Sale of strategic fuel stock by Strategic Fuel Fund: Minister of Energy, Central Energy Fund & SSF input

Energy

30 May 2017
Chairperson: Ms Z Faku (ANC) (Acting)
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Meeting Summary

Presentation document not made available
Lies, theft and dishonesty surround the mysterious sale of the country’s fuel stock reserves. This emerged during the Portfolio Committee on Energy’s discussion when the Minister of Energy was presenting the findings of a preliminary report into the controversial sale of the fuel stock.

It became clear during the discussion certain Members feared the current Minister of Energy, Mmamoloko Kubayi, would not have the capacity to deal with the problem facing her Department, and indicated the Director-General has not said a word to the Committee about this mysterious transaction previously. They suggested that the then-Minister of Energy, Tina Joemat-Pettersson, lied to Parliament about the Strategic Fuel Fund (SFF) stock sale when she reported it as a stock rotation. Meanwhile, the Central Energy Fund (CEF) board, with all its powers to report, did not authorise the approval of the contracts and failed to report the matter to the Minister for nearly six months. Some Members suggested CEF board members were party to this process because they kept quiet.

The Minister said she could not make the preliminary report public and distribute it to Members because she obtained legal advice not to distribute it because it could contaminate the criminal case. She hinted that criminal charges may follow against those involved in the sale of the strategic fuel stock.

She reported that the investigation did not look at where the money had gone so far, but certain individuals had benefited from the transaction. She said the sad part is that the report talks of one individual who was a CEO, COO and general counsel at the same time and this created a situation of few checks and balances.

The Minister confirmed she got to know about the sale of fuel reserves when she assumed her duties as minister. The reserves have been sold off at bargain basement prices under questionable circumstances. Ten million barrels of the country’s oil reserves were sold and this has cost the country billions of rands.

She said a forensic investigation is underway. There is a legal process that is looking at the validity of these contracts and financial implications, and they want to ensure the Department has a strong case before going to the courts.

She assured the Committee the oil has not left South Africa and they have asked the buyers to give them more time until the matter is dealt with because the Department is trying to find a way forward. The Department is trying to deal with the matter in a holistic manner.

She indicated they would be firm on consequence management so that something of this nature does not happen again and should not have happened in the first place. They have started to look at who else is involved in this transaction, and they could sense there are people who are still there. The Minister said that she could not say much as she was guided by the confidentiality clauses of the contracts and did not want to compromise the criminal case and the forensic investigation.

Members asked when the Department of Energy become aware this was not a stock rotation but a sale because the transaction happened in December 2015 and the CEF board became aware only in May 2016; who is responsible for the authorisation of the sale because there was direct communication between the ex-Minister and the person who was CEO / COO / general counsel. Members remarked on the complete absence of transparency and integrity and asked if the CEF board saw the approval of documentation between the Minister and the individual who had a direct line to the Minister. Why had the ex-Minister made an announcement in Parliament about stock rotation when there was talk of a sale?

Meeting report

Mr Mojalefa Moagi, Acting Chief Executive Officer: CEF Group, reported the transaction of the fuel stocks occurred between December 2015 and January 2016. The CEF became aware of this when $280 million dollars hit the entity’s bank account. The then Minister of Energy asked the CEF board to do an investigation. The investigation found three companies were involved: Vitol (3 million barrels), Talevaras (4 million barrels), and Venus Ray Trading (3 million barrels). One contract was signed in December 2015 and the other two in January 2016. These contracts were related to the sale or disposal of crude oil.

The investigation uncovered that internal procurement policies were not followed. The bidding process was closed and the processes were not authorised by the CEF board. The ex-CEO of the SFF wrote to the ex-Minister for approval without, first, getting the approval of the board. That is why the ex-Minister assured Parliament in September 2016 the stocks were not sold, but were rotated to get fresh crude oil for the reserves of the country.

He stated that key findings show that there was no clear allocation of responsibilities for the procurement process. The process should have been authorised by the CEF board. The CEF board’s approval of the contracts was not obtained, and Treasury should have been notified before the process happened.

On progress to date, Mr Moagi stated the CEF board has considered the report, delivered it to the Minister, and engaged with the SFF. The SFF board has communicated consequence management measures to the Minister.

Discussion
Mr M Mackay (DA) commented the report is not satisfactory. He asked when did the Department become aware this was not a stock rotation but a sale because the transactions happened in December 2015 and the CEF board became aware in May 2016. The CEF board is responsible for the management of these activities, and the report tries to absolve the board. He asked who is responsible for the authorisation of the sale because there was a direct communication between the ex-Minister and the person who was the CEO / COO / general counsel. He asked why Treasury was not involved in the matter, and how the Minister is going to address the situation.

The Minister replied that according to the Rules of Parliament, the Committee has a right to apply for an in-camera meeting if they want to see the preliminary report because as the Department they want the case uncontaminated. The Department needs to be careful of what it does. When the sale was raised, the then Minister believed it was a stock rotation, not a sale. The new Minister got to know about the matter when she took over her new portfolio. She said during her first week in office she got to know that Soth Africa’s 10 million barrels of fuel stock reserves were sold off at bargain basement prices. The circumstances under which this happened were questionable. This has cost the country billions of rands. She indicated she is of the idea no one misled Parliament about this. That is why the ex-Minister did not go to Treasury because it was a rotation of fuel stock. She also noted the Director-General of the Department did not receive the report because of the sensitivity of the matter. She is the only one who has received it. She pointed out she has to satisfy herself first that no one around her is implicated in the report. On the authorisation of the sale, she stated the ex-Minister did not authorise the sale. Going forward, she explained a forensic investigation is taking place. There is a legal process that has to be followed and an analysis about the validity of the contracts and their financial impacts has to be done, to ensure the Department has a strong case before going to court and risk wasting government resources. They cannot make an emotional decision and go to court. Everything has to be done within the ambit of the law.

Mr J Esterhuizen (IFP) remarked there has been complete absence of transparency, planning and integrity. The CEF board only becoming aware of this situation after five months is unacceptable. He said this is crude oil, not milk that is going to go off. Taxpayers lost billions of rands. People should be held accountable and he feels sorry for the Minister who has inherited this unacceptable mess.

Mr R Mavunda (ANC) indicated the Minister’s report presented two fundamental dynamics: one that is negative and the other positive. It is positive in the sense that her presentation is frank, open, and transparent. Now Members know what happened. The negative side is that the Public Finance Management Act (PFMA) and regulations were not followed. The way forward is a forensic investigation. It is important for Members to be patient and let the process take its course for now they know what happened.

Ms T Gqada (DA) remarked on the legality of these contracts, saying that the process of approval was done clandestinely. The forensic investigation is going to uncover what happened, and she doubted if the CEF board followed its fiduciary duties.

Mr M Dlamini (EFF) commented that this shows there is a lack of integrity. Money is lost and gone. It is clear criminal activities took place. The sale happened between December 2015 and January 2016. Then in September 2016, the ex-Minister lied to Parliament during the budget vote and said there was no sale. Up to now, the Director-General has said nothing as the accounting officer. This means a liar gets comfortable to live with other liars. Thieves get comfortable living with other thieves, and those with no integrity get comfortable living with those with no integrity. He does not trust that the current Minister has the capacity to deal with this problem. Answers are needed from the Director-General who has not even informed the Committee. He pointed out the CEF board is lying as well because they did not inform the Minister and yet they have the powers to answer to and report such matters. He wanted to establish when the board became aware of the sale and if it saw the approval of documentation between the Minister and the individual who had a direct line to the Minister. If the board kept quiet, then that means they are the same as the people involved who caused the mess and that they were party to the process. The board members are liars. He asked when the Minister would reply to their letters if they decide to write to her so that they do not fight with her. She must tell the Members about the politicians who are involved in this transaction. The officials who are covering up for the politicians involved in the matter are going to be dumped by the politicians and they would end up going to jail.

The Minister responded that they have never said anyone is lying. She insisted they have constantly said the preliminary report is the work of the ex-Minister. The Department needs to be factual in dealing with matters so that it does not lose focus on what it is doing, and indicated they should not be pre-emptive in passing judgment. On response to letters, she said the letters would be responded to within two weeks. On when the CEF board became aware of the sale, she explained the board became aware in May 2016 when it received money to the tune of $280 million in the CEF account. She said when you run a department, you have to take responsibility for any actions you inherited, whether they are good or bad. The Department wants to close the matter as soon as possible. Hence there are processes in place to get to the bottom of this and focus on matters of transformation in the sector.

Mr M Matlala (ANC) remarked there is no reason for Members to discuss something that is not there yet because the forensic investigation is happening. He suggested the Committee wait for the completion of the investigation, as that report is not yet on the table.

Mr Dlamini replied that Mr Matlala has got nothing to say. He must keep quiet. The Hansard says the Minister lied. The current Minister has confirmed the actual truth. The fact is she lied.

The Minister cautioned that as a Department, they do not treat juniors and colleagues with disdain. She stated that if she disagrees with an idea, she states her opinion. So Mr Dlamini should to be parliamentary.

Mr Luvo Makasi, CEF board chairperson, informed the Members that the funds have been kept in a special dollar dominated account until all the legal matters are sorted out. He reported that when the report came out, the legal position they had to take had to depend on the direction they want to take. There must be a balance between the two positions you take. The current four board members have been asked to give their side of their story in terms of fiduciary duties. Presently, they are sitting with a void contract, but there are checks and balances that still need to be done. The structure of the CEF Group is being given serious attention in terms of restructuring as a result of such negative things happening. The CEF is the parent company of the SFF. The CEF has accepted the resignation of SFF chairperson Riaz Jawoodien and SFF acting chief executive officer Mr Sibusiso Gamede when the deal was probed last year.

Mr Neville Mompati, SFF board chairperson, said they would give the report to the CEF board and Minister.

Mr Dlamini said that he had written two letters to the Minister and asked why she has not responded to them. He read the Minister the names of the people that the letters were sent to for her attention.

The Minister said all the mentioned names were no longer with the Department.

Mr Mackay commented that there is a clear communication breakdown between the Department and the Committee. It is the responsibility of the Department to inform the Committee about changes in the Department regarding liaison staff the Committee has to communicate with. He stated the current Minister has inherited a mess. She is defending officials in her Department. There are many deficiencies and delinquencies in the Department. There is irregular expenditure in the Department and the Director-General is aware of these matters. The Minister should not defend people who have been in the Department for a long time. He said it is nonsense that executives of the petroleum chemical entities were not aware of the sale. If that is so, that means they do not deserve to be in their positions and waste taxpayers’ money. Regarding consequence management, he remarked something is wrong when you look at the picture painted by the report. It does not state who has been suspended, demoted, or given a golden handshake.

The Minister replied there are accusations of sale versus rotation of stock. The ex-Minister said it was a rotation. Everybody believed the sale was a stock rotation. The ex-Minister did not mislead Parliament. That is why she is giving the ex-Minister the benefit of the doubt. The investigation by the ex-Minister started when the CEF Group board indicated there is money they were not expecting in its account. On defending people in her Department, she said she would continue to defend everyone until that person is found guilty. She said they are looking at drawing up MOUs and shareholder compacts to see how best they can run the Department and ensure there is not too much political interference. She assured Members the oil is still in the country and has not yet been lifted by the buyers. The buyers have been asked to give the Department more time to deal with the matter. The Committee could go and do oversight.

Mr Makasi explained that when it comes to consequence management, they use the administrative justice system. They are unable to just fire a person because there is legal representation that has to take place first.

Mr Mackay wanted to establish why the ex-Minister made an announcement in Parliament about stock rotation if there was then talk of a sale.

The Minister explained that the whole thing has got holes. That is why there is a forensic investigation because everyone is confused.

The meeting was adjourned.
 

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