Impact of KZN & Gauteng unrest on Minerals and Energy sector; with Ministry

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Mineral Resources and Energy

10 August 2021
Chairperson: Mr S Luzipo (ANC)
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Meeting Summary

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The new Deputy Minister, Dr Nobuhle Nkabane, was introduced. The Minister spoke briefly and the Department of Mineral Resources and Energy (DMRE) briefed the Committee on the impact of the recent unrest in KwaZulu-Natal and Gauteng on the Minerals and Energy sector. The estimated overall cost of the damage to retail service stations is R281.127 million, with an approximate 1 579 jobs temporarily impacted. While the situation has stabilised, full services are not yet back to normal as some service stations must still be rebuilt.

During discussions, Members raised concern about security of supply of production resources; strategic fuel stocks; the effect that regulation of fuel containers has on poorer members of the population; this regulation also negatively impacts small-scale farming and construction work. A Member was sceptical that DMRE said that the mining sector was not affected by the unrest as there was an incident where tracks used for coal transportation in Mpumalanga were burned. Members asked why DMRE was confident about number of service stations affected in KZN but not in Gauteng; how long the 1 579 jobs will be temporarily impacted; and why DMRE did not report on the closed Engen refinery given it is one of the largest petroleum refiners in South Africa. A Member warned against relying on fuel imports.

Meeting report

Impact of KZN & Gauteng unrest on Minerals and Energy sector
Minister of Mineral Resources and Energy, Mr Gwede Mantashe, introduced the new Deputy Minister, Dr Nobuhle Nkabane. The Minister outlined that the fuel supply was temporarily disrupted in KZN, while in Gauteng fuel supply came under strain but without any shortages. The movement of Liquified Petroleum Gas (LPG) was disrupted in Gauteng, but shortages were limited due to the diversion measures taken by DMRE and stakeholders. There were no serious disruptions in the mining sector, but there were threats of disrupting the supply of essential inputs.

Mr Tseliso Maqubela, DMRE Deputy Director General: Mineral and Petroleum Regulation, made the presentation.

Introduction
- An assessment of the impact of criminality, vandalism and looting is still being conducted to understand its ripple effect on jobs, investment, economy, and people’s livelihoods.
- Riots impacted the movement of workers to and from Shell and BP refinery (SAPREF) which constitutes 35% of the South African refinery capacity.
- The overall impact of the riots to the economy has been estimated to be R50 billion to the GDP.
- Refurbishment cost to companies and insurance must still be accurately calculated.
- There may be a loss of regional business as other countries may divert routes from the Durban Port to other regional ports such as Namibia, Mozambique and Tanzania.
- Over and above the damage to property and subdued investor confidence, it has been estimated by notable banks that the riots would shave off 0.8% of economic growth in 2021, with the third quarter estimated to decline by approximately 3%.

Infrastructure Affected and Measures Taken
- The SAPREF refinery was closed for the safety of the infrastructure and employees who could not travel to work.
- Inland storage facilities were placed under additional security measures.
- Loading and off-loading terminals: Durban and Richards Bay were closed as employees could not travel to work.

Retail Network
KZN - 80 sites were looted
Gauteng - 2 sites were looted
Overal: - The estimated cost of the damage to retail service stations is R281.127 million and approximately 1 579 jobs were impacted temporarily.

Transport Corridors
Transportation and distribution logistics:
- Liquid Fuel products are transported by road, rail and pipeline, and road transportation was affected.
- Security was able to provide escort services for road logistical transportation within KZN and on the N2 and N3 transport corridor for trucks.

Overall Assessment
- KZN fuel supply was temporarily disrupted.
- Gauteng fuel supply came under strain, but no shortages were experienced.

Response of the Department
- Convening of meetings by the Minister, including meetings with the National Economic Development and Labour Council (NEDLAC).
- Daily contact with the Retailers Association.
- Protection of key petroleum facilities and the escorting of fuel deliveries.

Current Situation
- The situation has stabilised, however, due to COVID- 19 restrictions, full services are not yet back to normal as some service stations must still be rebuilt (see document).

Discussion
Mr K Mileham (DA) welcomed the presentation and noted that it was long overdue. He referred to the security of critical infrastructure, specifically the SAPREF refinery. One concern was the security of the supply of production resources, particularly the gases that are used in the production of refined fuels. What steps are being taken to ensure security of these supplies? In the context of a bigger security concern, proper security of our entire supply process must be ensured.

He was aware that these facilities used to be designated 'national key points' and are now called 'critical infrastructure'. What is being done on an ongoing basis to secure our refineries, our depots, and our pipelines, as these seem to be targets of unrest going forward?

On the gazetting of fuel container regulations, he appreciated what the Minister and Department have said and appreciated the withdrawal of some of the restrictions that were implemented. He particularly welcomed that people are now able to purchase authorised containers. However, many people rely on being able to purchase fuel in small containers for paraffin lamps and cooking purposes. When will the restriction be lifted to allow people to buy small quantities of fuel in easy- to- use containers?

There have also been many complaints from people who buy large quantities of fuel in 44-gallon oil drums for use in farming, gardening, and earthmoving equipment who claim that the restrictions have impacted them. If it is acceptable to transport oil in those drums, surely it is also acceptable to transport fuel in those drums?

On the security of our refined stock, what is being done to ensure that there are adequate reserves of refined stock during a shortfall in production for whatever reason? He noted that the Marani report recommended that refineries and depots hold a minimum quantity of refined stock. What is going to be done going forward to ensure that when there are production outages for whatever reason – such as when the Astron refinery has an explosion, or force majeure occurs as happened at SAPREF – there is security of supply, even if those refineries were to shut down?

The refining capacity of Astron has been lost since a fire shut it down since July 2020. The refining capacity of Enref, which does not seem likely to restart, has also been lost. In addition, the refining capacity at PetroSA and temporarily at SAPREF, have also been lost. This means that more than half of our refining capacity was shut down during the period of unrest. What has been done to rebuild refining capacity in South Africa? He noted that in 2019 the Minister was quick to announce a $10 billion investment by Saudi Aramco to build a refinery. What is the status of this refinery?

Mr M Mahlaule (ANC) commented on the gazetted regulations on the prohibition of the sale and dispensing of fuel via containers. He has hardly seen excavators or tractors used for small-scale farming at petrol or diesel stations. This may suggest that small-scale farmers and construction workers rely on the use of containers to dispense fuel into those vehicles for their work. When will these restrictions be lifted for the sake of these small-scale businesses?

From his experience of being born in the villages of Limpopo, he was aware some families still use paraffin instead of electricity for lighting and cooking. These families do not normally have the capacity to buy paraffin in quantities larger than two-litre bottles, which is prohibited under the current regulations due to dangers of buying fuel in smaller quantities and containers. What are these dangers? Poorer people should not be forced to buy in bulk if they cannot afford to do so.

On the Minister's opinion that the mining sector may not have been affected, Mr Mahlaule noted that in today’s morning news, four people appeared in a Mpumalanga court for burning railway tracks used for coal transport. This may be unrelated to the recent rioting but it may be related to a video made by a Witbank man who appeared to be calling for communities to burn, in particular, the tracks for transporting coal from the mines to power stations. Can the Department comment on this video by the man, who has since been arrested?

On the 94 sites shut down in KZN and the resulting loss of 1 579 jobs, have the number of jobs recovered been recorded as those sites reopen?

Ms P Madokwe (EFF) asked why the Department was confident about the number of service stations affected in KZN but not to the same extent about the Gauteng numbers.

Can the Department elaborate on the 1 579 jobs that were temporarily impacted? Have measures been taken to ensure that the affected workers are assisted to mitigate the effect on them?

Mr T Langa (EFF) noted DMRE reported the SAPREF refinery operations as being restored but it is disturbing that the Engen refinery was not reported on, given Engen is one of the major petroleum refiners in the country. According to information, the Engen oil refinery (Enref) has shut down processing at its refinery and plans to convert the refinery into a depot. This will result in the loss of jobs for about 1000 employees. Why was this situation not reported on?

On supply and demand – which has always been an issue in the country – what plans are in place to ensure that the country has sufficient petroleum products considering Engen, Astron, and PetroSA have shut down their processing plants? South Africa faces major global challenges, and as a country it cannot rely on the importing of fuels.

DMRE response
Mr Maqubela stated that there are challenges for refineries and the security of infrastructure. There are particularly challenges with pipeline infrastructure. The main challenge is criminality, and there is a lot of fuel theft from the pipeline which effectively takes place on a weekly basis. DMRE believes that syndicates are working with employees in the sector to conduct these thefts. This is a matter being dealt with by the security cluster, and some arrests have been made. However, the syndicates simply relocate to other areas following arrests. There are over 1000 kilometres of pipeline which makes securing the entire infrastructure very difficult, but breakthroughs are being made.

On rail infrastructure, the challenge is the theft of the infrastructure itself where the steel is sold as scrap metal.

On the security of the refineries and depots, DMRE is confident that the security is adequate. What became a challenge was that the safety of the workers in those facilities could not be guaranteed, and instead of risking their safety during their travel to work, the decision was made to shut down the facilities instead.

DMRE intends to conduct a post-action review with the industry to determine what lessons have been learnt and how to improve moving forward. The Police National Commissioner and the DMRE Director-General have established a task team to look at security arising from illegal mining.

On the regulations, these were limited by the Minister to include only petrol and diesel, and not paraffin. There were concerns about paraffin also being used to start fires, but the main target of the regulations was petrol given its frequent usage to start fires. Ideally, there should not be any sale and dispensing of petrol and diesel into containers that are not South African National Standards (SANS) approved. All the Minister has done is to ensure that this is the case.

Moving forward, it must be considered whether the safety of children is affected by the continued dispensing of paraffin in two litre bottles. It is not uncommon for children to ingest the paraffin believing it to be cool drink. Thus paraffin should only be dispensed in SANS-approved containers. Small-scale farmers should also ensure – for insurance purposes – that they use only containers in their vehicles that are SANS-approved. South Africa should be guided by foreign countries where dispensing fuel into unapproved containers is prohibited.

The security of fuel supply continues to be considered by DMRE, but the unrest has shown that there is a robust supply system in place because, even with all the closures, there was a supply of fuel in the country.

A meeting was held with Astron as recently as two weeks ago and it assured DMRE that the Astron refinery will be operational by June 2022. On the Enref refinery, a decision was taken by its shareholders to convert the refinery, and the refinery is not currently operating. The discussions with Enref, Engen and the National Energy Regulator of South Africa (NERSA) are still ongoing, but DMRE has told Enref to ensure that no jobs are lost and instead refinery workers will be redeployed to other parts of the Engen business.

The lives of refineries do eventually come to an end, and in Australia, for example, several refineries have closed because they are small and unable to compete with bigger refineries across the world. This is the norm in Europe and in other parts of the world. DMRE worked with NERSA to consider whether, if a refinery is lost, there is an alternative. These alternatives are in place, with massive import terminals having been built. These are able to ensure that, even in Cape Town for example, and even with the Astron refinery closing, fuel is still being supplied. However, the best situation would still be the availability of a big refinery, which is being considered by DMRE.

On coal transport and the effect on the mining sector, the Minister meant that neither coal production nor the production facilities were affected. However, DMRE will investigate the event mentioned by Mr Mahlaule and report back to the Committee.

On the Gauteng numbers, the retailers have stated that these figures are preliminary and are still being consolidated by the two retailer associations. These associations receive feedback from their members, who are then able to give consolidated feedback to DMRE. Difficulties arose because in Gauteng, the incidents were isolated. In Soweto, for example, precautionary measures were taken to close service stations, but this did not last very long, and operations quickly resumed. However, even in KZN, and despite the confidence in the reopening of the service stations, it is possible that oil companies may decide not to reopen those which were burned down. Currently, service stations will reopen, and workers will be able to return to work.

The strategic fuel stocks is something that DMRE intends to discuss. The challenge faced by DMRE is how it will pay for the strategic stocks, because strategic stocks are insurance and would have to be included in the fuel price. This cannot be done when the fuel price is as high as it currently is. However, there is sufficient infrastructure in place to ensure that any future disruptions are prepared for.

Minister Mantashe said that the Chairperson had asked him to remain but all the questions had been answered. He wanted to emphasise that the safety and security of the country is very important, and the extent of poverty in the country must not be ignored as poor people become the first victims of abuse of energy that destroy their livelihoods.

The Minister replied that because of the size of the Saudi Aramco refinery, it does not compete internationally. He asked that he be excused.

Mr Langa commented that the Minister is "always running".

The Minister replied that he is always working. Speaking in his vernacular language, he said Mr Langa is asking about Engen which has nothing to do with this. 

Mr Langa said the Minister was not going to take him like that. He is not scared of the Minister and he will ask the questions that he needs to ask.

The Chairperson asked the Committee to speak through the chair. If there is an objection, he will take the objection. He asked if the Minister was done.

The Minister replied that he was done.

Chairperson's closing remarks
The Chairperson stated that when this Committee was dealing with the fuel challenge, it agreed that it would discuss the question of energy sustainability. The main purpose of the present meeting was to discuss if there are immediate issues arising from the KZN and Gauteng unrest, and if there is a need for this Committee to undertake certain actions or visits. It is clear for now that this is not the case, but such undertakings are being done by other Committees, particularly those in the economic sector such as Trade and Agriculture.

This Committee will consider its third term programme next week and will decide on conduct fact- finding visits in certain areas in addition to possible public hearings when visiting KZN and Gauteng. This will especially apply if a decision is taken on the Gas Amendment Bill.

As part of next week’s programme, the Committee will discuss two critical points: firstly, the challenges around the fuel crisis, and secondly, the challenges in the mining industry. DMRE is expected to present on the ‘extortion syndicate’ in the mining industry and related security issues. The Committee will discuss the overall challenges in the energy and mining sector. Some of the present challenges will persist regardless of whether there is unrest, and they must be discussed. The insurgency in Mozambique is also still being considered, together with the pipeline investment.

The meeting was adjourned.

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