A policy statement by President Cyril Ramaphosa has today resulted in the formation of a new state-owned petroleum company, the South African National Petroleum Company (SANPC). The SANPC has been formed following the merger of the Central Energy Fund (CEF) subsidiaries, iGas, PetroSA and the Strategic Fuel Fund.
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.
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.
The formation of the state-owned company follows President Ramaphosa’s February 2020 State of the Nation Address (SONA) wherein he announced government’s intention to repurpose and “rationalize” state-owned enterprises to support growth and development in South Africa.
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.
“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.
“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.”
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. 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 the matters relating to these legacy assets are resolved, they would 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.
“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,” said the company.
