Grand Inga, SFF-South Sudan, CEF-Saudi Aramco, PetroSA-Rosgeo agreements

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Mineral Resources and Energy

19 November 2019
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Meeting Summary

The Committee was briefed by the Department of Mineral Resources and Energy on its international agreements. The intention of the agreements is to improve energy supply and capacity in the country. To secure oil energy supply, the SA government has engaged with several African states.

Officials outlined the treaty signed between the Republic of South Africa and the Democratic Republic of Congo in 2013 for the construction of the Grand Inga dam with the proposed date of 2023. South Africa will benefit from the provision of hydroelectricity from the proposed Grand Inga dam as the transmission line will run through Zambia and Zimbabwe. South Africa will not incur costs for the dam development.

An agreement between South Africa and South Sudan was signed on 6 May 2019 for the construction of a 60 000 barrel per day oil refinery in Pagak, South Sudan. The Strategic Fuel Fund (SFF) holds 90% of the project in B2 Block with the remaining 10% belonging to the Nile Petroleum Corp. This development will benefit South Africa as it will secure crude oil energy supplies for its refineries as South Africa has little oil production of its own. This agreement has been surrounded by controversy, as the previous Minister of Energy had signed the agreement two days before the general elections.

Members were suspicious of the true motives for signing the South Sudan deal just before the elections this year and whether it stands to benefit other parties not mentioned. They highlighted the risks associated with investing in projects in countries which have high levels of political instability.
The Memorandum of Cooperation concluded by the Central Energy Fund (CEF) and Saudi Aramco was with the intention of developing a refinery in Richards Bay with a capacity of 300 000 bpd. The cost of this project is estimated to be $10 billion with a multi-product-pipeline (MPP) connection between Durban and Gauteng. The project is still in the pre-planning phase with CEF currently in discussions with Sappi for the acquisition of land on which to build the refinery.

PetroSA and Rosgeo, a geological exploration company of the Russian Federation, entered into a Memorandum of Understanding on 9 March 2015. They agreed that Exploration Right 61 (which covers Block 9 and 11a) off the South Coast of South Africa is an area that should be prioritized, particularly to help augment PetroSA’s declining gas feedstock. The South Coast field gas development is only scheduled for 2025/26.

Members asked why this has been touted as a solution for the shortage of PetroSA feedstock which is run out in December 2020.

Meeting report

The Chairperson said that at the beginning of the Sixth Parliament, the Committee was interested in the programmes of the Department. This meeting is a follow up on this.

Mineral Resources and Energy International Agreements
Mr Gareth Bezuidenhout of the Department of Mineral Resources and Energy (DMRE), said the focus was specifically on the Department’s international relations programme which the Committee had requested.

DMRE is mandated to ensure transparent and effective regulation of South Africa’s mineral and energy resources in line with the National Development Plan. DMRE carefully identifies and prioritises its international partners within mining and energy jurisdictions. The diplomacy programme in the department aims to strengthen cooperation with other mining and energy jurisdictions, for enhancing trade and investment, as well as creating dialogue on pertinent sectoral issues. There are principles that underpin the Department’s international interventions in addressing energy security and sufficient energy supply to support economic growth and development. It is imperative to work with the Department of Trade and Industry (DTI) and other departments to gain access to investment in both the mining and energy sector.

The Department has initiated multilateral and bilateral relations to ensure that the country has access to:
• Secure, affordable and accessible energy;
• Access to funding, technology & technology transfer
• Skills to be able to deploy technology intensive projects, promote localisation and job creation.

The priority areas are Africa and SADC. The Department has over the years entered into 72 international agreements with international stakeholders at the bilateral, trilateral and multilateral level; of which 49 are active; 16 are dormant/expired/completed; and 7 are not yet in force. On 15 November 2019 the Minister signed an agreement with the Energy Minister in Swaziland to bring it about to 50 agreements.

The South African government’s aim to increase the supply of energy is aligned to commitments of all African governments to pursue a sustainable development of energy generation capacity and infrastructure, to support economic development that will unearth the continent’s industrial capacity. It is estimated that just under 600 million Africans do not have access to energy supply.

Engagements focus on ensuring diversity and security of supply, access to producing and near producing assets first on the African continent and elsewhere and ensuring affordability and accessibility of energy products. To secure oil energy supply, the SA government has engaged with several African states, such as: Nigeria, Angola, Ghana, South Sudan and Equatorial Guinea. Gas commissions have been established between SA and both Namibia and Mozambique to promote the development of gas.

Cooperation with the rest of the world involves participation in multilateral institutions in the global energy sector including the African Union; SADC; BRICS; G20; and International Energy Agency (IEA).
To keep up with international standards on climate change, the SA government participates in several forums with international partners to find new energy technologies. Some of which are the Carbon Sequestration Leadership Forum and the Clean Energy Ministerial. A MOU with the International Energy Agency to promote capacity building and support in energy planning and research has been signed off and training under this agreement initiated. SA joined IEA Association in October 2018 and has been able to secure access to funding as well as capacity building and training. Finance and technical assistance has been secured from: Germany, Denmark, Switzerland, Norway, United States of America and the World Bank. Capacity building and training has been secured from: International Atomic Energy Agency (IAEA), IEA, Generation IV International Forum (GIF), China, South Korea, Russia, Japan, and Germany.

Grand Inga Hydro Power Project
The purpose of the Treaty is to develop an enabling framework, linking the DRC and South Africa into the Project, and allowing for the two countries to jointly explore economically feasible options for the development of the Project. In the Treaty signed, it mentions that if certain conditions are met, SA has committed to buy power generated from Phase 1 and subsequent phases. It is important to note that SA does not carry any project development risk but only acts as a buyer if the power is supplied. Phase 1 is associated with the following:
• Costs due to the development of the Common Works.
• Costs due to the transmission line to Kolwezi (the Delivery Point);
• Investment by South Africa in transmission infrastructure construction from DRC border to South Africa.
• Commitment to off-take 2500MW by RSA and 2300MW by DRC and assistance in mobilisation of funding.
• Right of first Refusal off-take provides that South Africa is guaranteed a minimum of 20% of generated power equal to 9540MW and maximum of 13060MW. SA has been guaranteed access to cheaper and cleaner power if future project phases go ahead.

The appointment of preferred bidders is underway, and DMRE is awaiting the DRC's formal appointment of a joint consortium comprising Spanish and Chinese companies. The project was endorsed by the SADC Energy Ministers in June 2016, and the following countries have agreed to enter into inter-governmental and inter-utility MOU for the transmission solution: DRC, Zambia, Zimbabwe, Botswana and SA.

Nile-Orange Project Block B2
Through government to government relations, an opportunity was provided for acquisition of exploration blocks in South Sudan. The Strategic Fuel Fund has been mandated to play a crucial role in this process. As SA has low domestic oil and gas reserves, it must invest in hydrocarbon reserves and resources for both gas and oil supply. It is the task of DMRE to increase the SFF equity share of hydrocarbon reserves and resources for crude oil supply – and to build a balanced portfolio of hydrocarbon assets. Some of the benefits for the SFF and SA from this project are:
• Blended crude oil supply to South African refineries
• Unlock downstream position by trading the crude on the open market
• Significantly add to SFF reserves portfolio and strengthen the balance sheet.

To finance the exploration phase of this project, capital commitments will be funded from internal cash resources. Total exposure for the six year exploration phase is $48 million, with an estimated year on year commitment of $8 million per annum. This investment holds strategic value for both SFF and SA.

Cooperation with Kingdom of Saudi Arabia on new refinery
SA has an increasing shortage of high quality fuels and chemicals, which has led to increased importation. In light of this, investment into the development of an oil refinery has been made. CEF and Saudi Aramco concluded a Memorandum of Cooperation to enable the development of the Refinery Project. It is planned that this refinery will be built in Richards Bay and is anticipated to have a capacity of 300 000 bpd. The cost of this project is estimated to be $10 billion and a multi-product-pipeline (MPP) connection between Durban and Gauteng. The project is still in the pre-planning phase with CEF currently in discussions with Sappi for the acquisition of land to build the refinery on.

Cooperation with the Russian Federation
The Republic of South Africa and the Russian Federation signed an Agreement for Energy Co-operation on 26 March 2013 in Durban. The 12th Session of the Joint Inter-Governmental Committee on Trade and Economic Co-operation between South Africa and the Russian Federation (ITEC) in November 2014 encouraged SA and Russian state owned companies to give effect to the Energy Agreement. PetroSA and Rosgeo entered into a MOU on 9 March 2015 to explore areas for possible co-operation. Partnering in Exploration Right 61 which covers Block 9 and 11a was subsequently agreed as an area that should be prioritized, particularly to help augment PetroSA’s declining gas feedstock.

The farm-out process commenced in 2015 with the advertising of Block 9 and 11a in the market. This process seeks to attract partners, technical and technology capacity; to assist in the exploration and development of gas resources to augment feedstock to the gas-to-liquid (GTL) refinery in Mossel Bay. Ernst & Young was appointed transaction advisors for SA. Rosgeo was appointed as the preferred bidder having followed a competitive process and at the BRICS Summit in 2017, PetroSA, CEF and Rosgeo signed a Framework Agreement for Block 9 and 11a. The negotiation on farm-out agreement was developed but the finalisation of the Gas Supply agreement has stalled. There has been a breakdown in the relationship between Rosgeo and PetroSA but a meeting has been scheduled this month to revitalise the relationship between the two.

Discussion on Grand Inga Project
The Chairperson asked that the CEF Board Chair introduce the Board Chairpersons of DMRE's entities.

Mr Thabane Zulu, Director-General of Department of Energy, then asked all the officials of DMRE and its entities to introduce themselves.

The Chairperson stated that the task of the Committee in this meeting is to hold the various entities accountable for the decisions taken by them. Members would first deal with Grand Inga Project and thereafter the the agreement between SA and South Sudan.

Ms C Phillips (DA) referred to slide 9 and asked for a list of the projects that are completed. Referring to Slide 24, she asked the cost estimate for the development of the common works and for the transmission line. She asked how much investment had been committed by the SA government for the construction of the dam for the Grand Inga Project. Referring to slide 25, she asked for the final megawatt contribution to South Africa’s grid (with transmission losses taken into consideration) and if SA will pay for the power distributed to SA, or the power received (excluding distribution losses).

Mr K Mileham (DA) referred to slide 15 on the SADC agreements and asked the status of South Africa’s gas utilisation master plan. The Integrated Resource Plan (IRP) indicates that SA will receive power from Grand Inga Project in 2030, he asked what the likelihood of this occurring is. Referring to Slide 24, he asked what capital and transmission costs are. He asked how much money, in Rands, has DMRE committed to the Grand Inga Project in the next three financial years. How much has Eskom budgeted for the Grand Inga Project for the next three financial years, and what is their budget forecast? He asked if a feasibility study has been conducted on the Grand Inga Project, and if so what were the outcomes. Was a risk assessment done by DMRE? He asked what penalties have been put into the agreement for late or non-supply. He mentioned that the joint consortium of Spanish and Chinese companies are in a state of disagreement and no longer want to proceed with this project and asked for clarity. In 2016, a MOU between DMRE and its DRC counterparts was drafted. He asked why the MOU for transmission solutions has not been signed.

Ms V Malinga (ANC) welcomed the detailed report. It stated that DMRE was six days late in signing the Grand Inga Hydropower Project agreement. She asked why DMRE did not provide this information in previous committee meetings.

She noted that importantly in the next fortnight DMRE has planned interviews for the appointment of new CEF personnel to CEF, as this may assist with securing the supply of energy in the country.

Mr M Mahlaule (ANC) remarked that there has been progress in DMRE. Referring to slide 26, he noted that the energy transmitted from DRC will pass through Zambia and Zimbabwe before reaching SA. As a result, those countries should be supplied with energy as well.

Mr Zulu indicated that there is a technical team present that is involved on the Inga Project, and it would be useful to engage with them. He added that the project was initiated by the DRC and the SA government wants to proceed with the project. However, there have been issues that have delayed the implementation of the project but these are being attended to.

The process of negotiating an MOU between several governments is a challenging process. But drafts have been exchanged between the two countries. The aim by both governments is that the project will have an industrial and social impact in their respective countries. The Department has offered that SA should host the next SADC meeting (which will include discussions on the project) which will be chaired by the DRC.

Mr Thabang Mokoena, Director-General of the Department of Mineral Resources, said that the DRC government had initiated a process to procure developers who will be responsible for the construction of the dam, as well as the transmission line within the DRC. SA will not incur capital costs for the building of the dam in the DRC. The Department is exploring two options for the positioning of the transmission line at the border of the DRC. The first option is to evacuate power from the DRC into the SADC region and SA, through Eskom: who will trade that power. The second option is to evacuate power from the DRC all the way to SA. Once DMRE has settled on an option, detailed studies will be done to determine the cost. For the power delivered to SA, a tariff agreement must be reached for how much the country is willing to pay.

The expected construction time for phase 1 of the project is seven years, which will begin in 2023, failing which SA will reserve its rights. The treaty agreement signed in 2013, has a provision for 10 years for commencement of phase 1: a failure of this agreement will lapse. The only budget that has been made available is the operational budget for the office established to manage the project on behalf of SA; and this is the only cost SA will incur. Eskom has a team on site that will focus primarily on this project.

The feasibility study was done by DRC and is available and can be supplied upon request.

On penalties for non-supply, if there is no delivery then the country will not pay. It is in the interest of the DRC government to deliver the power to be able to service their loans.

He indicated that there are discussions with the Spanish and Chinese consortium and both have made it clear that they are willing to continue with the project.

Before the Grand Inga MOU for transmission solutions has been finalised, there must be confirmation that the 2023 timeline has been met. If not, DMRE will incur fruitless and wasteful expenditure in the transfer of detailed options. This is why DMRE has delayed the transmission line options.

The Chairperson asked if the agreement will lapse if there is no movement on the project by 2023. He asked why DMRE had to be constrained by the agreement timelines for the commencement of the dam construction. He asked why there has been no movement in the past six years on the project and why there were still outstanding issues that have not been agreed to by both governments. He asked what the key determinant is for proceeding with the project by 2023.

Mr Zulu, DoE Director-General, indicated that DMRE does have the information on the timelines of the different phases of the project. He agreed that it is concerning that after six years the project is not in phase 1. He clarified that the 2023 deadline for commencement of phase 1 is written into the treaty agreement signed between the two countries; it was not meant that phase 1 should have begun before that period. To make modifications to the agreement would further stall the project. Some of the assumptions in the IRP are informed by the delivery of the project, on the phases that have been outlined. The failure of the joint consortium to resolve their issues on time has affected the implementation of the phases already agreed upon. It is in the interest of DMRE to ensure that there are no delays as this also affects the IRP. The Department is working closely with the consortium to prevent further delays. If DMRE does not see progress, it will have to intervene.

Mr Mileham noted his questions on the gas utilisation plans and social risks were not answered by DMRE.

Mr Mokoena replied that the draft utilisation master plan was developed and shared with the public but its final publishing has been delayed as the electricity section of the plan needed to be aligned with the IRP. The Department is working on resuscitating the utilisation master plan, giving due inputs from the IRP. This new plan will be released at a later stage.

The social and environmental risks can be found in the DRC feasibility study. The Department is not a custodian of the study, but this information can be shared upon request.

Mr Zulu said that the phases of the project can be provided to the Committee in a written submission.

The Chairperson clarified that he is not opposed to the Grand Inga treaty, rather he wanted to advise DMRE to look at ways to speed up the process. The written submission from DMRE will assist the Committee.

Discussion on South Sudan / Saudi Aramco / PetroSA-Rosgeo agreements
Mr Mahlaule said that the signing of a commercial agreement on 6 May 2019 does look suspect because the elections were held on 8 May. He asked for clarity on whether the intergovernmental agreement between SA and South Sudan was signed on 18 September 2018 but the commercial agreement between the two countries was signed on 6 May 2019. He asked if the previous Minister had rushed to sign the agreement so that it was binding and would be in place regardless of whether the ruling party had lost the elections.

The document illustrates that 51% of SA’s crude oil supply is imported from countries within Africa. He suggested that the government should work towards increasing the importation of crude oil from African countries and should rely less on suppliers outside the continent. This might assist SA in obtaining crude oil for a reduced price.

Ms Malinga was concerned at the slow pace of the engagements between Petro SA and Rosgeo, as it is known that Petro SA will run out of gas at the end of 2020. The document does not indicate that Petro SA is certain that it will receive the R5 billion investment from Rosgeo. The President spoke of the Operation Phakisa - Oceans Economy plan to drill wells in 2014 onwards. Since then, nothing that has been done on this project but Petro SA has received R48 million to drill wells. She asked the reasons for this delay. Total had abandoned drilling and she asked if DMRE is returning to the same block that Total was previously drilling.

Ms N Hlonyana (EFF) asked who would own the refinery once it is completed and who will own the pipeline. What measures will be put into place to compensate for the forests removed during the process. She noted the three-year delay with Rosgeo, and asked for the reason.

Mr D Mthenjane (EFF) agreed about the questionable timing of the agreement with South Sudan. It is even more questionable that an individual who is a known fraudster was part of the delegation that signed the agreement. He asked why DMRE had rushed into signing the agreement. What has also not been made clear is why SFF and not PetroSA signed the agreement; as it was known that PetroSA was supposed to sign the deal.

DMRE mentioned that due to cost-cutting measures, the pipeline needs to pass through Sudan, which does not have an amicable relationship with SA. There are also civil wars. Is DMRE aware of these risks?

On the Inga Grand Project, he asked how South African artisans have benefitted from this project in the past six years and in the future.

Mr Mileham referred to slide 19 which stated that capital commitments for the exploration phase will be funded from internal cash resources. He asked for a figure of the capital commitments and what they will cover.

He had previously asked for the exploration and production sharing agreement (EPSA) and the SFF CEO, Mr Moagi, had guaranteed that he would provide it but is yet to do so. He asked where the agreement is.

Referring to the agreement signed with Saudi Aramco, he said that there is confusion between the DG and the Acting CEO on the number of jobs that will be created from the construction of the refinery. He asked for clarity and if there is an agreement on the best place for the production facility. It his understanding that Transnet would like to have it at Coega, and DPMRE is of the opinion that it should be situated at Richards Bay.

It was mentioned earlier that there is a lack of investment by the private sector in refinery capacity. This clearly indicates that there is no appetite for the private sector to invest, because it either costs too much or most likely, there is policy or regulatory political instability in the market.

He asked why government is willing to risk its investment in the Nile-Orange energy project with South Sudan, as it is such an unstable environment.

It was mentioned that the Rosgeo exploration will lead to an increase in the feedstock for the Mossgas Gas Field Project facility, as PetroSA will run out of feedstock by December 2020. The South Coast field gas development is only scheduled for 2025/26. Why then has this been touted as a solution for PetroSA's shortage of feedstock?

PetroSA has committed to purchasing gas at a cost of $7 per MMBTU and re-selling it to CEF at that price. The current spot market price stands at $2.90 per MMBTU, which is more than half of the price committed to purchase the gas. He asked why DMRE had decided to purchase gas at this price.

Since liability for decommissioning rests entirely on PetroSA, what are the costs and where it will get the funds?

Ms Phillips asked why Rosgeo was given preference over an indigenous Nigerian oil and gas company, which had submitted a bid under SL South Africa for the farm-out process. She asked if we have a consistent policy for tendering. What made Rosgeo the more attractive option?

Mr S Kula (ANC) asked why PetroVision’s services were acquired for petroleum exploration, considering that there are domestic firms which specialise in petroleum exploration.

The document states that Block 2 is a viable investment opportunity. He asked what value it brings to the country and to SFF.

It is important to remember that the conflict in South Sudan has been taking place for more than five years; he asked how safe is SA’s investment. One of the obstacles for peace in South Sudan is on the number of border states that must be configured, which has caused land appropriation and ownership challenges. He asked if DMRE could be assured that the SA's investment will not be affected by this. Currently there is a transitional government in place; he asked how that will affect the SFF investment in Block 2. This is an important investment that will change the dynamics of oil within our country. He asked what the impact of the refinery will be on job security in other refineries.

As there is an increase in demand for electric cars, he asked how will this will affect the sustainability of the refinery in the long term.

He asked what impact the new and existing refineries will have on the environment

Mr V Zungula (ATM) asked what would DMRE do differently to improve the implementation of its projects. He asked what might have stalled the delivery of DMRE projects.

On the Rosgeo partnership with PetroSA, he asked what agreements have been put in place for skills transfer to South Africans. What is the balance between the local and foreign labour force? He also asked when the country will be able to explore gas without the assistance of multinational countries.

He noted that Ernst & Young was appointed as the transaction advisor for engagements with the Russian Federation. He asked who had made this appointment, and if it was SA, why was Ernst & Young appointed.

Mr Zulu replied that the DMRE policy position is to house the oil refinery in Richards Bay; the feasibility studies have been completed which show that this area is best placed. It was agreed that Coega will house the new planned gas projects.

Mr Monde Mnyande, Central Energy Fund Board Chairperson, admitted that there have been mistakes made by the CEF Board, but added that there has been improvement in certain areas. The CEF Board is focused on improving the performance of the institution. He mentioned that CEF does want to engage in partnerships. It is incorrect to state that investors do not want to invest in the project in South Sudan. Several parties are in fact interested in investing in the project due to its benefits.

Mr Bongani Sayidini, Acting Group CEO: PetroSA, replied that the PetroSA-Rosgeo partnership has existed since 2015, and nothing tangible has emerged from this. He admitted that this is a concern, given that PetroSA might run out of gas by the end of next year. This process has taken longer than expected. Ordinarily the process would take three to six months. There are a number of factors which have contributed to the delay. One of these was there was no mutual understanding between the parties on the commercial terms of the agreement. Another contributor is the high turnover of Ministers has not assisted, as Ministers are expected to travel abroad and hold robust engagements to further negotiations. This has led to delays in approvals, as each new Minister has had to acquaint themselves with the agreements, and agree to the terms.

On the investment, he replied that a firm offer by Rosgeo of $359 million for oil well drilling has been made. With the Rand/Dollar currency fluctuation, it is not possible to approximate the value of the investment in Rands.

Mr Sayidini replied that no wells for the Operation Phakisa project have been drilled yet. There is an offer to drill six wells but this will only be completed once the negotiations have been completed.

He replied that there is no competition between Total and Rosgeo to drill on the Block. This potential partnership is looking at Exploration Rights 61, which covers Block 9 and 11a. Total is Block 11b and 12b.

On the feedstock supply agreement, when the deal was initiated, there was a formal process and offers were received on 29 April 2016. Feedback was given that this deal would augment PetroSA’s feedstock supply. The timeline of 2025/26 was given by Rosgeo. During the negotiations in October in Russia, both parties recognised that the initial proposal might have to be modified, to take into account that PetroSA might need feedstock much sooner. Currently the parties are discussing issues such as production optimisation, well interventions and in-field drilling that would enable PetroSA to process gas beyond December 2020. This will be the first phase of the process. An exploration programme will follow afterwards. Rosgeo noted that the market they had forecast for gas might not be there by December 2020 and to ensure that the market remains, they are looking to modify the proposal to help optimise current production.

On the $7 gas price, PetroSA was firm on a fair gas price but the reason for the cost increase is due to the transportation of the gas.

The cost of decommissioning Mossgas is R9.8 billion. It has set aside R2.4 billion and currently has a shortfall of R7.4 billion. This will be funded through the interest on the R2.4 billion decommissioning set-aside. If it is able to succeed with a turnaround strategy that enables increased production, it will be able to generate revenue and set aside additional funding. PetroSA is looking for other mechanisms to raise funding.

Mr Sayidini replied that Rosgeo is preferred to the Nigerian company, because it was not able to demonstrate financial capability. Companies with technical depth and financial backing were criteria.

PetroSA does envisage skills transfer through this deal. Rosgeo made it clear that it was interested in this, and this is a part of the agreement. Ernst & Young was appointed by PetroSA because they have experience with the farm-out process, which is currently at the core of international upstream business. There is very limited knowledge in South Africa on the international oil trade.

Mr Godfrey Moagi, SFF Chief Executive Officer, replied that it did mention that it was six days late in signing the agreement. In the previous Committee meeting, SFF mentioned that the project plan came before it knew about the election date. At that time, the project plan was that SFF would sign the EPSA as one of the milestones by the 30 April 2019, but it was only signed on 6 May.

In the past oil came mainly from Europe and other Western countries. There are more oil reserves in Africa now and DMRE has been engaging with different countries in the region for supply. Currently PetroSA is running condensates which come from Equatorial Guinea and Nigeria. PetroSA is looking at testing condensates from South Sudan. There is a blend called Nile blend, which the technical operators of PetroSA will test.

On the ownership of the refineries in South Africa and South Sudan, Mr Moagi replied that it is currently conducting feasibility studies. Once this is done a business case will be built. Partners will be invited to join in on the project. The magnitude of this project means that one must partner so that no entity is exposed to financial risk.

The contract was signed between SFF and the Ministry of Petroleum of South Sudan on 6 May. The individuals who were present at the signing were not involved in the signing of the agreement. Due to the deadline, the previous Minister had to sign the deal on that particular date because it had already risked missing the project plan. The Nile-Orange project was initiated in 2014 and was not started by the previous Minister, Mr J Radebe.

According to the SFF MOI, the SFF can be involved in exploration and production. It is the Group and the Ministry’s decision to decide who is involved in the project. In this case there was a ministerial directive that SFF must deal with this project, which is why it signed the contract. It is aware that it must encourage South African businesses to participate in all of the projects, as well as those in South Sudan.

On the pipeline running through Sudan, in a previous meeting it was noted that the cost of transporting crude through Sudan is very high and it is looking at alternative evacuation routes. It is looking at a south route instead of north. Sudan has not been engaged at this stage as no crude oil has been identified.

On the EPSA, Mr Moagi replied that he had previously told Mr Mileham that he had personally received the letter and that SFF would revert in thirty days. He did not say that he would personally revert to him. But on 25 October, he addressed a letter to him.

The reason that Petrovision was chosen is that due to the investment by the country, an experienced company was required to be a part of the project. PetroVision has worked with multiple multinationals and is a competent and efficient company. From the evaluation done by Petrovison, it is estimated that the investment in Block 2 is between $1 to 2 billion.

SFF has done a risk assessment on the conflict in South Sudan and is in partnership with the South Sudanese National Oil Company and the Minister of Petroleum. SFF is looking at conducting magnetic surveys during the dry season and the Ministry of Petroleum has agreed that it will engage with leaders in the different states. SFF delegates will be travelling to the different states in the country to engage with the leaders. Risk assessments will continue. At this stage SFF is comfortable but if this changes, they will back out of the deal.

The government of national unity in South Sudan has been postponed, but that will not affect the deal as SFF also relies on government employees on the ground.

On electric cars, Mr Moagi remarked that this will impact on this industry globally but looking at the global trends on energy demands, the hydrocarbon demand will continue to grow for the next twenty to thirty years and will then plateau, but the demand will still be there. SFF will place more focus on the investment returns of the project over the years.

Mr Monde Mnyande, CEF Board Chairperson, explained that in terms of the Memorandum of Cooperation, the construction of the domestic refinery is a joint development, and there will be joint ownership of it. Once the business case has been finalised, the equity shares will be determined and this information will made available to the Committee.

On forestry industry compensation, he replied that the trees would be harvested in the next three to four years. And the Richard’s Bay IDZ has identified an alternative location for the trees. When the refinery is designed, this will move from pre-feasibility to feasibility. During pre-feasibility, a number of reconfigurations will be looked at. Thereafter, during the feasibility stage, an environmental impact assessment (EIA) will be done. There are several environmental laws/regulations that the assessment will adhere to. This is before the EIA that involves the public, that will look to minimise the impact on the environment. The refinery will be designed according to the international treaties SA has signed to protect the environment and to prevent global warming. This is why the entity is designing a refinery that is level 5 so that it produces product that meets environmental regulations. This refinery will meet all the environmental regulations and specifications

Mr Mnyande replied that international oil companies not investing in refinery capacity could be due to their own business strategies. He cannot comment on the decisions of the international oil companies (IOCs). He explained that if a company makes an investment that must meet stringent environmental regulations, this investment will not have returns. This investment is not to improve the margins of the company but rather to meet the regulations. This is not a favourable scenario for the private sector and it is why the IOCs in 2017 mentioned that government needs to find a way to fund the introduction of CO2 emissions reduction targets so that the investments made could have a cost recovery. The private sector is asking why it should invest for environmental concerns when the government is meant to regulate this. This is why there has been a delay to the introduction of clean emissions.

Transnet and SFF group are engaging on housing the refinery in Richards Bay, and a joint-study agreement will be signed for the location of the refinery and the work on liquefied natural gas (LNG).

On what the entities will do differently to improve performance, he replied that by the end of December the pre-feasibility phase will have been completed on the refinery and the LNG. There are dedicated teams from each entity involved in each of the projects, which has brought together different skills. There has been an improvement in the execution of programmes. The CEF Group is working on presenting the PetroSA turnaround strategy to the Committee in the first quarter.

The Chairperson said that in the next meeting, the Committee expects to see the DMRE annual performance plan, budget proposal and targets. Some of the challenges that DMRE is facing have financial implications. It is important that DMRE meets its own deadlines so that there can be energy security within the country.

Mr Mahlaule said that it was incorrect for Mr Moagi to agree to send the EPSA document to Mr Mileham on his personal email. This document is intended for all Committee Members and should be shared with the Committee by Mr Moagi.

The Chairperson agreed with Mr Mahlaule. As the request for the document was made during Committee proceedings by a Member, then it qualifies as an official request from the Committee. He asked that either DMRE or Mr Moagi submit the EPSA to the Committee.

He mentioned that the Committee will review the Private Members Bill the following week.

Meeting adjourned.

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