/ 5 September 2008

Crude deal

Venezuelan President Hugo Chávez’s oil largesse could come at a cost to South Africa, an oil analyst said this week.

During Chávez’s state visit to South Africa it was announced that South Africa’s oil parastatal, PetroSA, had entered a deal with its Venezuelan counterpart, Petróleos de Venezuela SA (PDVSA).

PetroSA will be drawn into exploration and production activities in Venezuela’s petroleum-rich Orinoco Oil Belt, while PDVSA will be invited to partner PetroSA in a proposed crude oil refinery planned for development in Coega, Port Elizabeth.

The Venezuelan state enterprise will use South Africa’s crude storage facilities in Saldanha and may, in future, acquire some of PetroSA’s exploration assets on the continent.

Lyal White, a research associate on the Latin American desk at the Institute of Global Dialogue, said the downside of the deal was the likely cost to the taxpayer of building the country’s first state-owned refinery. Industry insiders estimated the cost at between $5-billion (R39,1-billion) and $7-billion (R54,6-billion).

Adding to the costs would be the construction of pipelines and other infrastructure suitable for the Venezuelan variety of crude oil and the transportation of the crude from the producing country, thousands of kilometres away.

The Orinoco Oil Belt has the world’s highest concentrations of heavy crude oil — a dense, highly viscous product that contains many impurities, making it more expensive to refine. This is seen as potentially limiting the country’s energy options in the future.

White added that South Africa was joining a host of countries entering into deals with petroleum-rich countries, some of dubious democratic credentials, a development which came with “a political cost”.

South Africa is the first African state to enter into a strategic relationship with Venezuela, joining a long list that includes Nicaragua, Brazil, Jamaica, Bolivia and Argentina.

Thabo Mabaso, spokesperson for PetroSA, said at this stage the parastatal could not quantify the deal in monetary terms. Responding to concerns that the proposed refinery deal would limit South Africa’s options, Mabaso said: “It’s not meant only for oil from Venezuela. It will be able to handle various types of crude from a variety of sources.” But Chávez’s visit and the announcement of future cooperation over oil are seen as having a wider political significance.

As with agreements with French President Nicolas Sarkozy, German Chancellor Angela Merkel and Egyptian President Hosni Mubarak, it represents a political boost for the Mbeki government following the setbacks at Polokwane and his policy of building South-South solidarity and reducing dependency on the developed world.

The United States government, which Chávez has regularly pilloried as “imperialist”, appeared unimpressed. The Chávez visit was dismissed by a United States embassy official as a “non-event”. Referring to the deal with PetroSA, the official, who asked not to be named, said Chavez “goes out every time doing this”.

At a joint media conference with Mbeki on Tuesday in Pretoria, Chávez said: “We are a mix of Africa and America; of our America; the Indian America; the Afro America.”

Paying tribute to former president Nelson Mandela and to Cuba’s links with South Africa’s liberation struggle, he said relations among the countries of the South have to be strengthened to reach “a profoundly strategic level” because “the world is moving. The world’s dynamics are forcing us.”

Chávez said that his personal project was to use Venezuela’s petroleum wealth to break the stranglehold of the US’s “unipolar” vision.

Additional reporting by Sinayo Daba