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Taxpayers poised to fund refinery rescue

Home Business Management Finance & Investment Taxpayers poised to fund refinery rescue

TAXPAYERS may be the ones to fund a buyout of the soon-to-be shuttered SAPREF refinery in South Durban.

In what marked a third major blow to South Africa’s fuel refining capacity in recent years, the shareholders of South Africa’s biggest crude oil refinery recently announced an indefinite spend freeze and pause on operations.

Now it has emerged that the KwaZulu-Natal provincial government is in talks with the national energy department about the possibility of buying the facility.

The suspension, set to come into effect by the end of March 2022, follows the closure of the nearby Engen refinery in December 2020 following an explosion earlier in the year. This came after production at the Astron Energy refinery in Milnerton, Cape Town was halted in the middle of 2020 due to a fire.

In a statement, BP Southern Africa (BPSA) and Shell Downstream South Africa said the decision was taken after consultation with government, unions, and employees. “This will be for an indefinite period but with a re-start possible in the future, including in the event of any future sale.”

They added that the decision to pause refinery operations would have no impact on full time employees, at least “currently” and that safety remained a primary consideration.
“Moving forward, the shareholders will use other existing assets and trading arrangements to ensure ongoing security of fuel supply to the country and their consumers.”

BPSA CEO Taelo Mojapelo said, “Leading up to the refining pause, we have put contingencies in place to ensure that this decision does not impact our customer facing businesses in South Africa or our fuel supply obligations. We remain committed to South Africa through our demonstrated transformation initiatives in the value chain and
continue to work with our strategic partners to strengthen our differentiated convenience offers.”

Hloniphizwe Mtolo, Country Chair, Shell Downstream South Africa, said the decision to pause the refinery was a difficult one for both shareholders.

Threat to growth

But Energy Minister, Mantashe is clearly not convinced by this argument. Speaking during a debate on the 2022 state of the nation address on Tuesday 15 February, he warned that the decision threatened South Africa’s plans to establish an upstream petroleum industry to support economic growth and meet energy needs.

He said the “greed and arrogance” of “certain petroleum entities” that want to shut local refineries and import their product would cause job losses, cost the economy dearly, and lead to uncertainty of supply.

Mantashe added the government was mulling “drastic measures” regarding the planned refinery closure, citing the country’s national and economic security. But he gave no details on these planned measures.

It now seems this may include a state buyout of the refinery. Business Day reported of 24 February that KwaZulu-Natal premier Sihle Zikalala said that the provincial government has approached national government with a view to purchasing SAPREF.

“We are of the firm view that retaining refinery operations in our province is key for economic growth and job creation rather than solely relying on importing refined oil,” Zikalala is quoted as saying.

“For that reason, we have called on national government to buy SAPREF.”

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