Floundering or sinking, which ever way you view it the South African-Iranian oil deal is going nowhere for now, writes Karen Harverson
Depending on whom you believe, South Africa’s deal to store and trade Iranian oil has fizzled out — or it has just been suspended pending the outcome of an environmental study on the risks of increased tanker traffic to Saldanha Bay.
Two weeks ago Business Day reported that the deal had floundered over Iran’s refusal to offer South Africa an acceptable cut in trading profits. It quoted overseas sources which claimed the deal was “dead in the water”.
However, Strategic Fuel Fund (SFF) general manager Kobus van Zyl is adamant that the deal — which could have earned South Africa R50-million a year in profits — is only “temporarily suspended” and has not been scrapped.
“The storage agreement has been signed. The joint venture trading agreement must still be signed although all the main aspects of the deal have been agreed upon.”
He added that the deal was suspended because the South African government insisted that the outcome of the environmental study be made a suspensive condition of the contract. “The Iranians are naturally upset about this late development but both parties have to respect it.”
Industry sources claim Iran’s initial interest in the deal was fuelled by its urgent need to find storage for its oil which was piling up because of United States sanctions against the country.
Another benefit is the strategic position of the Saldanha tank farm which is convenient for the African, South American and north west European markets.
The SFF’s deal with Iran entails both storing Iranian oil and trading it — and the storage agreement will apparently not go ahead without the trading aspect being tied in.
“A storage deal based on a storage fee has never been discussed and is presently not under consideration by the SFF,” says Van Zyl.
Iran’s apparent reluctance to conclude a satisfactory joint venture trading agreement with South Africa may indicate that its need to store oil is not as desperate as once thought or even that it no longer has the oil available to place in storage.
In any event, the deal won’t get the go-ahead before the outcome of the Council for Scientific and Industrial Research’s (CSIR) environmental impact assessment (EIA) study which seems unlikely to be completed earlier than mid-1996.
Last week the CSIR released a Background Information Document to some 340 affected or interested parties, inviting comment on the proposed process and on the issues which need to be addressed by the study.
Comment must be submitted by mid-November, following which a scoping report will be published describing the agreed process of the EIA, the viable project alternatives to be assessed and the key issues to be taken into account.
Thereafter, specialist studies will be undertaken on those issues identified in the scoping phase.
Finally a documented report will be drafted based on the findings of the studies and the SFF will then decide if it is to proceed with plans to expand operations at Saldanha.
The benefits to South Africa of the Iran deal — besides the estimated R50-million trading profit — include improving the utilisation of an under-utilised asset and using Iran’s crude oil as collateral for export trade to that country from South Africa.
A deal with Iran could also result in a reduction of South Africa’s strategic oil stocks below the target of 35-million barrels, thus releasing more than $250- million for use by the government.
At present, South Africa has 53-million barrels of crude oil stockpiled compared to its highest level of 150-million barrels in mid-1989.
The SFF plans to reduce the 36-million barrels at Ogies to 10-million barrels and increase the 16-million barrels at Saldanha to 25-million, thus reaching its target of 35-million barrels. “The present rate of reduction is very low (about 700 000 barrels a month) and could take about 25 months to achieve,” says Van Zyl.