CAUGHT BE­TWEEN A ROCK AND ZWANE

Fac­ing in­sol­vency, the Cen­tral En­ergy Fund is be­ing dogged by a dodgy fuel deal and un­cer­tainty over the role of the re­sources min­is­ter

CityPress - - Business - DE­WALD VAN RENS­BURG de­wald.vrens­burg@city­press.co.za

The Cen­tral En­ergy Fund (CEF) is fac­ing two threats as a dodgy fuel deal from 2015 comes back to haunt it and as Min­eral Re­sources Min­is­ter Mosebenzi Zwane ap­par­ently tries to seize its last good as­set. This is in ad­di­tion to the ele­phant in its port­fo­lio, PetroSA, which the Au­di­tor-Gen­eral this week said was on the brink of fail­ure and re­quired as­sis­tance from the CEF.

Al­most ev­ery even­tu­al­ity leads to in­sol­vency for the CEF. A new board took over in De­cem­ber and in­her­ited a fi­nan­cial time bomb.

PetroSA gen­er­ates 75% of the CEF’s rev­enue, but made a loss of R1.6 bil­lion in the year to 31 March. The state oil com­pany also has a R7.4 bil­lion hole in its re­ha­bil­i­ta­tion fund for oil op­er­a­tions that it is obliged to fill by 2019.

It is in­con­ceiv­able that it will gen­er­ate that kind of cash on its own, and the CEF has “com­mit­ted to as­sist PetroSA, through var­i­ous sup­port and over­sight mech­a­nisms, in clos­ing the fund­ing gap”, notes the Au­di­tor-Gen­eral in his re­port on the CEF group’s fi­nan­cials pre­sented in Par­lia­ment this week.

IT GETS WORSE

One of the CEF’s other sub­sidiaries is also on the brink of be­com­ing a toxic liability.

The Strate­gic Fuel Fund will prob­a­bly pay a hefty price for the ir­reg­u­lar sale of South Africa’s strate­gic fuel re­serves in De­cem­ber 2015.

The re­serves were sold for R3.9 bil­lion and the Strate­gic Fuel Fund may have to re­pay not only this amount, but also in­ter­est, as well as al­most R1 bil­lion in stor­age fees it has charged those who bought the oil.

The liability could be any­thing be­tween R5 bil­lion and R8 bil­lion, said a source with knowl­edge of the mat­ter, adding that the mo­ment it goes to court, this amount would be­come a con­tin­gent liability.

Re­vers­ing the sale will wipe out most, if not all, of the Strate­gic Fuel Fund’s R7 bil­lion cash bal­ance and erad­i­cate the ren­tal in­come the deal gen­er­ated.

City Press un­der­stands the com­pany will meet Cab­i­net about the cri­sis later this month.

The scan­dal re­volves around the sup­posed “ro­ta­tion” of fuel stocks. To charge them ren­tal fees for keep­ing the oil inside the Strate­gic Fuel Fund fa­cil­i­ties in Sal­danha, 10 mil­lion bar­rels were sold to trad­ing com­pa­nies when oil cost $28 a bar­rel. Oil now trades at $56 a bar­rel.

Ear­lier this year, a re­view by ex­ter­nal le­gal ad­vis­ers con­cluded the deal was “in­valid and void for var­i­ous rea­sons”, not least be­cause Trea­sury’s ap­proval was not sought.

The Strate­gic Fuel Fund is now “re­quired by law to seek a declara­tory or­der from the courts on the in­va­lid­ity of the con­tracts”, ac­cord­ing to the CEF group fi­nan­cials.

“The rev­enue of R3.9 bil­lion … and the stor­age rev­enue, in­ter­est earned on pro­ceeds from sale and ac­crual for the in­sur­ance since the trans­ac­tion date might have to be re­versed,” it says.

THEN IT GETS WEIRD

In Au­gust, Zwane de­clared him­self the “ex­ec­u­tive leader” of the only other valu­able CEF sub­sidiary, the African Ex­plo­ration, Min­ing and Fi­nance Cor­po­ra­tion (AEMFC). The CEF falls un­der the depart­ment of en­ergy.

In a let­ter to AEMFC CEO Sizwe Madondo on Au­gust 24, Zwane’s di­rec­tor-gen­eral, Ad­vo­cate Thabo Mokoena, said the “AEMFC now falls un­der the ex­ec­u­tive lead­er­ship of the Honourable Mr MJ Zwane (MP), and I am look­ing for­ward to a healthy work­ing re­la­tion­ship with you”.

The let­ter ap­pears to be an­other bizarre over­step by Zwane and ap­par­ently has no le­gal ef­fect. Asked if Zwane now led the com­pany, the depart­ment of en­ergy said “no”.

Asked if the depart­ment of en­ergy was aware of Zwane’s in­struc­tion, it said it was aware of a 2010 Cab­i­net de­ci­sion to even­tu­ally “hive off” the AEMFC to the depart­ment of min­eral re­sources.

In the let­ter, Zwane re­lies on this 2010 de­ci­sion made dur­ing the then heated de­bate on na­tion­al­is­ing mines. Cab­i­net re­solved that the AEMFC would be­come the foun­da­tion of a larger state-owned min­ing group un­der the depart­ment of min­eral re­sources.

Since then, the com­pany has been mod­estly ex­pand­ing its coal min­ing foot­print and now sells coal to Eskom worth al­most R400 mil­lion a year, with two new mines sched­uled to open within the next two years.

Un­like the rest of the CEF, the AEMFC makes a profit that is set to in­crease in fu­ture and faces no sud­den fi­nan­cial bur­dens.

A source with knowl­edge of the sit­u­a­tion said the CEF board could not agree to the hive-off be­cause it would un­der­mine the CEF’s al­ready shaky sol­vency prospects.

The depart­ment of en­ergy told City Press the process of trans­fer­ring the AEMFC was “very ad­vanced” and the aim was to do it by the end of this fi­nan­cial year. The source ad­mit­ted that this would re­quire the CEF board to pass a res­o­lu­tion and can­not be done by min­is­te­rial com­mand. The AEMFC also de­nies it has a new boss.

“We re­port to the CEF and the depart­ment of en­ergy,” Madondo said last week.

“There has been a view that we should re­port to them [the depart­ment of min­eral re­sources]. What I see is that the depart­ment wants to fast-track the process,” he said when asked about Zwane’s in­struc­tion. The de­ci­sion to hive off lies with the CEF as the share­holder, Madondo said.

How­ever, the depart­ment of en­ergy de­nied the AEMFC was es­pe­cially im­por­tant to the CEF’s fi­nances.

“We have a num­ber of en­ti­ties that are do­ing par­tic­u­larly well,” it said, adding that the trans­fer would be done in a man­ner “that will not ef­fect the sus­tain­abil­ity of the CEF”.

The depart­ment of min­eral re­sources did not re­spond to ques­tions sent to it last week.

PHOTO: REUTERS

POT LUCK

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