Fi­nanciers seek as­sur­ances in the wake of the gross mis­man­age­ment and in­com­pe­tence that led to Project Ikhwezi’s col laps e

CityPress - - News - SIPHO MASONDO sipho.masondo@city­

Acon­fi­den­tial eval­u­a­tion re­port of na­tional oil com­pany PetroSA’s botched Project Ikhwezi re­veals that the ven­ture – which saw the paras­tatal make a R14.5 bil­lion loss – was doomed by gross in­com­pe­tence. The col­lapse of Ikhwezi, which caused the big­gest cor­po­rate loss ever for a state-owned com­pany, has left fi­nanciers in a panic.

But the re­port, dated Fe­bru­ary 2015, al­most four years af­ter Ikhwezi started, found it was doomed to fail.

Ikhwezi was aimed at drilling off­shore wells to sup­ply nat­u­ral gas to the paras­tatal’s gas-to-liq­uid re­fin­ery in Mos­sel Bay.

And in a des­per­ate at­tempt to make it work, the re­port found, se­nior com­pany of­fi­cials chopped and changed con­struc­tion com­pa­nies and the project’s scope.

In ad­di­tion, since the start of the project, there had been a high turnover of key staff – in­clud­ing three chief ex­ec­u­tives, two chief op­er­at­ing of­fi­cers and four project man­agers – at PetroSA.

The re­port also high­lighted fur­ther cor­po­rate chaos: some of the con­tracts were awarded with­out proper ten­ders, and some con­trac­tors had no con­tracts and worked with a “let­ter of in­tent” in­stead.

These “con­sid­er­able” management changes re­sulted in PetroSA dis­cov­er­ing too late what was hap­pen­ing.

A se­nior ex­ec­u­tive from the Central En­ergy Fund (CEF), which over­sees PetroSA, said the project went awry be­cause PetroSA changed con­struc­tion com­pa­nies four times, of­ten with­out go­ing to ten­der.

“One of the com­pa­nies de­cided to drill ver­ti­cally when they were sup­posed to drill hor­i­zon­tally, re­sult­ing in them miss­ing the gas. It was all a big mess,” he said.

Ikhwezi was sup­posed to yield 242 bil­lion cu­bic feet of gas from five wells at a cost of $1.344 bil­lion (R17.3 bil­lion), but ended up producing nine times less gas from three wells.

PetroSA spokesper­son Thabo Mabaso said: “Cur­rently, the con­tri­bu­tion from Ikhwezi is 30% of the to­tal daily gas pro­duc­tion rate at the Mos­sel Bay gas-to-liq­uids re­fin­ery.”

Mabaso said the com­pany had learnt sev­eral lessons, “which have been es­pe­cially in­cor­po­rated into our gated frame­work pro­cesses to en­sure that the same mis­takes are not re­peated”.

Mean­while, fi­nanciers have held a series of meet­ings with the CEF and PetroSA to seek as­sur­ance about their in­vest­ments.

Emails show that in the past three months, PetroSA and the CEF have had back-and-forth en­gage­ments with Absa, Stan­dard Bank and San­lam.

City Press has learnt that the fi­nanciers, which pro­vided PetroSA with funding, guar­an­tees and insurance for some of its cap­i­tal projects, are con­cerned about the com­pany’s de­te­ri­o­rat­ing fi­nances and board in­sta­bil­ity.

The doc­u­ments show that in March, Absa re­quested meet­ings with PetroSA and the CEF to dis­cuss their plans to deal with gov­er­nance lapses and changes in di­rec­tors at PetroSA, as well as their turn­around plans, the ap­point­ment of ex­ec­u­tives at both bod­ies and de­tails of the strate­gic di­rec­tion of the en­tire CEF group – in­clud­ing PetroSA and the Strate­gic Fuel Fund.

A se­nior CEF ex­ec­u­tive with knowl­edge of these meet­ings said: “Just last week there was a tele­con­fer­ence be­tween us and [in­sur­ers] San­lam, based in Lon­don ... They had con­cerns about lead­er­ship. They are not happy about the num­ber of act­ing peo­ple in key po­si­tions at PetroSA and CEF. But we al­layed their fears and they were happy.”

The group, he said, also re­cently met with Stan­dard Bank rep­re­sen­ta­tives, who raised sim­i­lar con­cerns.

Be­sides its fi­nan­cial woes, PetroSA is also fac­ing board­room bat­tles.

CEF chair­per­son Luvo Makasi in April asked PetroSA’s board to re­sign or pro­vide rea­sons they should remain.

Makasi has ac­cused the board of fi­nan­cial mis­man­age­ment and fail­ing to ap­point­ing a chief ex­ec­u­tive of­fi­cer (CEO).

But in a re­port com­piled in re­sponse, board mem­bers said they were not to blame, ad­ding that they had tried to hire a CEO and other ex­ec­u­tives, but the CEF and Makasi him­self had halted the process twice.

They also said they could not take the fall for Project Ikhwezi be­cause most of them ar­rived in 2014, when the project was near­ing com­ple­tion.

In their re­port, they wrote that they called for an in­de­pen­dent re­view of the project and there­after “stemmed the losses and brought the project to a halt”.

Four PetroSA board mem­bers have since re­signed (only two re­mained), but one told City Press: “We re­signed, but it is im­por­tant for the pub­lic to un­der­stand that we are not re­spon­si­ble for the mess at PetroSA.”

One of the com­pa­nies de­cided to drill ver­ti­cally when they were sup­posed to drill hor­i­zon­tally, re­sult­ing in them miss­ing the gas. It was all a big mess

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.