South African National Petroleum Company Formed

A policy statement released by President Cyril Ramaphosa has seen the formation of a new state-owned petroleum company, the South African National Petroleum Company (SANPC).

The new entity will see a merger of the Central Energy Fund (CEF) subsidiaries, iGas, PetroSA and the Strategic Fuel Fund into a single entity.

According to a statement released by the government, SANPC has been created to ensure energy security, to drive new technologies, and to develop and enable essential infrastructure.

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. 

The company has been granted approval to start operating in terms of the s51(g) (h) of the Public Finance Management Act of 1999.

Under this national directive, on 10 June 2020, Cabinet approved the Department of Mineral Resources and Energy’s (DMRE) request to merge the three subsidiaries of the Central Energy Fund (CEF); namely the South African Gas Development Company SOC Limited (iGas), PetroSA and Strategic Fuel Fund (SFF).

“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.

According to a statement by SANPC “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 new petroleum company said in a statement on Wednesday.

It added that the remainder of the business that does not form part of the SANPC will form part of legacy assets requiring further work to be done before they could be transferred into the SANPC. What the exact details of the required work to be done on these entities before they can be transferred is still not clear, and no time frame has been given for this to happen.

“In the interim, 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 to the new company, the SANPC.” They commented.

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.

The lease approach is aimed at providing an improved financial risk profile for SANPC, so that they would be able to secure funding for future developments without the constraints associated with the non-profit status of non profitable entities on their books.

At the same time, SANPC states that work has begun to attend to the problematic legacy assets which include the re-instatement of the Gas -To- Liquids (GTL) Refinery and the decommissioning liability methodology and provisioning. Evidently the remaining assets will continue to be funded via government budget allocations and the hope will be that the rehabilitation will not impede future developments within SAMPC.