Now fuel fund ignores its own minister
It sold reserves at a loss, so why bid for Chevron?
THE Strategic Fuel Fund (SFF) on Thursday received a public dressing down from Department of Energy directorgeneral Thabane Zulu, who said it had no right to bid for Chevron SA’s assets without the approval of Energy Minister Tina Joemat-Pettersson.
The fund on Wednesday said it would bid for the US oil company’s South African assets, which include a refinery, a lubricants plant and 845 Caltex fuel stations.
Zulu said the company had shown a complete disregard for governance processes.
“An offer to purchase by an entity of the Department of Energy requires express consent from the minister of energy as the ultimate shareholder representative. This was neither sought nor obtained. In view of this failure to observe the correct processes, the minister of energy and the directorgeneral will initiate a thorough investigation into the matter, in consultation with both the boards of the Central Energy Fund (CEF) and the SFF,” said the statement.
Such a transaction would also require the permission of Finance Minister Pravin Gordhan, who also was not informed of the fund’s offer to Chevron. The next move is now up to the CEF.
The CEF is the holding company of the SFF and its direct and only shareholder. It appoints the SFF board and CE.
But the CEF has gone to ground and will not comment. Chairman Xolani Mkhwanazi and acting CE Godfrey Moagi did not respond to questions from Business Day about whether they were aware of the SFF’s commercial dealings over Chevron.
The SFF’s disregard for governance processes as well as public finance regulations comes as Gordhan has promised to rein in the boards and management of state-owned enterprises, which pursue transactions and contracts without shareholder approval.
He is facing an uphill battle. A dispute between the Treasury and the board of Denel, dating back to December 2015, is yet to be resolved. Denel also went ahead with the formation of a joint venture with a Hong-Kong based company without Treasury permission. While Gordhan has refused to approve the joint venture, Denel insists that it is in its rights to go ahead.
Gordhan has also failed to appoint a new South African Airways board due to internal opposition from factions within the ANC.
THE Strategic Fuel Fund’s announcement that it has offered to buy Chevron’s South African assets, and the subsequent rebuke by the energy minister, highlight some disturbing trends in stateowned enterprises.
Energy Minister Tina Joemat-Petersson on Thursday made it clear the fund had no authority to pursue the purchase — and so it has joined Denel in failing to consult its shareholder minister.
The first disturbing trend is the growing habit by stateowned enterprises to conduct deals without the approval of their shareholder departments and the minister of finance.
The second trend is delusions of grandeur, as the enterprises either fail to see their own limitations, or pursue the deals in spite of their financial shortcomings.
The bypassing of governance procedures is the most disturbing aspect of the fund’s bid for the Chevron assets.
US oil major Chevron put its 75% stake in the South African business up for sale about six months ago as part of a global streamlining of its portfolio in response to low oil prices. The value of the stake, according to Bloomberg, is about $1bn.
Chevron owns a refinery in Cape Town, lubricants plant in Durban, and has 845 filling stations. Like many of the oil companies in SA, it will need significant investment in its ageing refinery operations to upgrade them to new cleaner fuel standards.
The Strategic Fuel Fund’s announcement that it had put in a bid was a surprise to the market, given that the fund, the custodian of SA’s fuel stocks, is not in the refining or retail fuel business, and it is not obvious why it should be.
But it clearly was a surprise to Joemat-Pettersson too, the shareholder minister.
Her department said in a statement that the fund had neither sought, nor obtained approval for the deal.
It apparently doesn’t have approval from Finance Minister Pravin Gordhan either, even though it is necessary under the Public Finance Management Act. And there is the small matter of how the Strategic Fuel Fund would finance such a purchase. The money would presumably need to come from state coffers, so making an offer without talking to the Treasury would not be a good idea.
That is particularly so given that a previous attempt by a state-owned enterprise, PetroSA, to buy Malaysian giant Petronas’s stake in Engen for about R18bn was rejected by Petronas after more than three years of talks because PetroSA did not have the money, and the Treasury could not be persuaded to dish it out.
Why the fund felt it could make a Chevron bid without following due process still has to be explained.
Denel similarly entered a joint venture with Guptaaligned VR Laser Asia without consulting the Department of Public Enterprises or the Treasury.
In the Strategic Fuel Fund’s case, as in PetroSA’s, another question is why the leadership of these enterprises believe they have the skill, capacity, or
The fund, custodian of SA’s fuel stocks, is not in the refining or retail fuel business, and it is not obvious why it should be
finance to make such deals and to get involved in the retail fuel sector. At the very least, the fund’s recent sale of strategic fuel stocks at well below market value should surely have been a red flag to its board about the competence of the management.
PetroSA’s R14.5bn loss for 2015 makes one wonder why the Strategic Fuel Fund even imagined it had the competence or resources to buy and run Engen.
The fund may have been audacious in bidding for Chevron’s assets, but whether or not it is taken seriously, is another matter.
There are much larger players in the game, with deeper pockets. They very likely include Sasol, which has said it would be keen to expand its retail footprint.
Perhaps the fund just doesn’t understand the issues or risks. Worse still, it does, but is motivated by something lessthan-savoury. We sincerely hope that is not the case.