PetroSA’s BEE loophole

2014-04-20 15:00

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Production right has been withdrawn after company’s decision to ‘warehouse’ 10% BEE shareholding rather than look for a partner

The multibillion-rand Project Ikhwezi of the Petroleum Oil and Gas Corporation of SA (PetroSA), a state-owned company, is operating on shaky legal ground after Mineral Resources Minister Susan Shabangu withdrew its production right.

The decision invalidates a special dispensation granted to PetroSA to “warehouse” a BEE share until after it has begun production. Drawing in BEE partners is supposed to be a prerequisite for obtaining a right.

On December 12 last year, Shabangu withdrew the production right after an appeal by one of the companies that had applied for participation as a BEE partner, Zululand Oil & Gas Resources.

In a letter to Zululand notifying the company about the withdrawal, Shabangu admitted there was no basis to exempt PetroSA from BEE requirements.

PetroSA has invested R3.7?billion in Ikhwezi, which is expected to begin producing natural gas later this year to feed the Mossgas gas-to-liquids refinery in Mossel Bay, Western Cape.

Ikhwezi has an estimated 1.3?trillion cubic feet of gas reserves?–?enough to feed the refinery for about six years. Without this, the refinery will run dry.

Despite the withdrawal of the production right, Project Ikhwezi “is progressing well”, according to PetroSA spokesperson Zama Luthuli.

She was also adamant PetroSA had the right to operate as it was granted far-reaching powers by Shabangu’s department in 2009 to “warehouse” the 10% BEE component for any production right, on or off South African shores.

Luthuli said: “It is in line with this mandate that PetroSA has housed the BEE equity until the development risk associated with Project Ikhwezi is mitigated.

“On completion of Project Ikhwezi, PetroSA will seek BEE partnership for the project.”

According to her, PetroSA had approval from the top to warehouse the BEE component. “This was signed by Minister Shabangu and [her department] has a copy as well.”

Asked about this document, mineral resources spokesperson Ayanda Shezi said it would be improper to respond in great detail pending the adjudication of a new application from PetroSA.

But according to Shabangu’s letter to Zululand, “there is no exception or provision in the [Mineral and Petroleum Resources Development] Act or charter empowering the minister or director-general to deviate from the act or charter”.

The letter continued: “Therefore, the director-general erred in granting a production right to PetroSA without a BEE partner.”

Mineral law expert Henri Nieuwoudt, a director at law firm Norton Rose Fulbright, agreed.

“The [act] does not allow companies to ‘warehouse’ rights until the companies become BEE compliant, as well as fully compliant with all other requirements imposed upon them under the act.

“There is no other legislation that makes provisions for this in respect of mineral rights either,” he said.

Shabangu’s letter referred PetroSA’s application back to the Petroleum Agency of SA.

Approached for comment, Zululand chairperson Ebrahim Omar Sayed said his company was still in negotiations with PetroSA.

“We are hoping for a positive outcome and would like to be a BEE partner,” he added.


Where is the benefit?

In 2006, PetroSA sought a partner for the F-O gasfield, where Project Ikhwezi is based.

PetroSA’s Luthuli said this had led to “nonexclusive” confidential agreements with 11 companies, which allowed for the sharing of confidential information in the run-up to formal bidding for participation rights.

Zululand Oil & Gas Resources was one of these companies. It managed to obtain a nonbinding letter of interest from the Industrial Development Corporation to partially fund its participation in the project.

Zululand has Mossel Bay residents, as well as the Kwanonqaba Development Forum?–?a registered nonprofit organisation active in the community?–?among its shareholders.

Zululand shareholder Thandolwethu Gxikixa, who is also the secretary of Kwanonqaba, said there had never been any local benefit since the inception of PetroSA’s activities in Mossel Bay, which was in 1992.

“Kwanonqaba Development Forum will embark on a march to PetroSA on May 1 so that Zululand Oil & Gas can benefit as it will secure the legacy of our people and our [gas-to-liquids] refinery,” said Gxikixa.

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