PetroSA defends Russian partner
• Gazprombank Africa selected to restart Mossel Bay refinery
State-owned oil and gas company PetroSA has defended its decision to select Russia’s Gazprombank Africa as the preferred investment partner to restart operations at its gas-toliquid refinery in Mossel Bay.
The deal risks further souring SA’s relations with the US, which came under strain this year because Gazprombank Africa is a subsidiary of Gazprombank, which is under US sanctions that were imposed in reaction to the war between Russia and Ukraine.
Minister in the presidency Khumbudzo Ntshavheni also announced on Monday during a report back on a cabinet meeting on Friday that the cabinet has endorsed PetroSA’s recommendation to select Gazprombank Africa as the “investment partner for the reinstatement of the plant and production”.
“[The] cabinet noted that this selection of Gazprombank is still dependent on the final investment decision that will be informed by a joint bankable business case, as well as all the terms and conditions which are anticipated to be finalised in April 2024,” said Ntshavheni.
The production of petrol, diesel and other value-added products from the gas-to-liquids refinery, which was running at a capacity of 36,000 barrels a day, was suspended in 2020 because of the depletion of offshore gas feedstock.
PetroSA issued a request for proposals in January to partners that could provide feedstock supply solutions, help restart operations at the refinery and develop upstream assets that would generate revenue for the company.
The partner had to be willing to invest at least $200m (R3.8bn) to refurbish the refinery.
Speaking to journalists on Monday, acting COO Sesakho Magadla said PetroSA is under pressure to reinstate the refinery as soon as possible because it cannot remain on standby in the long term. “The infrastructure will decay, so as we are looking for solutions [that] can be implemented in the near term.”
Magadla said PetroSA is also cognisant that restarting the refinery would require a major capital injection and its balance sheet is “not in a good state to be able to back that project”.
“We looked at the drivers that would make sure we have a positive business case for the refinery, including having the lowest cost of capital and access to sustainable feedstock that we can secure at the lowest cost.
“It was also important that the refinery infrastructure will remain an asset of PetroSA,” Magadla said.
These factors were all con--
sidered when putting together the “detailed request for proposals”, which was sent out in January and specified that PetroSA wanted to restart the refinery.
In the evaluation of Gazprombank Africa’s bid, one of the major risks that was identified was sanctions against Russia. “It is important for the public to understand that the current sanctions are primary sanctions, which means the country that issued the sanctions expects entities and citizens of that issuing country to comply, but these are not imposed on other countries.”
Magadla said the risk of secondary sanctions would have been an issue that would have affected SA. “We understand, however, there are currently no secondary sanctions. We also understand that since the sanctions have been issued there have been multiple changes in the sanctions, including exemptions which would allow for procurement from Russia to continue if it was to ensure critical energy security.”
SANCTIONS
The sanctions, she said, are therefore not applicable to SA, and moreover the PetroSA project in which Gazprom would be a partner falls within that description of being critical to energy security in the country.
The next step is to move to a feasibility study, which will be conducted in the next three months jointly with Gazprom, Magadla said.
“We are expecting Gazprom to spend several million rand to do technical studies to prove the business case and then we expect that in the first quarter of 2024 we will then take a final investment decision.”
The choice of Gazprombank Africa as the preferred partner for this project has come under scrutiny after reporting from the amaBhungane Centre for Investigative Journalism revealed that the strict criteria for potential bidders meant that the other 19 bidders for the projects were disqualified.
PetroSA said in its request for proposals that it would give preference to partners that offered proposals for turnkey solutions, including development and funding, that are immediately implementable.
It would give preference to “state-owned or state-supported oil and gas entities from oiland gas-producing nations with access to feedstock and their own financial resources to undertake the project”.
Magadla said the criteria used were based on what PetroSA requires “and our desired outcome”.
“That was driven by making sure we can have feedstock security which could be leveraged on government-togovernment trade,” she said.
PetroSA also looked at the technical capacity of the entity “in terms of being able to execute the work immediately”.
Ntshavheni said during the post-cabinet briefing the cabinet was “certain that [PetroSA] followed due diligence through the tender process”.
She also said the reports the cabinet received did not reflect that 19 out of the 20 bidders were not able to comply with the criteria set in the tender, but that as the cabinet it was not part of the procurement process.
“We were presented with a recommendation of a partner, that is what we considered and we supported [PetroSA’s] recommendation.”