A R1.2-billion liquid petroleum gas import and storage terminal whose construction was largely co-financed by the state’s Investment Development Corporation (IDC) and the Public Investment Corporation (PIC) has been plagued by financial troubles leaving it unable to service its loans.
Sunrise Energy’s open access terminal just off the coast of Saldanha Bay in the Western Cape is a greenfields project that was built with the aim of developing the liquid petroleum gas (LPG) market in the region.
The IDC and the PIC extended loans of R709-million and R150-million respectively to Sunrise for the construction of the terminal while the rest was funded by Sunrise’s majority shareholder.
Sunrise confirmed to the Mail & Guardian that the energy company, whose operations began in 2017, had approached its lenders with proposals to restructure its debt agreements because of financial issues stemming from unending legal challenges with its competitor, Avedia Energy.
“If we didn’t have the Avedia issue then Sunrise would be thriving and would be able to service all its loans,” Sunrise chief executive Pieter Coetzee said.
Sunrise is not the only company which has approached the PIC to restructure its loan. Independent Media Group owner Iqbal Surve told the M&G that towards the end of the fourth quarter he wrote to the PIC with an offer to settle the group’s R1-billion loan which it has struggled to pay back.
When asked about Surve’s offer, the PIC confirmed that it has received a letter on the Independent Media loan that is being “discussed internally”. Both the PIC and Surve would not reveal the contents of the letter for confidentiality reasons.
The PIC manages over R2-trillion in state assets the majority of which are workers pensions under the Government Employee Pension Fund (GEPF). Its investment decisions have received wide media scrutiny over the years which led to the establishment of a commission of inquiry into the PIC led by Judge Lex Mpati.
The commission has heard that the PIC invested R4.3-billion in Surve linked company, Ayo Technology Solutions without following proper governance and investment processes. The PIC is currently engaged in a legal process to recoup the investment amount.
In its annual report last year the GEPF reported write-downs of more than R7-billion in investments such as those made to Independent Media, the ruined VBS Mutual Bank and the empowerment deal between retailer Steinhoff and the Lancaster group. These are also subject to investigation by the Mpati commission.
The M&G recently reported that the section 56 concession granted to Sunrise by the Transnet National Port Authority (TNPA) giving it exclusive rights to build, own, operate and transfer the terminal was found to be “technically void” by SekelaXabiso forensic investigators.
Sunrise was supposed to build the terminal on land owned by the authority, but didn’t. It further failed to comply with a remedial agreement to sell the land to TNPA at close to nothing due to ongoing legal litigation it’s been having with competitors Avedia Energy.
The terminal and pipeline operates on an open access basis and the concession granted by the authority requires importers, such as Avedia, to use the facility to bring in the liquid petroleum gas.
Avedia, runs a similar import facility which offloads gas from ships to road trucks for delivery to its storage facility. The rival company has been doing this through temporary licences granted to it by the regulator pending the completion of Sunrise’s facility.
Despite the terminal being operational since 2017, Avedia has yet to connect to Sunrise’s pipeline. The two companies cannot agree on technical drawings for the interconnection and Avedia has complained about the tariff to connect to the pipeline which it said was excessive and prejudicial to its business.
In a recent court application before the Western Cape high court Sunrise argued that it was “considerably prejudiced” by the ship-to-truck offloading by Avedia because for every offloading of this nature Sunrise lost an income of $500 000. This is the amount by which Sunrise is obliged, to reduce the fees it charges to its customers using its facility.
Further, the energy operator said it had also lost an income of about $95 000 that Avedia would have paid to Sunrise if its liquid petroleum gas was imported through the facility.
According to Sunrise, this not only reduced the financial viability of the company but “reduces its ability to service its long term obligations to the [PIC and the IDC]”.
Sunrise has also not been able to submit signed audited financials for the past two years due to its financial constraints.
Sunrise said it was producing positive cash flows and would become profitable once the challenges with its current debt terms and tenure are resolved.
The energy operator’s majority shareholders, Mining Oil and Gas Services (Mogs), told the M&G that Sunrise had received clean audits over the past two years and discussions about debt-restructuring with its lenders were now at an advanced stage.
“We expect the financials to be signed shortly,” said Mogs.
Mogs has a 60% stake in Sunrise, the IDC’s shareholding sits at 31% and engineering consulting firm Ilitha Group Holdings owns 9% of the company.
Meanwhile, loans from the IDC and the PIC which total R860-million are at stake. SekelaXabiso’s report stated that the costs of the project had ballooned from an estimated R600-million to just over R1-billion.
But the IDC which invested R709-million and was involved in initiating the project with Ilitha engineering, said in an email that when it made the funding approval the final project costs were estimated at R950m in February 2015.
Towards the end of construction, Sunrise approached the PIC for R150-million loan to complete the project said Mogs.
Mogs explained that when it joined the project in 2015 the IDC and Ilitha had already been awarded the concession. “Roughly 30% of the total capital expenditure for the project had been invested and spent on the front end engineering and design process and other expenses including legal and project delay costs” it said.
Sunrise, Mogs and the PIC confirmed that proper due diligence which looks into the commercial and technical aspects of the deal had been conducted not only for the loan but as well as a R2-billion equity commitment into Sunrise’s majority shareholder, Mogs.
On its website, the PIC said the basis of its investment into Mogs was to support infrastructure development in the oil and gas sector. Mogs explained that the equity investment was underpinned by its mining portfolio which has a turnover of more than R3-billion.
The section 56 concession granted to Sunrise provides the operator with 25 years to recoup the costs of building the R1.2-billion terminal through operations before it has to transfer the facility to the state. Sunrise said in the court documents that it will not be able to do this “if its potential customers are undercut by Avedia’s operations”.
The unlisted investment details for the equity and debt investments also show that the chief executive of Royal Bafokeng Holdings, Albertina Kekana, sits on the boards of Mogs and Sunrise and was identified as a politically exposed person.
Kekana was an employee of the PIC for eight years and was the chief operating officer when she resigned in 2011 and subsequently appointed chief executive of Royal Bafokeng Holding in 2012.
Mogs said Kekana’s involvement with the loan negotiations with the PIC was “limited’ to her role as chief executive, while the executive management of Mogs undertook all negotiations which followed rigorous approval processes.
Tebogo Tshwane is an Adamela Trust business reporter at the Mail and Guardian.