Court battle over fuel sale

2017-11-05 06:00
Drums used in fuel adulteration - (Google Photo)

Drums used in fuel adulteration - (Google Photo)

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The Strategic Fuel Fund has told buyers they will not get their oil as the sale contracts were illegal.

A legal showdown looms between the Strategic Fuel Fund (SFF) and oil traders over the controversial sale of 10.3 million barrels of South Africa’s strategic fuel reserve for $300m (R4.3bn).

This comes as a former senior SFF executive is understood to have turned state witness and is cooperating with the Hawks under section 204 of the Criminal Procedure Act.

Two Central Energy Fund (CEF) senior employees and the department of energy told City Press this week that the former SFF employee met the Hawks twice in recent months, and made a statement claiming that SFF officials received instructions from senior ANC politicians to sell the oil reserves.

The scandalous sale of the reserves, for way below market value in December 2015 and January 2016 – at a price of $28 a barrel instead of $36 – sparked a public outcry.

A Hawks official told City Press yesterday that a former senior staff was one of the key suspects in the case. Hawks spokesperson Brigadier Hangwani Mulaudzi said the case is being handled by the Hawks’ serious economic offences unit in Gauteng and Western Cape.

The CEF commissioned KPMG to conduct a financial analysis of the sale. This was finalised in July and the findings include:

  • Most of the sale contracts signed with the fuel purchasers were illegal and did not comply with the Public Finance Management Act and the Companies Act;
  • The 10.3 million barrels of crude oil sold included 1.2 million barrels which cannot be removed from the storage tanks;
  • The disposal of the stock was a sale. Former energy minister Tina Joemat-Pettersson claimed that it was “stock rotation”;
  • The SFF could remedy the situation through restitution or by replacing the stock;
  • Restitution would mean reimbursing the buyers with the $300m they paid for it, including extensive fees relating to insurance, breakage, loss of revenue and legal fees;
  • Replacing the strategic stock would cost up to $486m (R7bn); and
  • Given the uncertainties and costs relating to restitution, replacing the stock would be a better option.

Documents obtained by City Press this week reveal that oil traders Venus Rays Trade, Vesquin Trading and Glencore Energy UK Limited have demanded that the SFF release the fuel to them. Although they bought the oil, it is still being kept in the SFF’s storage facilities in Saldanha Bay. The companies are leasing the storage space from the SFF.

Strongly worded letters from the buyers indicate that the SFF refused to release the oil, claiming it will bring a legal review to have the contracts of sale declared unlawful.

In a letter to Glencore Energy dated two weeks ago, SFF acting chief executive Thabani Zulu says the parastatal is not willing to release the fuel. This was in response to the British company’s demand to “comply with your obligations ... and release the relevant oil”.

Zulu wrote: “We note the content of your letter and reserve our rights to respond to the balance of your letter in court papers (which will be served on your clients).

“As mentioned in our letter dated 26 September 2017, the minister of energy instructed our direct shareholder, the CEF to commission a legal review of the circumstances surrounding the sale of the strategic fuel stock.

“The legal review referred to above has been concluded and it has found that the agreements are invalid and unenforceable in law due to non-compliance with legal requirements.”

Zulu said the SFF was preparing papers “to commence such reviews at the high court. We reiterate that pending the court process mentioned above, your client many not remove the strategic fuel stock from the Saldanha Bay storage terminal.”

To Vesquin Trading, Zulu wrote: “In your letter you give notice that among others, you do not accept that we have the right to refuse Vesquin access to the 3 million barrels of crude oil, presently stored in tank two of the Saldanha Bay storage terminal, and that you intend to withdraw the strategic fuel during November in three parcels.”

Zulu told the company it may not remove the fuel from storage pending the legal review.

Other companies to which the SFF sold the reserve stock include Contango Trading SA and Taleveras Petroleum Trading.

The letters reveal that on Friday, the SFF started a series of meetings with them to try and resolve the impasse.

CEF chairperson Luvo Makasi told City Press this week that the SFF would not release the fuel because the CEF believed the sale was illegal and was going to court to have the contracts reviewed and set aside.

“But also, imagine if we released the stock and something happened? The country would run out of fuel and there would be chaos. It would be extremely irresponsible of us to allow that to happen,” he said.

Makasi said the CEF board was finalising the terms of reference for a full investigation into the sale.

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Read more on:    saldanha  |  energy

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