Central Energy Fund & Petro South Africa 2006/7 Annual Reports: briefing

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Mineral Resources and Energy

24 October 2007
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Meeting Summary

A summary of this committee meeting is not yet available.

Meeting report

24 October 2007

Chairperson: Mr E Mthethwa (ANC)

Documents handed out:
Petro SA Annual Report 2006/7[available shortly at www.petrosa.co.za]
Powerpoint presentation by Central Energy Fund
Powerpoint presentation by PetroSA

No audio recording available

The Committee received briefings from Central Energy Fund (CEF) and Petro SA on their Annual Reports for 2006/07. The reports covered the main areas of achievement. PetroSA announced improved employment equity, training initiatives, support to schools and universities and employee wellness programmes, as well as detailing corporate social investment. Customer support emphasised broad based black economic empowerment. Security of supply was in discussion with government. There had been a successful planned shutdown, with no environmental incidents. A strike had been quickly resolved. There was an unqualified audit report although matters of emphasis were raised. The macro economic factors affecting PetroSA were given, and the financial results were tabled, showing steady increase in turnover and net profit of R2.7 billion. A new business model resulted in higher distribution costs. The strategy for growth included sustaining existing operations while also seeking to diversify so that PetroSA was not reliant on one asset. Gas to Liquid operations would continue, with addition of a crude oil refinery, most likely at Coega. Members asked questions relating to benchmarking, licence awards, the matters reported on in the media, and the matters raised by the Auditor General, particularly in regard to Equatorial Guinea operations. Members sought an explanation of the Imvume matter and clarification of recent media reports, and Petro SA undertook to send through quarterly reports to the Committee on this matter. Members also asked where PetroSA fitted into new economic structures, its black economic empowerment initiatives, sponsorship of learners, staff health issues, the likely trends for crude oil and petrol prices, the Board composition and work, and its relationship with other entities, and with workers and unions.

The Central Energy Fund described the structure of the group and noted that some of the companies did not sit well within the group. The results for the year were tabled, and some of the achievements of the various companies and divisions were listed. These included clean electricity, extraction of oil from torbanite, biofuels, solar operations, wind farms and solar street lighting, and establishment of a carbon trading division. Questions were asked on the Mozambique pipeline, the solar power initiatives, the possible removal of the regulatory authority PASA from the group, the future plans for Saldanha and the rent of the Waterfront offices. Further questions related to a disciplinary matter of R600 000 unused allocation, and security of supply.

PetroSA Annual Report briefing

Mr Sipho Mkhize, President and CEO of PetroSA, noted that the details of the results were contained in the glossy annual report, but he would summarise the main areas of achievement.

In respect of human resources, achievement equity had now reached 69% across the organisation. Initiatives on training aimed to increase skills in the organisation and for the benefit of the economy in South Africa. Technical equipment and teacher support was given to schools, and the capacity of the centre of excellence in Mossel Bay would be improved. Support to universities was given in science and engineering and Petro SA had a placement programme for university graduates both internally and with global partners. The wellness programme emphasised preventative measures for HIV and Aids, diabetes and blood pressure.

On the customer side, there was emphasis on Broad Based Black Economic Empowerment and 41% of the spending was supporting preferential procurement. During shut down, small suppliers were able to participate. R50 million had been contributed as Social Corporate Investment (SCI) towards health, education and poverty. PetroSA had communicated with the government on security supply. Extensive road shows had been taken, and steps undertaken to gain assistance from the insurance market. There had been improvements and every project in the future would be supported well by the insurance sector.

Internal business processes showed a successful planned shut down during the year. Although there was a strike it was quickly resolved. There were no other shut downs. There were no fatalities or environmental incidents during shut down. There was ISO accreditation on some areas, and this would be expanded.

PetroSA had an independent Board, with sub-committees that supported the board with strategy, finances and internal governance and processes, as well as human capital. An independent external auditor did interim audits twice a year, and a final audit at the end of the year. There was an unqualified audit report, with matters of emphasis.

Mr Nkosemntu Nika, CFO, PetroSA, reported that the macro economic factors affecting PetroSA would mainly be the exchange rate, and oil price. He tabled the figures over the past four years, indicating that the rand was relatively weak in 2006/07 as against previous years. The crude price spiralled, reaching $64 per barrel in 2006/07. Operational performance was affected by volumes, which had reached 2.39 million cubic metres. Turnover showed a steady increase, reaching R8 billion in the current year. The net profit was R2.79 billion. The Central Energy Fund (CEF) had not been able to maximise profits, despite the increased turnover, because of the prices, and because depreciation was accelerated on some assets after revision of their life-span. The business model had changed, resulting in higher distribution costs. There was R10.7 billion cash at the end of the year, which was put towards new projects. There had been steady growth of value of assets. The total debt was low, and included four provisions, including depreciation. A dividend of R1.09 billion had been paid. PetroSA was therefore generating good returns.

Mr Mkhize then tabled the "2030 Growth Strategy". This aimed to sustain the existing operations, and also looked to diversify operations so PetroSA was not reliant on one asset. At present it was a Gas To Liquid (GTL) specialist, but would be looking at a crude refinery that would diversify PetroSA from single-source production. In the past, PetroSA was not in the downstream market. Now it was intending to establish a logistical infrastructure for distribution of products and access to the market. It had reviewed alternatives of gas supply. It aimed to increase production capacity in the medium term, while also addressing the South African shortfall in refinery products. Additional terminals would improve distribution and logistics infrastructure. It could become a fully integrated national oil company and be better equipped to support government empowerment initiatives. Potential sites were being developed, and there would synergy with operations in the Southern Cape. Five locations had been screened.

On the upstream side, PetroSA realised that indigenous gases would not be sufficient to satisfy requirements. It would therefore have to develop a strategy to complement local products with access to other gas resources. Liquified Natural Gas (LNG) would be imported in the short term. PetroSA was already supplying fuel to drive the peak power electricity plants. It would be more cost competitive to supply gas, and the infrastructure would include development of this supply to the power plants. Neighbouring countries had gas resources, so PetroSA was discussing potential supply with Mozambique to sustain operations at full capacity. The challenge currently was that any supply problem offshore would cause fluctuation in operations.

Mr W Spies (FF+) asked for an indication whether PetroSA was able to benchmark its own performance in comparison to similar operators, such as SASOL. On first sight, the figures seemed good but he would like to see the comparison, particularly for GTL operations.

Mr Mkhize noted hat an international benchmark was used for operations, and the CFO could elaborate further. It was difficult to do exact comparisons, because PetroSA had its own specific nature.

Mr Dan Morogane, Vice President of Operations, PetroSA added that the industry would utilise a benchmark to assess the efficiency of different players. Like-for-like comparisons were not feasible, but PetroSA lay in the third quartile of similar institutions. The benchmarks were used for safety and efficiency and PetroSA was confident on the ever-increasing benchmark of insurance. It was in the top 20 of preferred operators in similar fields in the insurance stakes.

Mr Nika noted that comparison with other entities was difficult also on the financial side. Efficiency levels for each unit would be assessed, and any deviations would be managed.

Mr Spies was also concerned that the Imvume case was not mentioned. Although he accepted that in relation to the total running operations, the R15 million was relatively low, he was concerned that such a strong message was being sent out that feedback was needed. Furthermore, when this Committee accepted the report of the Public Protector, there was a specific request that PetroSA must give regular feedback on the collection of the R15 million He asked if this had been given.

Mr Spies noted that the media had reported that the Court file had disappeared, but the Court’s response was that the file was sitting in a heap of files relating to matters that had been struck off the Roll. Mr Spies noted that matters would generally only be struck off the Roll if there had been no appearance by the legal advisers, and he wanted to know exactly what was happening.

Adv H Schmidt (DA) intervened that a matter could also be struck from the Roll if settlement had been reached, but he agreed that there had been no information given.

Mr Spies added that the Committee had previously expressed concerns about the apparent lack of concerted effort to collect the debt, and wanted to know what steps had been taken, and whether this was being pursued aggressively, such as would send out a message that recovery of the amount was important.

Adv Schmidt said he would like to see the payment schedule of all fees and amounts paid

Mr Owen Tobias, Head: Legal Division, PetroSA said that the media reports of the missing file related not to the case brought by PetroSA against Imvume, but to an application that Imvume had launched for rescission of judgment. It was Imvume, the applicant, who had failed to appear, and its application that was therefore struck from the Roll. PetroSA had given notice of intention to oppose this application for rescission.

In regard to the matter in which PetroSA had sued Imvume, due process had been followed. Judgment and an execution order had been obtained. Imvume consisted of Imvume and Imvume Management companies, and PetroSA would pursue the execution order against the entity most likely to be able to repay. There was a full list of amounts set out in the Court Order.

Mr Nika said that the original amount was R18 million, and R10 had been paid, leaving R8 million outstanding. Interest was added, making a total claim and Order of R13.8 million.

Mr Mkhize said that quarterly reports on the matter had been sent to the Department of Minerals and Energy (DME) but copies would be sent through in future also to the Committee. He apologised for the oversight.

Adv Schmidt said that he was concerned about license awards for certain blocs of exploitable areas. He asked how many licences had been granted, how many had been applied for, and why these seemed not to be progressing as they should.

Mr Mkhize said that the Minerals and Petroleum Resources Development Act (MPRDA) was a complex issue. In the past licences would be given on a first-come first-served basis, but now there was a bidding process. PetroSA had not managed to get some of the blocs it thought it would, so it had gone back to attempting to participate in the blocs, while bidding for other blocs. If a particular bloc was important enough to PetroSA it would have to either pay a premium or participate in other blocs in terms of the legislation.

Mr Tobias added that he could not respond on the number of licences at this point, but it was a conversion process to convert OB26 to new licence requirement. It was successful in terms of gas and one or two others. The outcome was dependent on the regulatory Petroleum Agency South Africa (PASA).

Adv Schmidt noted that on 30 September the media had reported on four major issues raised by the Auditor. These were lack of compliance to tender regulations, lavish sponsorship of a junior racing driver, an amount of R1 million spent on an air-conditioned charter flight, and Diners Club expenditure of R2 million to R4 million per month. He asked for formal explanation on these issues.

Mr Mkhize noted that any jet flying at high altitudes would have to be air-conditioned, and PetroSA had not responded to the media on this point because it considered this would be obvious. Hiring of aircraft was done for operational reasons. PetroSA worked in many places that had only a limited number of flights and seats, and PetroSA would assess the wellness, safety and security of its employees and assess how best to get them to their destinations. If aircraft were chartered, three quotations were required, and an assessment would be done of the operation and service history of the planes, before taking a decision.

Mr Nika explained that PetroSA and its travel agents had agreed that all travel and accommodation would be paid through Diners Club cards. The amount quoted by the media was correct, but this was not billed on individual cards. PetroSA did a great deal of travelling overseas, and there was nothing unusual in the amount, nor any abuse of the cards. About 15 individuals at PetroSA, who were either executives, or those travelling overseas regularly, had their own cards. Other staff travelling would receive an allowance that would be accounted for on return. Global travel was necessary for market development and export opportunities. ,

Mr Mkhize said that the multi-million rand tender issue related to a contract with Cybernetics, which was doing high performance research. The Procurement Committee had assured him that proper procurement procedures were followed, and the company was selected properly. The contract extended to training PetroSA own facilitators to roll out the plan country-wide.

Mr Mkhize added that the racing driver sponsorship fell within the policy of PetroSA on ad hoc sponsorship. PetroSA had not previously looked at opportunities in motor sport, and these made perfect sense because the cars used fuel. It was looking also to an association in motor sport with a major English player; in England the industry gave around R3 billion pounds support to motor sport. This particular sponsorship was an ad hoc trial. It had not achieved the internal objectives and was being reviewed.

Mr C Kekana (ANC) noted that the economy had grown and needed further growth. He asked where PetroSA fitted in the new economic structures and the Accelerated Shared Growth Initiative of South Africa (ASGISA). He would have expected the presentation to specify what was required and was being done to fit in with the national demand.

Mr Mkhize explained that at present PetroSA was tied to a Memorandum of Understanding that circumscribed some of its work. Petro SA had defined the South African terrain as three refining clusters - Durban, inland and the Western Cape. It was still busy with finalisation of selection for new pipelines. Coega in the Eastern Cape seemed to create better synergies with the refinery, and if this was selected, then gas could be shipped to Mossel Bay through a pipeline, and at the same time supply the peak power plant in Coega. Intermediate stocks could be synergistically shared. PetroSA would thus participate in reduction of heavy crude. In addition, a refinery at Coega would make sense because of the excellent infrastructure developments currently taking place. Richards Bay had almost reached emission limits. Coega was an opportunity to diversify, and it would be possible to run a pipeline around the Sasolburg area. The refinery and infrastructure would cost around R39 billion. It was moving to footprint an application of land in Coega. and selection of refinery modules. There was some interest from international companies and PetroSA would be enticing international investors to participate. A Coega base would also put South Africa on a “thousand/thousand” basis, so that if there was a crisis in any place, oil could be piped from within a one-thousand kilometre distance. GTL was not compliant with airline industry requirements unless mixed with a crude base eliminating kerosene, or with synthetic fuels. Coega had an already-established motor industry, and this would be a further point of synergy. As yet there was not finality, but the indications for Coega were positive.

PetroSA was also looking at the tankage to support crude oil storage. Turnaround would have to be within around fourteen days, which was why it was looking also to participate downstream, to avoid write-off of stock. It was engaged with the Strategic Fuel Fund (SFF) as representative of the government to see how development could take place. It was also participating in the West Coast, and with Forest Oil. It was negotiating for a cluster in another area. This would make it possible to connect on to the existing framework. The times of cheap feed stock had gone and now that PetroSA no longer owned the feed stock, it had to pay market prices, linked to the crude price.

Ms N Mathibela (ANC) asked for specific comments on whether PetroSA was encouraging learners of science and mathematics at tertiary levels.

Mr Mkhize noted that many of the maths and science students, by the time they reached university, had already been “lured away” by accountants or other industries. PetroSA realised that it was necessary to develop potential students from an earlier age, and try to persuade them to take engineering and science degrees. However, quite apart from these being scarce skills worldwide, he noted that many people holding these degrees would in fact migrate to other sectors, and so it was a continuous process to try to keep a supply of graduates.

Ms Mathibela was pleased to see the positive developments on staff health. She asked if the diseases being tackled posed a threat.

Mr Ishmael Mofokeng, SHEQ Manager, PetroSA, noted that there was not a threat. PetroSA had been running various programmes for a number of years, and he was continuing awareness training and encouraging voluntary counselling and testing. The HIV and Aids statistics were below provincial and industry averages, and were around 2.36%. However, PetroSA noted that other chronic or lifestyle diseases also should receive focus, and the last statistics showed diabetes and high cholesterol as concerns, at around 6% prevalence. These were less obvious and people would tend to ignore the problem. PetroSA would continue to support staff in awareness.

Mr T Mahlaba (ANC) asked for information on broad based black economic empowerment (BBBEE), wondering if the same companies were being used several times, or whether the net was being cast wider.

Mr Mkhize noted that if a company performed well and was competitive on its pricing, it would get repeat work. PetroSA was concerned with supplier development, but it had recently changed its strategy. International companies would need to look at how to bring in South African companies, so that they could assist. There needed to be investigation as to whether South African companies were equipped to build the refineries. Gaps were identified, in order to assess infrastructure needs. He noted that the necessary skills were also moving globally, and many South African technical specialists were working elsewhere. International companies were prepared to train South Africans as it would reduce the costs. He conceded that perhaps the opportunities had not been well enough advertised. There were sometimes quite specific requirements, for instance one of the suppliers indicated that they were waiting for South African students to be trained in German.

Mr Mahlaba asked about corporate social investment, noting that the majority of the beneficiaries were in only a few provinces. He understood that PetroSA would focus on its areas of operation, but very limited assistance seemed to be available to the more far-flung provinces. He asked how availability of resources to projects was determined.

Mr Mkhize said that the apparent skewing to some provinces occurred because provinces had to make applications for support under the CSI policies. There were still additional amounts waiting to be disbursed. Perhaps PetroSA needed to visit the provinces and make presentations and show them how the applications could be made.

Mr Mahlaba asked if there was likely to be any relief on the increase in crude oil and petrol prices.

Mr Mkhize replied that the dollar was depreciating, and geo-politics and trends were changing. Some countries with oil resources had changed their strategies on how to allocate the blocs. That created a perception of lower supplies and affected the prices. The national oil companies would like to play a meaningful role in the resources. South Africa, because of limited resources, would have to live with the prices, or go all out ad secure equity position in crude, and thus reduce the effect of price increases. PetroSA would operate commercially. High prices pushed up the prices for capital investment, but would improve the balance sheet. Upstream, payment was required merely to make enquiries and the money put up would be lost if the order was not placed. That was unfortunate, but was the way the market operated. PetroSA was scanning the industry up to the east, realising that normal suppliers were not able to cope with demand.

Mr J Combrinck (ANC) suggested that in future the meetings should be split so that only one company would be scheduled on one day, as it was difficult to go into matters in detail.

Mr Combrinck asked if the profits shown in the presentation were before or after tax.

Mr Nika noted that the profits were quoted as after tax.

Mr Combrinck asked for an update on the situation in Equatorial Guinea. Certain issues had been raised by the Auditor General about adjustments to accounts receivable and payable, and he requested explanation.

Mr Nika explained that PetroSA had an exploration company in Equatorial Guinea, which had only recently started. There had been problems around internal controls. A local person had been appointed, but there had been language and communication problems, and the appointment was being reviewed. PetroSA took responsibility for this. In addition, PetroSA was let down by a service provider. Adjustments were made in terms of the requirements of the Auditor General, and the books should now be in order. The adjustments were necessitated by some of the entries in Guinea not being processed, and some done incorrectly. PetroSA was reviewing systems and employment in the new companies

Mr Combrinck noted that a number of board members were serving on several boards. He asked if they were receiving salaries from all boards.

Mr Mkhize noted that there was only payment, done at PetroSA level. Many of those sitting were required to for their technical expertise, such as geologists or engineers. There were only seven vice presidents and PetroSA wanted to have representatives on all boards to ensure that its interests were being protected.

Mr Mahlaba noted a high turnover in the Board of Directors. He referred to page 105, and noted that out of the 13 members, only six or seven might have attended a meeting. He asked if meetings would proceed with so few members. He also.

Mr M Matlala (ANC) asked for an explanation of the high number of departures from the Board, particularly in June.

Mr Mputumi Damane, Group CEO, Central Energy Fund (CEF), noted that the departures were due to expiry of staggered three-year fixed terms of office. They had not resigned.

Mr Damane noted that the quorum for meetings was 50% plus one. If there were fewer than seven members, the meeting would not proceed.

Mr Molefe raised concerns on the composition of the Board. He asked whether labour was represented, and if not, why not.

Mr Damane, said that the labour representatives were not appointed because there was no brief to do so. A proposal could be made to see what value they would have on the Board.

Mr C Molefe (ANC) noted that there was an unqualified report, but he had expected PetroSA to speak themselves to the issues of concern raised by the Auditor General.

Mr Mkhize said that there had been some problems in the internal audits, as on merger of companies, there were different processes and policies needing to be reconciled, and the internal audit capacity was quite small. PetroSA would be checking up on processes. The biggest gaps lay between divisions, with people relying on IT, without considering the workflow. PetroSA would be hiring highly specialised consultants as PetroSA realised it could not cope in-house nor identify all the gaps. At the end of the tender and consultancy processes, it would hope to have world-class audits. Failure to look after the assets amounted to failure to look after national assets, and therefore PetroSA was well aware of the implications of not following controls and processes. It was accepted that there was a problem and PetroSA was working on it.

Mr Nika added that the matters raised were not matters of emphasis. The Equatorial Guinea systems problem was an issue. A further situation - which was already being addressed - was that in IT an individual could initiate a transaction and still have access at later levels, which impacted upon effective controls. PetroSA had embarked on corrective projects and to date had almost finalised this project. It was not expecting this to feature in the next audit report. Imvume had been raised on the basis that it was a public interest matter.

Mr Molefe asked about entry level of crude for South Africa's BEE. It was clear last time that BEE was not happening here, and PetroSA had itself raised concerns about the entry level.

Mr Mkhize said that many BEE companies could not make the outlay to secure crude. Banks were concerned that both sides had provided security, and the money had to be paid up front. PetroSA would continue working on plans and opportunities. Feasibility studies indicated that huge working capital was required and returns would only begin to show after around six months. Many BEE companies simply did not have the resources to enter this market.

The Chairperson noted that the Committee was interested to hear more about the policies, particularly around BEE.

Dr Nompumelelo Siswana, Vice President, Trading Supply and Logistics, PetroSA noted that there had been significant progress with ensuring BEE. Fuel, oil and LPG were sold to BEE companies, to the value of about R80 million in the previous year, under a scheme whereby PetroSA would give a discount. It would do due diligence, to ensure that the companies would not on-sell to a dealer at a discount. Through these discounts, about twelve BEE companies had been supported in consistently developing their business, and around 51% of procurement was also done via BEE in the last year. PetroSA had also encouraged women companies to participate in procurement. Around 60% of crude had been sold to BEE companies in the financial year under review. PetroSA would not buy crude from BEE companies because it did not process crude. In future, when processes were in place, it could do so.

The Chairperson asked how PetroSA would describe its relationship with South African Supplier Development Agency (SASDA) in future. An earlier presentation by this entity raised issues with the industry as a whole.

Mr Mkhize said that PetroSA had initially supported it. However, SASDA wanted to enter into procurement, which was a competitive issue. They had moved faster than initially intended. The procurement manager felt that the information could not properly be given. SASDA wanted to create companies and opportunities. Some of the operations were localised, and could not be centralised to develop the company. PetroSA felt that a review was necessary of what was intended, and what SASDA thought it should be doing. In hindsight, there were different views. Operations people still had to ensure compliance, quality and delivery, which should be done in-house. The mandate of SASDA needed to be addressed. Perhaps the companies should identify what was not manufactured locally and what could be done to facilitate.

The Chairperson also asked for comment on the PetroSA relationships with stakeholders, including workers and unions.

Mr Mkhize noted that there was previously a good relationship with the main unions. Although it had later deteriorated PetroSA was engaging with unions to see what were the issues and how they could be addressed. There was also a national bargaining council, and some of what was being demanded at local level was already under negotiation at a national level. There was consultation and the processes catering for deadlocks were being improved. Policies that were in existence had made it possible to employ and reorganise people, but the Union claimed not to have been consulted on the amendment, and would not participate with it. In future there would be full engagement. Questions of benefits and so on would be addressed either locally or nationally. Perhaps there was not sufficient communication of the attempts to work together.

The Chairperson was pleased to note that the expansion programme internally and in Africa, self-sufficiency as a state owned entity, technological advances, and training and development, were all raised as pertinent issues. He was happy to hear that Imvume was being dealt with. Issues of transformation had been largely motivated by the report shared with the industry, and this would always be a point of reference.

Central Energy Fund (CEF) briefing
Mr Mputumi Damane, Group CEO, noted that the group had six wholly owned companies, with divisions for various functions. It was not yet certain if SASDA would be a division or a wholly owned company. CEF was not homogeneous, but a conglomerate, and some of its companies perhaps did not sit well within the group. For example the Strategic Fuel Fund (SFF) custodian had an agency agreement with PetroSA as the aim was to disband the Fund company. There were problems with the closure because it was a Section 21 company, despite the fact that it had no employees. The petroleum agency was a licensing regulatory agency, but this function was performed by the Department. South African Gas Development Corporation had invested in the Mozambique gas line, and already, with one employee, had excellent capitalisation. Oil Pollution Control also did not fit property within CEF. Another company was funded by the Department of Science and Technology and there were problems in reporting lines.

The results for the year were tabled. CEF was a long-standing company and had funded a number of other companies. The advantage of using CEF for new companies was that they would not have to find overheads for HR, lawyers, accountants, and could save costs. When they were developed, they would move away. It was hoped to do this with IGas.

Mr Damane noted that the energy development division of CEF was dealing with extraction of oil from Torbanite, and clean electricity. In the bio fuels field, CEF was ready to start operations, and was looking at a project with PetroSA. There were serious problems with quality. Johanna Solar was a solar technology investment linked to German investment, and in partnership with Prof Vivien Albert, who had been responsible for the research on the technology. There had been approved investment in South Africa, with Venfin, on this technology. The Energy Efficiency Agency existed and was doing many projects with Eskom, including solar power in SA National Parks, and launch of the Cape Town solar street light system. The Darling Wind Farm would start soon, although there had been delay in acquiring turbines. Nelson Mandela Bay Metro had given CEF authority to introduce various systems to save greenhouse gases and increase efficiency. Other municipalities were keen to do the same. In cooperation with DST, the UNDP energy savings project had been launched. A carbon trading division had been launched, with offices in London and Johannesburg. All projects would be generating capital savings and CEF would sell them itself. Projected income was R1 billion within the next five years, without major capital expenditure.

IGas was investing heavily in the Mozambique pipeline and already dividends of about R30 million had been earned. He indicated very briefly the existence and main functions of the remaining companies.

Ms Mathibela commented on the Mozambique pipeline, stating that there had been indications that there had been insufficient gas. She was happy to hear that it was now doing well.

Mr Damane noted that there was sufficient gas and CEF was looking at an expansion. Sasol were building a GTL plant in Secunda. Originally the gas had been used be used to fire the power station, and would now be used for the GTL plant. He noted that there was perhaps a contradiction in that the two were in a joint venture, yet competing in GTL but said that “this was just the way it was.”

Mr Kekana congratulated CEF, especially on the solar power initiatives. He noted that the inventor at Johannesburg had not been supported in the past, and he was happy that the field was at last being explored. He noted that the local universities, who were being subsidised by government, were not being sufficiently relied upon. Africans should address issues of Africa in constructive ways.

Adv Schmidt said that there seemed to be two problems with PASA - one that CEF did not want it to remain in the group, and the second was its operations. He asked if any representations had been made to the Minister for its removal. A regulatory function seemed to require a more objective and independent function. Reporting to a company that it should be regulating was problematic.

Mr Damane noted that CEF had spoken to the Minister. The Department was looking at the matter.

Adv Schmidt said that on a recent study tour the Committee had studied bio-fuels. He asked under which company the issue of bio-fuels was being addressed.

Mr Damane said that the primary research was being done at the universities The Energy Development Division was doing the development, at SFF, with PetroSA. By June it was hoped that the bio-fuel would be produced.

Mr Combrinck noted that one of the tanks at Saldanha was leased on a long-term basis. He asked what was the future plan with Saldanha, in the light of developments in Coega.

Mr Damane noted that the tank was leased to Caltex. PetroSA would be building at Coega, but this would be for products, not crude oil. The tanks would remain for crude oil at Saldanha. This was the only port equipped to handle this type of traffic, and the government would be telling CEF what the new policy on stocks would be. It was likely that CEF would be asked to keep more stocks.'

Mr Combrinck commented - for the second year in a row - at the high rent paid for the Waterfront offices in Cape Town, and wondered if it was necessary to rent such expensive offices.

Mr Tobias (PetroSA) noted that there was a rental agreement, with sublease to Allan Grey, that recouped a portion of the rental. The lease would come to an end this year. Most operations had now moved to the Parow office.

Mr Combrinck noted that there was reference to R600 000 having been used for a PABX telephone system, yet the company did not put in the system and lost that amount. He asked how this was allowed to happen.

Mr Damane said this was the subject of a disciplinary enquiry. It was being handled by the Board at PASA and appropriate disciplinary action would be taken.

The Chairperson raised a strategic issue on security of supply. He asked what the country needed to be assisted with, particularly in regard to strike action. The recent strike, despite being so short, had already shown that three provinces fell into short supply. He wondered if South Africa would be able to meet demands, and if not, he would like to know the strategy plan. Questions could also be asked around the 2010 implications. He would like an indication of broad strategies.

Mr Damane noted that presently there was no strategic stock policy in relation to petrol and diesel. The oil industry was required to keep a certain number of days stock, but it was not enough. CEF had engaged with DME because DME wanted to use SFF to be the custodian of product stock (diesel and petrol). The problem was that further facilities were needed around the country, and the product was needed inland, not in Durban where there were refineries and holding tanks. This would be costly, and the stock, having a limited shelf life of two to three weeks, would have to be rotated. The cost implications had been pointed out. The Minister was empowered, in terms of the CEF, to levy petrol and diesel users and use the money, through CEF to fund developments. This had been done with Saldanha. He was not sure when this would be finalised.

The meeting was adjourned.


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