Experts say SA does not need refineries as Mossel Bay refinery deal collapses

While it seems that the deal to refurbish the Mossel Bay gas refinery is collapsing because the Russian bank that was going to bankroll it soured, experts question why PetroSA is now scrambling to get a new partner.

PetroSA closed its gas-to-liquid fuel refinery in Mossel Bay, which produced 46 000 barrels of fuel per day, in 2020 after it ran out of feedstock. Cabinet approved the investment deal with Russian-owned financier Gazprombank to refurbish the refinery in December 2023.

The South African partner of Gazprombank, Equator Holdings, run by “political operator” Lawrence Mulaudzi, to “explore offshore gas reserves and rebuild critical gas infrastructure”, was also questioned.

Just hours after signing the R3.7 billion deal with Gazprombank, PetroSA officially roped in Mulaudzi’s Equator Holdings by signing a massive tender deal with the politically connected businessman, prompting the Democratic Alliance (DA) to submit a PAIA application to PetroSA, requesting a record of the decision which motivated the awarding of the tender.

The tender deal included refurbishing the FA offshore platform which connects offshore gas to pipelines that bring it onshore and the gas portion of PetroSA’s Mossel Bay refinery. However, Equator Holdings had no track record in the gas industry and allegedly did not provide evidence that it had the R22 billion needed to finance the deal, which was a prerequisite to winning the contract.

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Mossel Bay refinery refurbishment moved to feasibility stage

In May last year, PetroSA announced that the Mossel Bay refinery refurbishment moved to the feasibility stage. But just two months later, in July 2024, amaBungwane reported that Equator Holdings, also trading as Tshakhuma Tsha Madzivhandila (TTM) Football Club in Limpopo was liquidated in March for failing to pay one of TTM’s soccer players.

TTM failed to oppose the liquidation. However, amaBungwane said documents suggest PetroSA was unaware of Equator’s liquidation and kept pursuing the multi-billion rand deal.

According to a new report from amaBungwane based on two draft internal audit reports and letters exchanged between PetroSA and Gazprombank it obtained from various sources, Gazprombank failed to deliver the $200 million (R3.7-billion) in funding it promised or even the $3 million (R56-million) needed to complete a bankable feasibility study.

Wayne Duvenage, CEO of Outa, already criticised the deal just after it was announced. Now he says Outa is concerned that PetroSA and the Central Energy Fund (CEF) are not managing the process of revitalising or revamping the Mosgas facility in a way that makes financial sense for the country.

He adds that without a constant supply of gas to the facility, it is a non-starter. “It appears that the gas supply plan is a problem and we have no doubt that political interference and possible nefarious activities are at play, more so when we read about companies like Equator Holdings getting contracts to do a multibillion-rand offshore gas infrastructure refurbishment contract.

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Expert questions whether South Africa needs its own refineries

Chirs Yelland, managing director of EE Business Intelligence and energy expert, also questions whether South Africa needs a refinery seen that it does not have any of its own oil or gas reserves. He also doubts if the refurbishment will go ahead now that Total Energies walked away from the Brulpadda and Luiperd gas fields In the Eastern Cape.

“You cannot restart the Mossel Bay refinery rebushing because it relies on a supply of gas that was going to come from those two gas fields. Even if you have the money, If you do not have a gas supply, it is a problem.”

He also points out that there were problems with the contracts, disputes and suggestions of corruption and maladministration in a generally very weak procurement process contracting with the wrong kind of people for the wrong reasons.

“Rebuilding the refinery is a big task in itself and new pipelines must also be built. And when a refinery in a coastal area has been out of service for a number of years it deteriorates and it becomes more and more difficult and more and more expensive to get it up and running again.

“And by the time they sort out the gas fields or the gas supply and build the infrastructure and sort out the contractual issues, another five years could go by.”

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Was it a good idea to refurbish the Mossel Bay refinery?

Is it a good idea to refurbish the refinery? Yelland says we are where we are. “If we had the resources of gas and a refinery that was in good shape it would be a good thing for South Africa because it is an asset that exists. But it does not.”

He points out that all the other refineries in South Africa are really not in good shape. “Many of them have actually shut down and they are old and inefficient and they do not comply with modern petroleum standards.”

“They cannot produce liquid fuels to the standards that are required by modern cars that comply with the regulations that apply in other countries. We have fallen behind more and more. Because these refineries have been closing, South Africa imported the finished product to fill the gap.

“There is no shortage of liquid fuels in the world market. You have to ask if it makes sense economically to produce your own fuel. If we had to modernize and rebuild these rather small refineries in South Africa that reached the end of their lives, how much would it cost?

“What would be the impact on the fuel price? Because if you invest billions and billions of rand and get these fineries up and running, it will mean that the fuel price has to increase for these companies to recover their costs over a period of time,” said Yelland.

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Petrol price would have to increase to afford Mossel Bay refinery refurbishment

He points out that if there is a no mechanism for oil and gas companies to recover their investment costs, they will not invest. It is as simple as that. Do we really want to increase the petrol price?

“My personal view is it does not make economic sense to refurbish our refineries. There is a surplus of liquid fuels on the world market. There is no shortage and there are mega refineries that produce these refined products much cheaper than our old refineries.”

Yelland also warns that unless you have the right price to compete in the global market, you will never be an exporter. “And if you are not an exporter, you will never be a big player. The reality is that South Africa does not have crude oil.

“We have to import our crude oil and we have to then compete with other that have crude oil. How can we ever compete when we have to import oil from other sources and then transport it to South Africa to refine it using old, small refineries?

“We will never be competitive on the world scale. South Africa should focus on its core competencies and not try to be a local manufacturer in an area where we do not have a competitive advantage. What we do need is to become better at training and logistics around the imported finished product.”

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South Africa is not a manufacturer, expert says

Yelland says South Africa must stop thinking that it is a manufacturer because we are not. “We should become good at importing and logistics and have very good logistical facilities, pipelines and port facilities. This is where our focus should be.

“Five years ago, we had a gas supply and if we contracted properly then it would have been a good thing but we did not have a good contracting arrangement. I think if they proceed with this, it will be a pure vanity project, doomed for failure.”