A policy statement by President Cyril Ramaphosa resulted in the formation of a new state-owned petroleum company, the South African National Petroleum Company (SANPC), this week.
The SANPC was formed through a merger of the Central Energy Fund (CEF) subsidiaries namely the South African Gas Development Company SOC Limited (iGas), PetroSA, and Strategic Fuel Fund (SFF).
“The SANPC is poised to become a leading player in the country’s energy sector ensuring energy security, driving new technologies, developing and enabling essential infrastructure, fostering strategic partnerships, and propelling social and economic development,” said Ramaphosa.
“It is also expected to oversee strategic planning, coordination, and governance of the country’s petroleum resources, contributing to the country’s development and economic growth.”
SANPC has now been granted approval to start operating in terms of the Section 51 (g) (h) of the Public Finance Management Act of 1999.
Supporting South Africa’s growth
The formation of the state-owned petroleum business follows Ramaphosa’s February 2020 State of the Nation Address wherein he announced government’s intention to repurpose and “rationalize” state-owned enterprises to support growth and development of the country.
Cabinet subsequently approved the Department of Mineral Resources and Energy’s (DMRE) request to merge the three subsidiaries of the CEF – iGas, PetroSA, and SFF – on 10 June 2020.
“The rationalization of these subsidiaries into one single SA National Petroleum Company is on the basis that each company be efficiently structured so as not to transfer operational inefficiencies and going concern issues into the new entity,” said SANPC in a statement on Wednesday.
“Out of the three merging entities, only iGas and SFF are financially viable to be merged into the new entity subject to key legal requirements. However, following a rigorous assessment of the PetroSA business, the only financially viable division to be merged into the new company is Trading and the Ghana asset.”
The remaining divisions of these businesses that do not form part of the SANPC are classified as legacy assets that require further work before they can be transferred into the ambit of the new state-owned company.
In the meantime, the SANPC will be incorporated as a subsidiary of the CEF Group of Companies until the National Petroleum Bill is promulgated into law.
For the SANPC to kick start its operations, it would use the Lease and Assign model wherein certain assets of the merging entities will be leased out to the SANPC, the company said.
The proposed Lease and Assignment model provides the opportunity to strategically select what is leased and assigned to the SANPC by ring-fencing or isolating PetroSA’s legacy assets such as decommissioning liability and current operating challenges of the Gas to Liquid Refinery.
“This approach will improve the financial risk profile for SANPC to secure funding as well as provide a legally sound solution to deal with the constraints associated with the non-profit status of [the] SFF,” said the company.
“At the same time, work has begun to attend to the legacy assets which include the re-instatement of the Gas -To- Liquids (GTL) Refinery and the decommissioning liability methodology and provisioning.”
Once all these matters are completed, the legacy assets will be ready for transfer to the SANPC.
The company said that the Lease and Assignment transaction is deemed necessary and the most effective approach for the merger.
“With the combined strengths of the three subsidiaries, a solid financial position, and robust stakeholder support, the SANPC is well-positioned to leverage these benefits and seize the R95-billion market opportunity,” it said.
“The SANPC would be poised to become a leading player in South Africa’s energy sector, ensuring energy security, driving new technologies, developing, and enabling essential infrastructure, fostering strategic partnerships, and propelling social and economic development.”
Join the discussion