Cape Town – The Central Energy Fund (CEF) declined to comment on a report that Luvo Makasi, who was appointed chairperson, allegedly asked board members of PetroSA to resign with immediate effect.
BusinessLive reported on Monday that Makasi asked PetroSA’s board to provide reasons as to why they should not be dismissed, following the embattled state-owned entity’s dismal state of financial affairs.
Fin24 asked the CEF’s spokesperson, Jacky Mashapu, to elaborate among other things on the reasons why Makasi allegedly wants the entire board sacked.
“We wish to put it on record that the CEF would not comment on an internal matter at this stage,” the response read.
PetroSA has suffered significant financial losses over the past three years.
According to BusinessLive, PetroSA projected a financial loss of R2.2bn in the year to end-March 2017. Fin24 earlier reported that the state-owned entity suffered losses of more than R14bn in the 2014-15 financial year.
The losses in 2014/15 were ascribed to poor management of Project Ikhwezi, which entails the finding of new gas deposits under the sea off Mossel Bay to feed PetroSA’s Mossel Bay gas-to-liquids refinery.
Three out of the five drilling wells yielded a modest 25 billion cubic feet of gas out of an expected 242bn cubic feet. In the mid-2000s PetroSA still had a cash balance in excess of R10bn, but the project has since put its balance sheet under considerable pressure – to such an extent that the Mossel Bay refinery risks closure in March next year.
Project Ikhwezi was expected to deliver the first gas in March 2013, which would have extended the refinery’s lifespan to 2019. The first deposits however, were only available some 21 months later by December 2014. A number of top executives were fired due to the botched project.
The situation was made worse by the drop in oil prices since 2014, as well as higher capital costs.
PetroSA’s management told Parliament last year that Project Ikhwezi wasn’t subjected to the required due diligence and corporate management processes because of the urgency to deliver gas to the Mossel Bay refinery.
Risk management was inadequate, the board wasn’t notified in time of various problems, and there were delays in the delivery of equipment. In addition, a number of contractors were changed.
Despite the losses, PetroSA last year decided to pay R17.3m in bonuses to its executives in 2016.
The Sunday Times revealed in December last year that executives at the struggling PetroSA benefited from a legal opinion that said “affordability” should not qualify as a justifiable reason not pay bonuses.
The bonus payouts to executives took place amid large-scale retrenchments at the state-owned entity to curb costs and amid financial losses that amounted to billions of rand over the past two financial years.
PetroSA with a staff compliment of 1 800 people is on a drive to reduce its workforce by 40%. Between January and June 2016, 250 employees were retrenched.
But despite this, bonuses were paid to 11 executives in October and November, while the last payment was to be made to three executives at the end of February 2017.Read Fin24's top stories trending on Twitter: Fin24’s top stories