New energy deal with Moscow uncovered
Echo of nuke abuse as PetroSA signs memo with Gazprombank
● SA has entered into discussions with Russian gas utility Gazprom to build a multibillion-rand plant to convert natural gas into electricity, in apparent violation of tender laws.
Officials from the department of mineral resources & energy (DME) and the Central Energy Fund (CEF) met a delegation from the Russian company at their Sandton offices in February to discuss the proposed development. Two senior executives said the delegation from Gazprombank, a subsidiary of state-owned Russian gas giant Gazprom, was accompanied by arms deal fixer Fana Hlongwane.
They said the meeting was facilitated by mineral resources & energy minister Gwede Mantashe. Mantashe denies this.
Plans to build a liquefied natural gas (LNG) plant at the Coega Industrial Development Zone in Nelson Mandela Bay have been announced, but the Public Finance Management Act does not allow government departments to give preferential treatment to potential bidders.
However, though the project is still undergoing feasibility studies and the government has yet to put out a call to potential bidders, a memorandum of co-operation has already been signed between PetroSA and Gazprombank to “co-operate with each other and jointly evaluate the development, construction and operation of the … project and … explore other opportunities for mutual cooperation as the relationship progresses”.
At a meeting on February 18, Gazprombank expressed interest in financing and building the plant, which executives said is estimated to cost R7bn for its first phase. The project will see the construction of a gas storage terminal that will convert natural gas into electricity. It will also include a regasification terminal, gas storage facilities and transmission pipelines.
In an interview with the Sunday Times, Mantashe confirmed discussions with Gazprombank but said they were nothing more than “meetings with potential investors who have money”.
He said the Russians visited his office, but he denied meeting them personally or facilitating their meeting with the CEF.
However, Mantashe also told the Sunday Times that if it was up to him, “Gazprom would have been working at Coega already. There is nothing suspicious with the Russians, they have money and they want business.”
Two state energy company executives, who spoke on condition of anonymity, said Gazprombank’s delegation made an unsolicited bid to finance and build the plant, but Mantashe denied this.
Gazprombank did not respond to questions.
Mantashe declined to comment on whether Hlongwane accompanied the Russian delegation. When the Sunday Times approached Hlongwane for comment, a woman answered his phone and undertook to pass on the message. He did not respond.
Documents seen by the Sunday Times, including a presentation to CEF executives made by Gazprombank’s first vice-president, Roman Panov, show that the company wants to be awarded an unsolicited bid to both finance and build the gas terminal.
Gazprom’s desire to finance and build the plant has its origins in an earlier, ill-fated $400m (about R7bn) oil and gas deal between PetroSA and Rosgeo, a geological exploration company owned by the Russian government. The much-publicised deal was struck in September 2017 during the tenure of former energy minister David Mahlobo, and announced by former CEF chair Luvo Makasi and Panov, Rosgeo’s then CEO, on the sidelines of a Brics Summit in China.
That deal would have seen Rosgeo explore two of PetroSA’s blocks off the coast of Mossel Bay for gas. However, a letter dated March 4 shows that Rosgeo cancelled the deal — just weeks after Gazprombank’s meeting with CEF executives.
The Coega project is part of the DME’s energy mix and its push to produce about 4,000MW of electricity a year by 2030 by converting natural gas to electricity.
In his presentation, Panov proposed developing the project through one of four financing mechanisms: build-own-operatetransfer, build-own-operate, build-operatetransfer, or build-own-lease-transfer.
CEF sources told the Sunday Times that all these options involve the plant being built by Russian construction companies.
Two senior public procurement experts, who asked not to be named, told the Sunday Times the meetings between Gazprombank and the CEF and DME were against the rules. One said: “They can’t have side meetings with any company that is interested in the
I have no allergies to the Russians. If they want to invest in a project that we think will add value, let them invest
Gwede Mantashe
Mineral resources & energy minister
project. This is a government project and the CEF is subject to the Public Finance Management Act. There should have been a procurement process.
“This sounds and looks exactly like how the nuclear deal happened — people just signed a memorandum of understanding or a memorandum of co-operation with the Russians.”
Another procurement expert, who works for a large state-owned company, said: “There must be a procurement process. The criteria for receiving unsolicited bids is, if the product or the service wanted by a government company or department is supplied by one company, you have to issue an inquiry and test the market to see if there are no other companies out there who supply the service you are looking for. If after the inquiry there are no responses, then you can engage unsolicited bids.”
The National Treasury said nothing forbids companies from approaching the government with unsolicited bids, but “any unsolicited bid should be supported for uniqueness by conducting a market assessment prior to accepting an unsolicited bid”.
The memorandum of co-operation is neither exclusive nor binding, but it speaks of the establishment of a “working group” consisting of representatives of PetroSA and Gazprombank who “shall meet as and when required, for purposes of discussing, investigating and evaluating opportunities presented by any party and the following up of actions agreed upon at previous meetings”.
The document says this co-operation will form the basis for the negotiation and potential conclusion of solid and formal agreements.
A CEF executive who spoke on condition of anonymity said this “shows that there are very serious discussions between Gazprombank and the CEF group of companies. But it is all wrong because the negotiations are to the total exclusion of other companies which may want to bid for the construction of the gas terminal at Coega.”
Mantashe told the Sunday Times that the Russians are not doing the country any favours by wanting to invest. “We pretend that when an investor comes here, he is doing us a favour. We can’t treat them as if they want to do us a favour,” he said.
“I have no allergies to the Russians. If they want to invest in a project that we think will add value, let them invest.”
He also said he had decided to merge the three CEF subsidiaries — PetroSA, iGas and the Strategic Fuel Fund (SFF) — into one company.
“The SFF is quite a good fund, but we have taken the decision to merge all three to form one national petroleum and oil company. We have gone through the process and everyone agrees that these companies should be collapsed into one.”
Currently, PetroSA, iGas and the SFF each manage different aspects of the Coega LNG project. When the merger is complete in about six months, the new company will take over all the projects.
CEF spokesperson Jacky Mashapu defended the company’s meeting with the Russians, saying they had identified a number of projects to help grow the economy.
“As part of this drive, the group is engaging with various partners, investors in the energy value chain both locally and beyond our shores, to address the challenges that lie ahead in the security of the South African energy future,” he said.
“Therefore, the insinuations that Gazprombank has presented an unsolicited bid and as a preferred sole partner for the Coega gas terminal project are unfounded. As a group, we are continuing to engage with various investors and partners to support a number of projects in our project pipeline.”
Energy analyst Ted Blom said SA has a number of companies capable of undertaking large gas projects, but they haven’t done anything as big as the proposed Coega LNG plant. However, this would not stop them from partnering with international firms.