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Central Energy Fund grilled over oil deal

Nov 08 2016 14:07
Liesl Peyper

Cape Town – The board and executive management of the Central Energy Fund (CEF) were trounced by Parliament on Tuesday over its failure to recognise the gravity of the controversial sale of 10 million barrels of South Africa’s crude oil reserves.

The Fund appeared before Parliament’s portfolio committee on energy to give feedback on its annual report of 2015/16.

The CEF, which is the overarching body under with subsidiaries such as the SFF and PetroSA resort, saw an increase in revenue of R2.2bn in the 2015/16 financial year. The increase in revenue was due to the “rotation of strategic stock”, according to the presentation.

READ: How insiders stole R1.5bn in sale of SA’s strategic oil stockpile

Two of the CEF’s subsidiaries, however – the Strategic Fuel Fund (SFF) and PetroSA – made losses in the past financial year.

The SFF, which controversially sold off 10 million barrels of crude oil without the permission of Treasury, made an operating loss of R215m in the 2015/16 financial year, while PetroSA’s operating loss amounted to R449m – significantly less than the previous financial year’s R14.5bn.

In March this year, the SFF came under heavy criticism when it emerged that it was in contravention of the Public Finance Management Act by selling off the crude oil reserves.

The deal is currently the subject of an investigation, but as a rule the SFF is supposed to keep twenty days’ worth of oil stockpiles in reserve for emergencies.

According to legislation, national assets, such as fuel stocks may not be sold off without approval from National Treasury.

Energy Minister Tina Joemat-Pettersson earlier said that her department is reviewing all contracts and transactions the SFF entered into in terms of the Strategic Stock Rotation, and Storage and Leasing Agreements.

PetroSA on the other hand is facing an R8.8bn funding shortfall which needs to be bridged by February 2017, its annual report shows.

The funding gap relates to a provision in environmental legislation that requires companies to have upfront funding available 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.

CEF interim CEO Mojalefa Moagi said during the presentation of the group’s annual report the Fund is facing a challenge in that it is “not generating cash at the same pace as which it is burning cash”.

During question time, DA MP Pieter van Dalen asked the CEF board to elaborate on the sale of the strategic fuel stocks. He wanted to know why the SFF incurred a R1.8bn “cost of sales” of crude stock on its income statement when the fuel stocks were sold off.

“On the income statement it says the rotation of fuel stock realised R3.9bn, but there was also a ‘cost of sale’,” Van Dalen said. “That brings the profit down to R2.7bn, but it’s not a profit because you sold a strategic asset.”

The ANC’s Thandi Mahambehlala asked the CEF board why they didn’t seem concerned that its subsidiary (SFF) sold off strategic fuel stocks. “Why didn’t you mention it in your presentation to us?”

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