Strategic reserve fire sale ‘must be reversed’
At the end of 2015, the Strategic Fuel Fund (SFF) agreed to sell three companies 10-million barrels of the country’s oil reserves at a bargain price.
The much-awaited Allen & Overy report states that, because of the failures to comply with regulatory approvals from the SFF board, the Central Energy Fund (CEF) and treasury, the parties must be restored to the “positions they were in before the purported entry into such contracts”.
The three lucky companies include Taleveras, which bought four million barrels, and Vitol and Glencore, which bought three million each.
At the time news of the sale broke, the ministry and the SFF denied it was a sale but said it was rather a rotation of stock. It was also said the oil would not leave the country and the SFF had the option to buy it back.
But, according to the Allen & Overy report, the “stock rotation” amounted to “disposal”.
“None of the contracts contains any restriction on the removal of the crude oil from South Africa.”
In essence, the companies could move the oil whenever they felt it appropriate.
Allen & Overy also debunk the myth that the SFF has a genuine right of first refusal.
“To the extent that this right of first refusal was included in the contracts as a crisis mechanism to compel the sale of products sold by SFF to third parties back to SFF when there are fuel supply shortages, it is ineffective and does not achieve its intended commercial purpose.”
Each of the contracts involving the three companies went through a closed bidding process. According to the report, the processes were never authorised by the SFF board, as is required, and the contracts are rendered invalid by the failure to comply with regulatory approvals.
Energy Minister Mmamoloko Kubayi announced in Parliament that a full-scale investigation would be conducted into the multibillion-rand asset disposal.
But four months down the line, Kubayi is still awaiting the recommendations, based on numerous reports, from the CEF.