The Department of Mineral Resources and Energy (DMRE) said yesterday that it planned to collapse existing state-owned entities in the oil and gas sector into a new national oil company that would become a key player in the entire value chain. Picture: Jacques Naude/African News Agency(ANA)
The Department of Mineral Resources and Energy (DMRE) said yesterday that it planned to collapse existing state-owned entities in the oil and gas sector into a new national oil company that would become a key player in the entire value chain. Picture: Jacques Naude/African News Agency(ANA)

Government is preparing to establish a new state-owned oil and gas sector

By Dineo Faku Time of article published Jul 8, 2021

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THE DEPARTMENT of Mineral Resources and Energy (DMRE) said yesterday that it planned to collapse existing state-owned entities in the oil and gas sector into a new national oil company that would become a key player in the entire value chain.

The department said the entity, to be called the South African National Petroleum Company, would be formed from the merger of Central Energy Fund (CEF) subsidiaries PetroSA, IGas and the Strategic Fuel Fund (SFF) into the single entity.

Ntokozo Ngcwabe, DMRE deputy director-general: mineral policy and promotions, said the new company would ensure that South Africa played in the petroleum space and maximised value of its own resource potential.

Ngcwabe said the department wanted the company to play in the upstream space.

“In the upstream space we are looking at becoming a leader in terms of exploration activities for the country. We are looking at playing in the midstream space, and in the long term we are also saying we are looking at possibilities to play in the downstream space,” Ngcwabe said. “I must say that we are doing this on the back of thorough research – and benchmarking what we have done with major oil producing countries.”

Ngcwabe said the trend among major oil producing countries was to establish a single national company that ensured maximum value was derived from the resources of those countries.

“A lot of questions that we get have a lot to do with the shift from high carbon to low carbon emissions and the scarcity of funding towards oil projects.

“We are saying we are wanting to do this, keeping in mind the need to deploy clean technologies. It sits very well within the country’s ocean economy agenda,” Ngcwabe said.

The CEF board last month gave management the green light to kickstart the process of consolidating the three entities.

While IGas was liquid, PetroSA has been struggling with liquidity and insolvency challenges, and an SFF forensic report said that it had sold 300 000 barrels of oil without proper approvals, and was with the Hawks for further investigation.

Mineral Resources and Energy Minister Gwede Mantashe told the virtual energy policy conversation that the DMRE was awaiting Cabinet approval.

Mantashe said the department had done its fist phase with various options at its disposal. He said once the Cabinet approved the proposal, the department would move into the formation of the new company.

“We looked into the state of the State-owned entities in our portfolio, and one of the shocks that I found was that a company called IGas had a Board and was operating fully,” he said.

“When we looked closely we saw it had a Board of eight people and was employing two people. We said it is not working and not sustainable,” Mantashe said.

He said that PetroSA was a typical example of asset stripping.

“In 2014 PetroSA had R27bn reserves; when I walked in there it had no reserves, it was battling to cope with the day-to-day costs. There was a strong proposition to sell it. We said no, if we sell it, we will meet the objectives of the asset strippers – they want us to sell PetroSA for a song and they go to the other side and make a killing out of it.”

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