Get more Mail & Guardian
Subscribe or Login

On-off oil refinery back on the table

Minister of Energy Jeff Radebe has refuelled the government’s determination to build another oil refinery.

In his budget vote speech this week, Radebe said “[Oil refining] is a significant contributor to the economy and the issue of the sustainability of the current refineries is of utmost concern”.

The current refineries “are not equipped to produce the latest fuels required by modern vehicle engines to reduce vehicle emissions and improve efficiency”, he said. Resolving these problems would require significant investment with long lead times. Radebe added that he would consult the industry and provide policy certainty by the end of the year.

At a recent media briefing, Radebe, accompanied by departmental officials, announced that, to ensure the security of South Africa’s fuel supply, an implementation framework for a new oil refinery would be finalised this year.

The state has long had plans for such a project, which have been extensively debated but among the difficulties that remain is the cost.

The issue is further complicated by long-running negotiations between the government and oil firms about the upgrading of the existing refineries to meet cleaner fuel specifications and a cost recovery mechanism to fund it.

According to the department’s deputy director general for petroleum, Tseliso Maqubela, South Africa is now importing about a quarter of its petroleum products because of economic growth and increased demand.

There are six refineries, which include state-oil company PetroSA’s refinery at Mossel Bay, and petrochemicals giant Sasol’s refinery at Secunda. The Chevron refinery in the Western Cape is the subject of rival bids from China state oil company Sinopec and commodities major Glencore.

A proposed PetroSA refinery at Coega in the Eastern Cape that was developed in partnership with Sinopec has not been built. PetroSA has been battling with huge losses. The company’s latest results revealed a loss of R1.6-billion for the past financial year, although this is a recovery from two years previously when it reported losses of R14.5-billion.

The initial estimate to build a new refinery at Coega in 2012 was about R100-billion to produce 360 000 to 400 000 barrels a day. But one of the major problems was the lack of supporting infrastructure, including a pipeline to transport the fuel to the inland market, which would have added significant costs to the project.

According to Avhapfani Tshifularo, the executive director of the South African Petroleum Industry Association, a new refinery would reduce the amount of diesel and petrol being imported but it would be expensive to build and more expensive than expanding an existing refinery, he said.

The amount of fuel being imported was too small to justify building a new refinery solely aimed at supplying the local market, so it would need to be large enough to also service the export market, said Tshifularo.

According to 2016 figures, South Africa imported about 3.7-billion litres of diesel and just over one billion litres of petrol.

Tshifularo said a significant amount of these imports were of 50ppm diesel and 95 unleaded petrol. These cleaner product variants are manufactured in South Africa but not at levels needed to meet the demand.

He also said the import figures included diesel for Eskom’s peaking power plants, which did not reflect “normal” fuel demand.

The cost of upgrading the existing refineries, most importantly to meet Clean Fuels II specifications, is estimated at about R40-billion.

“South African refineries must be upgraded to be able to produce Clean Fuels II otherwise they would die if the products produced have no market,” Tshifularo said.

Radebe said he had held discussions with some of the major oil companies. “We will consider all those issues within the context of finalising our posture on this but we have to go into this [Clean Fuels II]; there is no choice,” he said.

In the case of the Chevron refinery, Minister for Economic Development Ebrahim Patel has specified that the new owner must spend R6-billion to upgrade the facility to meet the cleaner fuel requirements.

But, ultimately, refinery owners decide whether to import or refine crude oil locally, Tshifularo said.

All the current debates notwithstanding, if a refinery owner decided it made commercial sense to close a refinery, “there is no law to stop that”, he said.

He likened it to General Motors, which left South Africa last year despite the government’s automotive production and development programme.

“Even with that support programme, which is considered to be very successful for supporting manufacturing capacity in South Africa, General Motors still took a decision to pull out of South Africa,” he said.

Vote for an informed choice

We’re dropping the paywall this week so that everyone can access all our stories for free, and get the information they need in the run up to the local government elections. For the latest updates and political analysis, sign up to our daily elections newsletter.

If our coverage helps inform your decision, cast your vote for an informed public and join our subscriber community. Right now, a full year’s access is just R510, half the usual cost. Subscribers get access to all our best journalism, subscriber-only newsletters, events and a weekly cryptic crossword.

Lynley Donnelly
Lynley Donnelly
Lynley is a senior business reporter at the Mail & Guardian. But she has covered everything from social justice to general news to parliament - with the occasional segue into fashion and arts. She keeps coming to work because she loves stories, especially the kind that help people make sense of their world.

Related stories


Already a subscriber? Sign in here


Latest stories

Eskom to take ‘extraordinary measures’ to avoid load-shedding for elections

Stage four load-shedding rolled out to ensure the polls on Monday 1 November are energy secure

Khaya Koko: John Steenhuisen, please take a knee

The Democratic Alliance leader rebuking cricketer Quinton de Kock would be this election season’s greatest triumph

Paddy Harper: Will the Covid-19 cigarette ban come back to...

Flashbacks of nicotine deprivation and not poor service delivery may see a run on the polls on Monday

Eskom resorts to stage four load-shedding

Stage-four outages will continue until Friday after the loss of two units during the night, and three in total at Medupi, Kusile and Matla power plants tripping

press releases

Loading latest Press Releases…