Central Energy Fund Report

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Mineral Resources and Energy

02 June 1998
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Meeting Summary

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Meeting report

2 June 1998

This is the document that was presented by the Chairperson of the Board of the Central Energy Fund.

Minister P.M Maduna in his Budget Speech spelt out the Government's intention regarding the future role of the CEF Group of companies.

The Minister has subsequently repeated the government's intentions in his interaction with the previous CEF Board through my predecessor, Mr. Mkhwanazi.

The clear message from government is that the CEF group of companies need to be restructured to an Integrated National Energy Company. The assets and skills of CEF should in the process be taken into account. A National Petroleum Company, which includes pipeline gas should be born.

My predecessor, being a "new comer" in the industry, it was decided by the then Board of CEF, through budgetary commitments, that he be empowered. He then appointed a consultant to advise him. He appointed International Advisory Services (Pty) Ltd. (IAS) to serve as co-ordinating consultants. The terms of reference to IAS were as follows:

To act as coordinating consultants for all re-structuring activities at CEF, including liaison with other external consultants either already appointed or to be appointed in future.

2. To conduct a comprehensive review of all studies presently lodged with CEF in connection with re-structuring and re-organisation, with a view to producing a collated report of all salient proposals which are in line with the restructuring objectives of the Minister as indicated above.

3 To conduct research into the rationalisation of state oil assets in other countries.

4. To review the overall corporate structure of CEF and develop a comprehensive plan to implement suggested changes.

5. To review the existing personnel structure of CEF and propose changes and action plans to achieve the goals of the new strategy.

6. To act in a direct capacity as advisors to the Chairman in respect of all issues affecting his position.

7. To develop a corporate finance strategy for the CEF Group, which would include the recommendation of the necessary third party advisory and banking expertise required to achieve the developed strategy.

8. To expand its advisory role to encompass the execution and implementation of the corporate finance strategy.

9. To expand its advisory role to encompass the execution and implementation of the corporate finance strategy.

Towards the end of 1997 a Restructuring Bosberaad was held by the Board.

The Bosberaad was held on 30 November 1997 to 2 December 1997 at the Alpine Heath in the Drankensburg Mountains. Present were:

1. Most of the Directors of CEF
2. Chief Senior Executive Officers of the different companies
3. The General Managers of the different companies
4. Subsidiary Companies
5. Staff - Financial, Operations, Marketing and Human Resources.

The IAS was requested to prepare background material. The following was presented to the Bosberaad:

a) Summarised research papers and investigation reports by various consultants, groups on CEF and the liquids fuels industry in South Africa.

b) A summary of the corporate structures and political dispensation of
National Oil Companies of Countries like Malaysia, Brazil with special reference to the lessons to be learnt from their experience.

c) Views and submissions from Primary and Secondary Stakeholders.

d) Draft White Paper on Energy Policy in the Republic of South Africa by the Minerals and Energy Policy Centre.

e) "Energy Policies of South Africa" by the International Energy Agency (1996).

f) "A review of the current Situation" by HSBC Investment Bank (February 1997)".

g) "Submissions of Stakeholders and the general public on Restructuring the CEF submissions relating to the CEF from both direct and indirect stakeholders and the general public in response to requests made by CEF through direct mail and advertisements placed in local papers.

A number of persons and organisations presented papers for discussion. The Bosberaad ended with a conclusion that approval should be sought to implement a program that would transform the CEF Group into a revitalised state oil entity that would prosper and remain relevant in a free market.

IAS presented its conceptual plan to the Board which plan concentrated on the principle and practicality of asset/equity swaps as a mechanism for restructuring CEF and at the same time rationalising state owned oil assets.

A special Board Meeting of CEF Group of Companies was held in George on Friday 5th December I 997. A restructuring Plan and Corporate Finance Strategy was adopted by the Board and the different CEO's of CEF Group of Companies. The Chairman was authorised by the Board to take the process further viz. by seeking approval from the Minister and through him, the Chairman of the Inter-Ministerial Cabinet Committee of Restructuring of State Assets ('IMCC") in order to obtain an "in principle" approval from government to take the plan further.

The Board was well aware that whatever plan it adopted it would have to be referred first to the stakeholders in particular:
a) the Labour unions
b) the NFA

The "in principle" approval is to obtain an indication from the shareholder viz. Government i.e. whether it approves of the plan, so that expenses should not be incurred by engaging the process whereas the shareholder does not approve of the plan. There's been a delay in taking the process forward.

First was the IAS controversy, then there was the Bakker Commission whose findings were repudiated by the Minister and three independent Attorneys. The Board was also uncertain as to its future. Finally the Board was split into three different Boards. New people were brought on board. They need to be empowered as regards the process.


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