Sapref refinery purchase ‘an interesting buy’

Experts have weighed in on how the Central Energy Fund (CEF) will handle operations at Sapref, including funding and private partner options.

Last week, Minister of Mineral Resources and Energy Gwede Mantashe said he welcomed the conclusion of the sale purchase agreement between BP Southern Africa (Pty) Ltd (BPSA) and Shell Downstream South Africa (Pty) Ltd (SDSA) assets located at the Sapref precinct to the South African state-owned entity, the CEF.

Reggie Sibiya, CEO for the Fuel Retailers Association, said time would tell if this was a wise move by the CEF.

“This is an interesting buy in many aspects; first, the increasing levels of importing finished product versus crude oil still to be refined; second, the competitiveness of global refineries against local refineries.”

Sibiya said the funding aspect would also have to be considered.

“We have to bear in mind the levels of infrastructure refinery upgrades and its funding model, the working of accommodation agreements between the government and major oil suppliers to various brand networks.”

Professor Wikus van Niekerk, Dean of Engineering at Stellenbosch University, said he did not feel the CEF could handle the daily operations of Sapref and at the same time be able to make the refinery profitable to cash in on the current lower global prices of oil.

Craig Morkel, chairperson of the Gas Economy Leadership Team at the SA Oil and Gas Alliance (Saoga) said the CEF will have to look for a private partner to help them manage the Sapref refinery.

“The CEF acquisition of the Sapref refinery is an initiation process to operate the facility either as a refinery for oil or serving as a terminal for liquefied natural gas (LNG) imports.”

Morkel said the consensus among experts was that converting it to a gas to liquid refinery would not be commercially viable.

“The best option is an LNG import terminal or an oil refinery.

“However, for this to happen the CEF would need a private sector partner as it does not have the means to do its own, and the balance sheet doesn’t support finance from commercial lenders.

“We will have to just wait and see if the CEF makes it clear if it will be seeking a private sector partner to complement its existing balance sheet.”

Mantashe said the sale includes the SDSA and BPSA interests in the Sapref land and other associated assets, which include crude and finished product tanks, process units, pipelines to and from Sapref to Island View terminal, and the single buoy mooring for crude imports.

Mantashe said acquisition of these assets would form the hallmark of CEF’s investment and growth strategy in the energy value chain geared to lay a solid foundation to address the challenges that lie ahead in the security of South Africa’s energy future.

He said he had noted with concern the declining local refining capacity.

“Entrusted with the responsibility of securing energy supply to power the South African economy, the Department of Mineral Resources and Energy has seriously noted with concern the declining local refining capacity, which resulted in the country becoming a net importer of refined petroleum products.

“This new emerging trend was not only threatening the country’s economic stability and security of supply of petroleum products, but also meant the exportation of jobs that are so needed in the country,” said Mantashe.

The Mercury

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