Chevron South Africa says it could cost more than R12 billion to upgrade its refinery in Milnerton to produce cleaner fuel. Photo: Supplied

Paul Vecchiatto

SOUTH Africa, which sets petrol prices that fuel producers can charge, needed to ensure companies could recover the cost of upgrading their facilities to handle cleaner fuels, Chevron’s local unit said.

“Petroleum companies are unable through normal market mechanisms to recoup the investments needed to upgrade refineries to produce cleaner fuels,” Chevron South Africa chairwoman Nobuzwe Mbuyisa said this week.

The costs “are substantial and, in the absence of a mechanism to recover these costs from the consumer, they are simply not commercially viable”, she said.

Upgrading Chevron’s facility in Cape Town to meet planned clean-fuel standards would cost as much as $1 billion (R12.1bn), Mbuyisa said last month. Refiners were refusing to invest to produce cleaner fuels without a subsidy, National Energy Regulator of South Africa member Rod Crompton said on Tuesday.

About R40bn would be needed over five years to upgrade South Africa’s six refineries to meet new fuel specifications that would reduce vehicle emissions, the Treasury said in its 2013 Budget Review. It said basic fuel prices would be adjusted to accommodate the cost recovery.

In draft regulations released in March 2011, the government said sulphur levels in fuel should be cut to 10 parts per million from a maximum of 500 parts, while the benzene content should be reduced to 1 percent from 5 percent.

At that time, the oil industry estimated it would cost about $3.1bn for all refineries to comply with Euro 4 fuel standards.

Euro 4 standard petrol contains no more than 50 parts per million of sulphur.

While the Department of Energy wanted clean fuels to be available from this year and all refineries to be revamped by 2017, upgrades have been delayed by disagreement over who will pay.

Petroliam Nasional’s Engen unit, Shell and BP also run plants in South Africa.

Chevron’s refinery has capacity to handle 100 000 barrels a day. – Bloomberg