Petro SA and Mining Qualifications Authority Annual Reports: briefings

Meeting report

MINERALS AND ENERGY PORTFOLIO COMMITTEE
17 November 2004
PETRO SA AND MINING QUALIFICATIONS AUTHORITY ANNUAL REPORTS: BRIEFINGS

Chairperson: Mr E Mthethwa (ANC)

Documents handed out:
Petro SA Annual Report 2004
Petro SA presentation
Mining Qualifications Authority Annual Report 2003/2004 (document awaited)
Mining Qualifications Authority presentation (document awaited)

SUMMARY
The Committee was briefed by Petro SA and the Mining Qualifications Authority (MQA) on their 2003 / 2004 annual reports and financial statements. Petro SA reported after-tax profit of R239 million which was down from R3.28 billion the previous year. This was due to much lower production volumes as a result of a shutdown and breakdown at the company's Mossel Bay plant, which lasted for seven months. The plant was back in full operation and the company expected profits of some R1.3 billion in 2005. The greatest challenge facing the company was to find new gas and crude oil deposits to increase its operating lifespan beyond 2008 when reserves were expected to run out.

Members were very concerned at the drastic decrease in profits and asked in-depth questions about the company's long-term future, its financial controls; commitment to Black Economic Empowerment and gender equity and poverty alleviation initiatives.

The Mining Qualifications Authority reported numerous achievements in skills development and training in the mining industry and the fact that some R546 million in training grants had been disbursed between 2000 and 2004. Its key challenges for the future included skills development on illiteracy, occupational health and safety, employment equity and productivity.

MINUTES

Petro SA briefing
Mr S Mkhize, CEO, said that after United Nations oil sanctions against SA were lifted, government had to decide on the future of strategic apartheid-era investments such as Soekor and Mossgas. Rather than privatisation or disposal, government had decided to merge them into Petro SA, which operated as the country's national oil company.

The company's key challenges were to secure feedstock for its Mossel Bay gas-to-liquid fuel plant as current reserves would run out in 2008; to increase exploration expenditure on finding crude oil reserves that would allow production of 65 000 barrels/day by 2010; to develop and improve existing technology by the end of 2005; to reduce operating costs to US$19 per barrel by end-2007 to reach break-even point; to meet government's new fuel specifications by 2006 and 2010 and to manage the state's strategic crude oil stock.

The company was a strategic asset as its crude oil production cushioned the country against international price fluctuations; it managed the entire process of transformation of the oil industry and it protected SA's intellectual property and technology developed in the gas-to-liquid fuels area.

The company had made an after-tax profit of R239 million in 2004 compared to R3.28 billion in 2003. This was mainly due to drastically lower production volumes as the Mossel Bay plant had operated for only 5 months. This in turn was due to a planned plant shutdown for maintenance in May 2004, which was followed by an unplanned, plant breakdown upon start up. The international crude oil price and the strong Rand also influenced revenues. The company forecast after-tax profits in 2005 of R1.3 billion as its plants would operate for the full year.

Discussion
Mr C Morkel (DA) asked for a further explanation of Petro SA's poor financial results, as the losses could not be explained by the plant shutdown and breakdown alone. He also wanted to know why the company's debtors book had increased by R866 million and whether financial controls were slipping. In addition, he enquired about the company's spending on new premises in the V & A Waterfront and allegations of travel expense wastefulness and credit card abuse.

Petro SA's Chief Financial Officer, Mr N Nika, repeated that the losses were mainly due to lower production volumes as explained previously. In addition, the company's costs had remained fixed during the non-operation of the plant. The debtors' book increase was due to an accrual of R710 million that came about just after the end of the financial year and was therefore not taken into account. In addition, a crude oil cargo had been invoiced in the previous financial year, but payment had only been received at the start of the next financial year. He felt the company's financial controls were strong and "as good as ever".

Mr Mkhize said that the company had intended to move its entire staff to a building it owned in Parow in the Western Cape. However, it had discovered that that building would not accommodate them all and they were currently leasing premises in the Waterfront that were big enough for their needs. He had instituted limits on credit cards used for overseas travel and accommodation, but requests were sometimes made for those limits to be lifted in case of emergency, for instance when an employee had to undertake additional flights to reach their destination. This did not constitute abuse. It was company policy that officials had to use company transport as far as was possible. However, permission had been granted for rental vehicles when company transport was not available.

Mr E Ngcobo (ANC) asked whether Petro SA's air pollution emissions were within government guidelines. He also asked whether the company was still exploring business opportunities in the Mid-East and what poverty alleviation plans the company had in place.

Mr Mkhize said the company's emissions were already lower than government guidelines because its gas feedstock was of a very high quality and therefore burnt "cleaner".

Dr N Siswana, General Manager: New Ventures, said the company had negotiated with Iran to build a gas-to-liquid plant in that country. However, the Iranians had broken off these negotiations after allegations of corruption were made against Petro SA's Swedish partners.

Mr Mkhize said the company had spent R60 million over the past year on poverty alleviation projects in schools and clinics. In addition, a Centre for Excellence in Mossel Bay provided learnerships and training for artisans and fitters. The company also had a SMME development programme that helped entrepreneurs.

Professor I Mohammed (ANC) asked whether Petro SA's agreement with SASOL was a "millstone around its neck" and whether Mossel Bay's development had suffered as a result of the company's operations.

Mr Mkhize said the agreement with SASOL, which prevented Petro SA from entering the retail fuel market, was problematic. It had been signed more than 20 years ago and was created for different circumstances. However, the company was negotiating with SASOL to find areas of co-operation in refining and fuel retail. Mossel Bay had in fact developed much faster with the company's presence and that future development would occur when the feedstock replacement project came on line.

Ms N Mathibela (ANC) wanted to know what progress Petro SA had made with Black Economic Empowerment (BEE) and gender equity. Mr Mkhize said gender transformation had been slow due to the 4-6 year training period for scientists and engineers. However, the company had reached agreements with companies in Nigeria and the United Kingdom on joint training programmes and he therefore expected much faster progress in employing women. He added that the company placed a fixed percentage of its procurement with women-owned businesses.

Mr Morkel wanted to know whether Petro SA had any dealings with Mr John Deuce, allegedly a sanctions-buster during the apartheid era. He also enquired about progress on exploration in deeper waters off the SA coast.

Mr Mkhize said Mr Deuce was a director of Transworld Exploration that was involved in a joint feasibility study with Petro SA. His presence would not matter if the feasibility study led to a commercially viable project between the companies. He added that Pioneer Exploration was partnering Petro SA in deep-water exploration. The project was going well and the first holes would be drilled next year depending on the availability of drilling rigs. The company was also collaborating with Forest Oil on the West Coast and should know by August 2005 whether economically viable crude oil reserves existed.

Mr E Lucas (IFP) wanted to know the exact reasons for the breakdown at the Mossel Bay plant. Mr Mkhize said the breakdown occurred on plant start up after the completion of scheduled maintenance. This was not unusual, but the company had not responded quickly enough to the problem. It had already instituted additional training and simulation exercises for emergency response for its planned 2006 maintenance shutdown.

Mining Qualifications Authority briefing
Dr M Mthwecu, CEO, stated that a National Qualifications Framework (NQF) had not existed in South Africa prior to the enactment of the South African Qualifications Authority Act of 1995. Since then, 21 qualifications had been registered with the SA Qualifications Authority (SAQA), while a further 25 qualifications would be submitted for registration in the near future.

Some of the MQA's successes included the development of a Mining Industry Qualifications Framework that had been communicated to industry role players; 41 training providers had been accredited and more than 16 000 learners were currently active; 54 learnerships had been registered with the Department of Labour, and the MQA's learnership grant had been increased from R10 000 to R90 000, representing NQF level 24.

In addition, the MQA had achieved 411 Adult Basic Education and Training (ABET) grants, rural jewellery training for 720 learners, small-scale mining training for 1 500 learners, tertiary bursaries for scarce skills for 300 learners and ex-mineworker training projects for 3 159 learners.

Approximately 79% of mining companies were paying skills levies, while about 51% were claiming grants. More than R546 million in grants had been disbursed between April 2000 and September 2004.

MQA interventions and skills priorities for the future included illiteracy, occupational health and safety, employment equity and productivity.

Discussion
[The MQA delegation response to questions put to it by the Committee will be made available here in late November]

The meeting was adjourned.