Briefing by mossgas

Meeting report

MINERAL & ENERGY AFFAIRS PORTFOLIO COMMITTEE
29 July 1998
BRIEFING BY MOSSGAS

SUMMARY
Two main issues were discussed at the meeting: 1) upliftment agreement between oil companies and Mossgas. This is scheduled to be finalised in the near future. 2) Business Plan for Mossgas. Currently Mossgas is seen as a "white elephant", i.e. it is not making money, However sites are being investigated to drill for gas which will enable Mossgas to become more economically profitable.

DETAILED MINUTES
(1) The upliftment agreement between the oil companies and Mossgas:
The committee was addressed by Mr Burger, a representative from Mossgas, who outlined some of the issues surrounding the agreement. In December 1997, a process of interaction began between Mossgas and the oil industry. These negotiations resulted in the oil industry offering to pay for oil provided that Mossgas complied with certain conditions relating to marketing conditions. Firstly, Mossgas would not be allowed to export their products to the same regions as the oil companies, namely those regions in sub-Equatorial Africa. Secondly, Mossgas would not be able to sell their whole range of products. Mossgas is currently aiming to optimise its export market by extending its refinery operations and by importing materials.

The memorandum of the agreement is expected to be produced near the beginning of August. One of the implications of this agreement will be that synthetic fuel levies, which were previously paid to Mossgas from an equalisation fund, will no longer be paid to them. In effect then, this amount would no longer be levied on the motorist although other tariff protection payments may balance this reduction in petrol price.

The Chairperson, Mr Nkosi, commented on the need for the agreement to be signed as quickly as possible.

(2) Future Business Plan for Mossgas:
In 1995, Mossgas began to discuss a business plan for the future. This continued during 1996. Today, the plan was finally made public before the committee with Mossgas satisfied that all aspects of it .

Dr Day from Mossgas addressed the committee. He began by examining the current status of Mossgas, stating that the gas reserves of Mossgas are expected to be exhausted by 2001. He acknowledged the fact that Mossgas is currently seen as a "white elephant" and that some serious planning would need to be done for this situation to be rectified. Part of their business plan involves investing about R2 billion into utilising some recently discovered gas reserves which could extend the life of the company by 14 to 30 years. The possibility of exporting chemicals and alcohol is also being examined. Later during the meeting, Mr Lucas (IFP) asked whether these products would be competitive on the export market and Dr Day stated that he believed they would be.

The opportunity to supply fuel to industrial areas is also being examined. Mossgas believes that these potential opportunities will keep it operating well into the future. At this point, the Chairperson expressed his concern that the viability of these proposals had not been verified by someone totally independent from Mossgas. However, Dr Day assured him that 2 internationally recognised firms (Arthur Anderson in the USA as well as another British firm) had looked at the proposals and had agreed that they would be economically justifiable even under the "worst-case "scenario. The firms agreed that one of the alternatives to these proposals, the actual shutting down of Mossgas, would have serious negative socio-economic implications. Some other alternatives were also briefly discussed, for example the generation of electricity, the production of nitrogen fertilizers, the reduction of iron ore as well as the possibility for using Mossgas to supply industrial fuel, but these were discounted on the basis of the potentially huge opportunities which would open up if the new gas fields could be drilled. If the business plan is successful, Mossgas is expecting to pay off at least some of the debts which it has accumulated during the past. Some queries were raised by Prof. Mohamed (ANC) about some of the technical difficulties which could be experienced if drilling occurred at the proposed depths of about 2 kilometres. Dr Day responded saying that these were being investigated.