Problems with South Africa’s plan to say goodbye to imported petrol

South Africa plans to refurbish two out-of-service refineries as well as upgrade them to produce cleaner fuels by 2027, however, the sheer scale of the task paired with government’s spotty track record of delivering projects on time and within budget has cast doubt on its capacity to carry out the initiative.

The two refineries in question are the Sapref and PetroSA facilities in KwaZulu-Natal and Western Cape, respectively.

The gas-to-liquids PetroSA plant was shuttered in 2020 after experiencing a shortage of feedstock and it has remained under a “maintenance and care programme” ever since.

Once owned by BP and Shell, the Sapref refinery was shut down in February 2022 following severe flooding which would have necessitated extensive repairs that the energy giants deemed too costly and resource-intensive.

The petroleum powerhouses sold the facility to national government earlier in 2024 for a symbolic R1.

These refineries were among several closed down in South Africa over the last five years, as a result, the country has rapidly grown its reliance on imported petroleum products over this timeframe.

In 2019, approximately 30% of the fuels in the domestic market were imported while the rest came from six fully operational refineries which together produced in the realm of 713,000 barrels of petroleum per day.

Fast forward to 2024, the country now purchases around 70% of all its petrol, diesel, and jet fuels from international suppliers and produces fewer than 370,000 barrels every 24 hours.

Fuel security has waned due to this increased dependence on imported propellants, so much so that state-owned port and rail authority Transnet warned that fuel shortages could become a more regular occurrence in the nation if South Africa doesn’t take action.

South African refinery capacity. Source: Bloomberg

History to repeat itself

The Minister of Minerals and Petroleum Resources recently revealed that government is planning to revive the Sapref and PetroSA refineries to restore the local fuel sector back to its former glory.

“The minister indicated that they are bringing [the Sapref refinery] back, and also the PetroSA refinery is going to be brought back,” said Fani Tshifularo, Executive Director of the Fuels Industry Association of South Africa (FIASA), in July.

“We indeed support such initiatives, particularly if there are investors who are interested in putting their money into those projects, because it will help a country like South Africa where the importing markets are far away from us.”

In response to emailed queries, FIASA told TopAuto that should the Sapref and PetroSA plants come back online, it will contribute to improved fuel security, jobs, and tax receipts for the country.

However, it indicated that the extent of the damage is unclear at the moment, which puts any preliminary budgets and deadlines into question.

“The scale of damage and work required for restoration will directly impact the budget and time for implementation,” said FIASA.

“Past experience suggests [government] will be overspent and over time.”

When asked directly what it expects will be the timeframe for the recovery of Sapref, FIASA succinctly said: “Don’t know – except a long time.”

Sapref Refinery in Durban, KwaZulu-Natal

Wits University’s Dr. Rod Crompton, as well as renowned Efficient Group economist Dawie Roodt, expressed similar sentiments.

Crompton noted that while government’s plans are noble and would unquestionably be a boon for the economy, there will be significant challenges along the way, some of which the authorities may not be equipped to overcome.

Government may have purchased Sapref for peanuts from its old owners, but it’s now shacked up with “billions of rands of environmental liability” that must be tended to as a result of the flooding that washed harmful chemicals into the area around the refinery.

“I believe the Minister of Mineral Resources and Energy has been talking about revamping that refinery and revitalising it. Remember, it was flooded, and BP and Shell decided not to fix it after the floods, so [government] has to fix that and then get it working and then invest for the cleaner fuel specification, so most people in the industry are very sceptical that government would be able to do that,” said Crompton.

“If you look at the way PetroSA has behaved, its corporate record is not too promising.”

Likewise, Roodt told BusinessTech that the state is “far too big and highly incompetent” which will hamstring its ability to refurbish the fuel refineries.

He further said that South Africa is going to struggle to find willing investors with the capital and know-how to partner with on these projects.

Indeed, BP and Shell with their combined annual revenue of over $500 billion and with among the brightest minds on the planet on their payroll deemed it too mammoth of a task to take on together, which other private companies will undoubtedly take into consideration before signing any agreements.

Alternatively, if government ran the project by itself, history shows that it’s likely to go down the same path as that of many other state-owned entities and become a veritable disaster, said Roodt.