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CAPE TOWN - South Africa's strategic oil reserve finds itself in a greasy mess as the board of the Central Energy Fund (CEF) wants a court to declare an illegal sale of the oil reserves. 

The CEF also plans to launch a forensic investigation into the Strategic Fuel Fund (SFF) and PetroSA. 

This comes after an audit report leaked to Business Times revealed that South Africa will lose approximately R3.2bn. This is as a result of the illegal sale of the country’s strategic fuel reserves in December 2015 and January 2016. 

Yet, it is alleged that the country will have to pay almost R6.5bn to replace the 10 million barrels that were sold. 

The audit was launched by former Energy Minister Tina Joemat-Pettersson, who declared the sale a process of replacing the fuel for strategic reasons, known as stock rotation. 

However, upon completion of the report under Mmamoloko Kubayi’s short term in office in 2017, she did not release it nor conduct any investigation, as she had undertaken.

Yet, Kubayi declared in Parliament in May that SFF sold the stock and did not conduct a stock rotation.

Notably, the audit reports by embattled KPMG revealed that the fuel stock sale contracts were rendered invalid. This was due to noncompliance with regulatory approvals, including those stemming from the Public Finance Management Act and the Companies Act.

“The CEF is looking at launching a review application,” the source said. “However, it is still looking at all its legal options”, an anonymous source told Fin24 on Friday. 

The CEF and the National Treasury did not approve the sale of the stock, a point the CEF hopes to use when it approaches a court to block the lifting of the oil, the source said.

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Democratic Alliance MP George MacKay, who cited a reliable source, said that the legal challenge is complicated because the oil has been resold to other buyers. He thinks that the CEF should interdict the companies from taking the oil, which could happen between November 3 and 10 according to a source.

"The Central Energy Fund must resolve to interdict any companies from lifting the oil from South Africa's tanks pending the court review to determine the legality of the sale."

MacKay said that he heard that the CEF has received legal letters from certain traders stating that the CEF and SFF must allow for the removal of the oil.

"The CEF must not allow for this to happen, as the will lose their negotiating positioning in reclaiming the oil reserves."

CEF investigation

According to Business Day, the CEF board decided to conduct a wide-reaching investigation into all the big PetroSA contracts. 

Luvo Makasi, CEF Chairman said that David Mahlobo, the new Energy Minister had not updated.

Information from a whistleblower gave rise to the reasoning behind the probe. A source said that the whistleblower pointed out that there were long-term contracts that continued to drain out money from PetroSA despite their poor financial standing. 

One of the projects that will be investigated is Project Ikhwezi, the screw-up gas drilling which resulted in a R14,6 billion loss in 2015.

Russia agreement

In September this year embattled national oil company PetroSA signed a $400m agreement with Russia’s Rosgeo to develop oil and gas blocks in South Africa, with PetroSA looking at re-positioning itself towards future growth.

The agreement was signed on the sidelines of the ninth Annual BRICS Summit held in Xiamen, China. However, media reports in Europe indicate that the deal is set to benefit Rosgeo. Rosgeo's chief executive Roman Panov was quoted as saying that the firm would own 70% of the project, while PetroSA would take up the remaining 30% and that the project would be financed in partnership with Russian and South African banks.

However, PetroSA would not confirm or deny this reported ownership structure. Thabo Mabaso, PetroSA’s spokesperson, said he was not in the position to confirm this media reports.

READ ALSO: PetroSA in $400m deal with Russia