’s strategic fuel reserves in December 2015 and January 2016. However, it is believed the country will have to pay almost R6.5bn to replace the 10 million barrels that were sold.
The audit was launched by former Energy Minister Tina Joemat-Pettersson, who insisted the sale was a process of replacing the fuel for strategic reasons, known as stock rotation. When the report was completed under Mmamoloko Kubayi’s short term in office in 2017, she did not release it nor conduct any investigation, as she had undertook. However, Kubayi revealed in Parliament in May that SFF sold the stock and did not conduct a stock rotation.
The audit report, conducted by the embattled KPMG, explained that the fuel stock sale contracts were rendered invalid as they did not comply with regulatory approvals, including those stemming from the Public Finance Management Act and the Companies Act.
An highly placed source, with knowledge of a CEF board meeting that took place on Friday but who wished to remain anonymous, told Fin24 that the entity wants a court to decide whether the contracts are void, as per the audit report.
“The CEF is looking at launching a review application,” the source said. “However, it is still looking at all its legal options.”
The CEF and the National Treasury did not approve the sale of the stock, a point the CEF hopes to use when it approaches a court to block the lifting of the oil, the source said.
Fuel has been resold
Making the legal challenge complicated is that the oil has been resold to other buyers, according to Democratic Alliance MP Gordon Mackay, who cited a reliable source.
For example, Nigerian conglomerate Taleveras sold its part of the oil to the Bank of France at about $60 a barrel, compared to about $28 South Africa could buy it back for, the anonymous source told Fin24.
Mackay told Fin24 that he believes the CEF should interdict the companies from lifting the oil, which reliable sources have told him could occur between November 3 and 10.
“The Central Energy Fund must resolve to interdict any companies from lifting the oil from South Africa’s tanks, pending the court review to determine the legality of the sale,” he told Fin24 on Monday.
“I have heard that the CEF has received legal letters from certain traders stating that the CEF and the SFF must allow for them to remove the oil, as they own it,” he said. “The CEF must not allow this to happen, as they will then lose their negotiating position in reclaiming the oil reserves.”
Forensic investigation into PetroSA
The anonymous source also told Fin24 that the CEF board is planning to hire an auditor to conduct a forensic investigation into both the SFF and all major contracts at PetroSA.
In September, the Auditor General told Parliament that PetroSA’s net loss of R1.4bn in the 2016/17 financial year cast doubt on whether it would be able to continue operating. This follows its staggering R14.5bn financial loss in the 2014/15 financial year. PetroSA also faces a funding shortfall of R7.4bn relating to a provision in environmental legislation.
“The CEF wants a full blown forensic investigation into the SFF and PetroSA,” the source said. “It must look into how PetroSA lost over R14bn and must look into the company from 2007 to 2017.”
The source said the terms of reference for the forensic probe had been completed and that the CEF needs to brief new Minister of Energy David Mahlobo before proceeding.
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