Oil deal: Country ‘in good company’ in taking on a Russian partner to fix PetroSA

Minister in the Presidency Khumbudzo Ntshavheni yesterday shrugged off concerns about possible sanctions stemming from Cabinet’s endorsement of the R3.7-billion PetroSA-Gazprombank Africa oil deal.

Sounding an alarm on trade dealings with Russia in May, the SA Reserve Bank warned in its financial stability review report of secondary or indirect sanctions, leading to a sudden halt to capital inflows and increased outflows.

‘If PetroSA’s deal with Gazprombank went ahead, the Russian company would not only invest R3.7 billion’

According to amaBhungane, if PetroSA’s deal with Gazprombank went ahead, the Russian company would not only invest R3.7 billion and be responsible for refurbishing the refinery, it would also provide PetroSA with gas condensate, at least until domestic natural gas became available.

“In exchange, Gazprombank will get a share of the profits,” amaBhungane said. “Any diesel the refurbished gas-to-liquids refinery produces is likely to be sold to Eskom to burn in its open-cycle gas turbines.

“Load shedding has provided a lifeline to PetroSA and helped grow its turnover from R12 billion last year to an estimated R20 billion this year.

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“For a partner like Gazprombank, this could be a goldmine,” amaBhungane said.

Deal was ‘not unusual’

Responding to a question during a post-Cabinet media briefing in Pretoria, Ntshavheni said a deal was “not unusual”.

On whether Cabinet had considered the possibility of secondary sanctions, Ntshavheni said: “Of course. A risk assessment is done before such partnerships are finalised.

“South Africa is not the first country to have ties with Gazprombank or with a Russian company – India is procuring oil from Russia. European Union countries and the US, have ties with Russia.

“There have been exemptions considered in terms of sanctions imposed by the US on Russia. “South Africa’s relationship with Russia is driven by our partnership in Brics [a bloc of fast-growing emerging economies] and that is not going to change tomorrow…

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“There is no point of South Africa being in Brics and being unable to partner with Brics countries in trade and investment – part of building a resilient economy that is not susceptible to only one side of the global balance of power.

“Our relationship does not negate countries which are outside Brics because we are governed by bilateral agreements.”

Independent political analyst concurred with PetroSA and Cabinet’s choice

Independent political analyst Sandile Swana concurred with PetroSA and Cabinet’s choice of Gazprombank Africa.

He said: “There should be consideration of the fact that South Africa and Russia have existing legal cooperation agreements … established around 2013 [and] growing over time.

“The same applies to the US, which has an Agoa [African Growth and Opportunity Act] agreement with SA, regardless of whether SA has a relationship with Brics countries or not.

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“It appears PetroSA did its homework to ensure that Gazprombank Africa is not on the US blacklist.

“The US letter cautioning us on secondary sanctions listed Russian individuals and companies.

“While western companies would have wished to win the deal, South Africa preferred to strengthen ties with Russia – nothing wrong with that.”

Cabinet, said Ntshavheni, “considered as fundamental, investments that will yield results, also beneficial to lowering the price of fuel in the country with our ability to bring back to full operation the Mossel Bay GTL [gas-to-liquids] refinery”.

“The tender process and compliance issues were handled by PetroSA, with Cabinet endorsing a recommendation for a partner.

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“With the project on a risk-and-benefit share basis, there is no equity injection considered.

“In the first phase, there will be due diligence done in terms of the project being a bankable business case followed by a final investment decision to be taken around April.

“Gazprombank Africa, which is already in South Africa, is going to invest on a risk basis and the final outcome of that will be based on a bankable business case,” she said.