State’s Strategic Fuel Fund to finance exploration in South Sudan

Picture: REUTERS

The Strategic Fuel Fund (SFF) will use its own balance sheet to fund the exploration of an oil block in South Sudan, its parent company the Central Energy Fund has said.

Briefing parliament’s portfolio committee on mineral resources and energy CEF CEO Kholly Zono said that the exploration was estimated to cost $48m (R708m) over six years.

The CEF group — which includes the SFF and Petrosa among other subsidiaries — has substantial cash reserves of R18,7bn. A part of these — about R4bn — was acquired through the illegal sale of SA’s strategic fuel stocks in 2016. This cash is however ring-fenced as the transaction is now at the centre of litigation, in which the CEF and the department of energy are seeking to reverse the sale, said Khono.

The CEF says that the commercial prospects for the block are excellent and that there is a high likelihood that it will find suitable partners down the line. The block is an area surrounded by areas that are already producing oil.

“We have seen some interest from global partners and we are looking at engaging them,” said Khono.

If a partner is acquired it may be possible for SA to offload some its equity in return for a “carried position”. A free carry usually comes about when a nation state grants oil, gas or mineral rights to investors on the grounds that it obtains a stake without putting in equity.

Khono and CEF chair Monde Mnyande both stressed that CEF had learnt its lesson of the risks of going it alone in megaprojects with the huge losses incurred by Petrosa in Project Ikhwezi. The project yielded only 10% of the gas that had been expected from the exploration phase. The aim was now to seek partners to spread the risk.

Previous energy minister and now a presidential envoy for oil and gas Jeff Radebe said in 2018 that SA estimated that it would spend R1bn in total on exploration, a pipeline, a new refinery and a new terminal.

The official rationale for the project is to make SA less dependent on the fluctuating oil price by obtaining its own source of crude. However, it has been pointed out that the crude produced in South Sudan is not suitable for use in SA refineries.

Khono said that this problem would be solved by blending the crude produced in South Sudan with other blends.

DA MP Kevin Mileham said he has been trying for the past five months to have sight of the Exploration and Production Sharing Agreement signed with South Sudan. This was originally promised to him during a sitting of the committee by the late deputy minister of mineral resources and energy Bavelile Hlongwa.

Mileham said he had since submitted a Promotion of Access to Information request to the department of energy only to be told that it did not have the agreement and should direct his request to the SFF. Acting chair of the SFF Godfrey Moagi said that he had written to Mileham to answer his request, although Mileham said he had not received the reply.

“From what he is saying, I suspect he has not agreed to make it available,” Mileham said after the meeting.

Mileham said that it was important for there to be transparency over a transaction of this type.

Another CEF subsidiary, Petrosa, reported that it had revived its relationship with Russian gas firm Rosgeo to produce gas for Petrosa’s refinery, which is expected to run out of feedstock by the end of 2020. An agreement that was signed between the two in 2015 had been neglected but was being resuscitated.

The original idea had been that Rosgeo would be involved in gas exploration alongside Petrosa, said acting Petrosa CEO Bongani Sayidini and would produce gas by 2025. As Petrosa would run out of feedstock long before both parties agreed that the development would have to be modified.

“So we are looking at production and infill drilling that would enable us to produce gas. The proposal may be adopted to optimise production,” he said.

The department also briefed MPs on the Grand Inga hydro power project and the proposed Saudi Aramco refinery, which is to be built at Richards Bay.

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