SFF pro­vided a gift of $350 mil­lion

Three oil firms bought strate­gic SA re­serves at $28 a bar­rel

The Star Late Edition - - NEWS - Sizwe Dlamini

THE STRATE­GIC Fuel Fund (SFF) gifted in­ter­na­tional oil firms Taleveras, Vi­tol and Venus $350 mil­lion (R5.06 bil­lion) in com­bined prof­its through the con­tro­ver­sial sale of South Africa’s strate­gic oil re­serves in 2015 at $28 a bar­rel.

A re­port by in­ter­na­tional law firm Allen and Overy in Septem­ber showed that Taleveras bought 4 mil­lion bar­rels of crude while Vi­tol and Venus each bought 3 mil­lion bar­rels.

Taleveras, ac­cord­ing to the cur­rent av­er­age spot price of $63 a bar­rel is set to score a profit of at least $140m, while Vi­tol and Venus each get a profit of no less than $105m.

In­side sources have re­vealed that fran­tic ef­forts are be­ing made by traders to have the crude oil re­moved from the Sal­danha Bay Stor­age Ter­mi­nus (SBST) by next month.

It is worth not­ing that should this deal not have been made the SFF would be worth more than $600m based on the value of the crude it would have in its strate­gic re­serves. The Vi­tol deal On Jan­uary 18, 2016, Vesquin/ Vi­tol en­tered into a crude oil sale and pur­chase agree­ment with the SFF where the SFF agreed to sell 3 mil­lion bar­rels of blended sour crude stored in Tank 2 at the SBST.

The re­port states that the Vesquin/Vi­tol agree­ment with the SFF “ap­pears to be a on­ce­off sale and pur­chase”. The only re­stric­tion is that the crude oil sup­plied un­der this agree­ment may not be resold or sup­plied, di­rectly or in­di­rectly, to any coun­try, ter­ri­tory or com­pany where such re­sale of sup­ply would con­sti­tute a vi­o­la­tion of the laws and rules of South Africa.

Vi­tol granted SFF the right of first re­fusal for any un­sold bar­rels stored in Tank 2. This op­tion can only be ex­er­cised if the En­ergy Min­is­ter has de­clared an event of sup­ply emer­gency and af­ter the de­ple­tion of other quan­ti­ties of strate­gic oil held by the SFF. The Taleveras deal On De­cem­ber 28, 2015, Taleveras en­tered into a crude oil sale and pur­chase agree­ment with the SFF where the SFF agreed to buy 4 mil­lion bar­rels of crude oil equiv­a­lent blend ac­cept­able for stor­age in Tank 1 at the Sal­danha Bay Stor­age Ter­mi­nus. No fur­ther de­tail re­lat­ing to the crude oil spec­i­fi­ca­tion is pro­vided.

On the same day, the com­pa­nies en­tered into an­other agree­ment where the SFF agreed to sell 2 mil­lion bar­rels of Barsa equiv­a­lent, then stored in Tank 2 at SBST. SFF and Taleveras also en­tered into a third agree­ment on that day where SFF agreed to sell 2 mil- lion bar­rels of Bonny Light crude oil stored in Tank 6 at the SBST. Both ap­peared to be a once-off sup­ply agree­ment. Venus ac­knowl­edged that the crude oil it was buy­ing was strate­gic re­serves for the gov­ern­ment for strate­gic needs.

For both agree­ments, SFF has first right of re­fusal to the prod­uct bought by Taleveras if the com­mod­ity is still stored in the tank. How­ever, there is no pur­chase price set for this pur­ported buy­back, which Allen and Overy said could po­ten­tially af­fect is va­lid­ity. No­tably, the ex­er­cise of the right is not only de­pen­dent on SFF de­ter­min­ing that there is a short­age of crude oil in South Africa but also that Taleveras must also be will­ing to sell. The re­port states that a proper op­tion would be one that en­ti­tles SFF to re­quire Taleveras to sell to it upon SFF de­ter­min­ing that there is a short­age of crude oil in South Africa.

Allen and Overy said the Taleveras con­tracts ini­tially ap­peared to be struc­tured as a ro­ta­tion of fuel stock, “how­ever, a no­va­tion agree­ment re­scinds a pur­chase by SFF of 4 mil­lion bar­rels of crude oil from Taleveras, lead­ing us to the con­clu­sion that the ar­range­ment with Taleveras also amounted to a dis­posal”. The Venus deal On De­cem­ber 15, 2015, Venus en­tered into a crude oil sale and pur­chase agree­ment with the SFF where the SFF agreed to sell 3 mil­lion bar­rels of Bonny Light crude then stored in Tank 6 at SBST.

The agree­ment con­tained “con­di­tions prece­dent” and it is not clear when th­ese “con­di­tions prece­dent” were ful­filled. De­liv­ery of the crude oil was con­tem­plated to take place on Jan­uary 1, 2016, and ac­cord­ing to the re­port, this ap­pears to be a one-off agree­ment.

Venus ac­knowl­edged that the crude oil it was buy­ing was strate­gic re­serves for the gov­ern­ment for strate­gic needs.

“As such should there be, at any time be­fore the lift­ing of the prod­uct from the tank, a short­age or emer­gency sit­u­a­tion threat­en­ing se­cu­rity of sup­ply and the stock is re­quired for strate­gic rea­sons, SFF shall have the op­tion to buy back the crude oil from Venus at a price to be agreed be­tween the par­ties.”

How­ever, no pur­chase price is found in the agree­ment for the buy-back op­tion, yet the agree­ment pro­vides for the pur­chase price to be agreed to by the par­ties.

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