/ 10 May 2019

Fuel terminal project mired in controversy

Dodgy deal: Transnet says it discovered that its Ambrose Park land was being irregularly leased.
Dodgy deal: Transnet says it discovered that its Ambrose Park land was being irregularly leased. (Waldo Swiegers/Bloomberg/Getty Images)

The government seems determined to push ahead with a controversial strategic fuel reserves project in eThekwini, KwaZulu-Natal, despite concerns about irregularities and advice against doing so.

The project involves leasing land owned by state utility Transnet in Ambrose Park, near the Durban Port, where the government hopes to develop a strategic new fuel-storage facility.

Energy Minister Jeff Radebe, who this week committed South Africa to a R14.5-billion oil exploration and production deal in South Sudan, was accused of pushing KwaZulu-Natal Premier Willies Mchunu to launch the project.

This is despite the Central Energy Fund (CEF) advising against the structure of the deal, and state utility Transnet — the owner of the land and terminals — sounding the alarm about the lease agreements to the private entities that will take part in the project.

But Radebe rubbished these accusations, saying he was merely responding to an invitation, by Mchunu’s office, to launch the project. He said his department’s involvement in the project was as a facilitator and not as the lead.

The proposed development will create storage capacity for 1.3-billion litres of refined fuel. This is meant to address South Africa’s fuel crisis by ensuring that the country has strategic reserves for emergencies and adding more fuel for distribution.

Government communication related to the project, seen by the Mail & Guardian, indicates that up to R200-billion will be spent on capital projects, creating 5 000 construction jobs.

Another 1 000 jobs will be created after construction is complete; R1-billion rental income will be generated for landlord Transnet; and another R500-million will go to the eThekwini municipality in rates. The department of energy believes the projects will yield R1.3‑billion in taxes.

But the project, which has been a concept since 2013, is in limbo, despite best attempts to push it forward. It is also the subject of internal Transnet investigations after irregularities in the leasing of the land were picked up.

“The land is one of those parcels whose ownership was changed from Transnet Port Authority to Transnet Property without any proper [paper] trail,” said a well-placed source at the company. “But something else that was discovered by the new Transnet management is that land was subdivided into four and leased off to people irregularly.”

Transnet officially confirmed in an email that there was a forensic investigation under way into Ambrose Park, but said it could not divulge details until investigations were finalised.

The M&G has seen a letter from Radebe to Mchunu imploring his government to launch the project so work can officially begin. Radebe’s letter, on April 19, came after he was told by Transnet bosses that the programme was not ready for launch, two sources alleged.

The minister disputed this, saying he has not at any stage communicated with Transnet over the project.

Radebe said he was not aware of any irregularities in the project and had not been informed of any forensic reports into it.

Allegations that he was overeager or determined to push the project were untrue, his office said in a statement, because he was not its initiator. The KwaZulu-Natal government had asked to participate in the launch because it “aligned” with the government’s Ocean Economy and Operation Phakisa programmes.

“The department of energy is responsible for South Africa’s security of fuel supply and takes a keen interest in all projects that affect the security of fuel supply. The upcoming fuel terminals at Ambrose Park play a crucial role in the enhancement of security of fuel supply,” his office said.

Transnet Property is one of the sites of state capture revealed by Transnet board chair Popo Molefe in his testimony at the Zondo commission of inquiry into allegations of state capture.

READ MORE: Transnet’s office move was seemingly a way to bailout broke Group Five — Molefe

Molefe told the commission on Tuesday that the subsidiary’s chief executive officer, Thabo Lebelo, and several other executives had been placed on suspension for lease irregularities and that Transnet was pursuing millions of rands stolen by them from the parastatal.

Transnet is not alone in its concerns over irregularities in the fuel project. The CEF and its subsidiary, the Strategic Fuel Fund (SFF), which both fall under the department of energy, have allegedly advised that the leases be between Transnet and the fuel fund, without any private participation.

A Transnet source said the company was concerned after it found irregularities in the leases for the land and infrastructure, and that these concerns were confirmed by a forensic investigation.

Radebe’s letter to Mchunu says four black-owned and -managed companies are involved in the development of the terminals at Ambrose Park and they were being eyed to address South Africa’s fuel deficit, which will continue to increase for the next three decades.

The letter read: “The terminals at Ambrose Park will import cleaner fuels, on which the latest vehicle models run, and it must be noted that as matters stand, it is unlikely the [existing] refineries will be able to meet the January 2020 deadline to produce cleaner fuels.”

It went on to say: “Evident from the above is that the Ambrose Park terminal developments play an important role for the supply of fuel to provincial, national and regional markets. To this end, it is important to launch the project as soon as possible.”

Radebe also said he had already approved that the SFF invest in the Ambrose Park project by building a pipeline to connect it to Island View, an independent storage service provider for gases, chemicals, oils and lubricants.

The redevelopment and repurposing of Ambrose Park forms part of the energy department’s plan for the government to hold fuel stocks equivalent to 60 days of net imports.

According to draft legislation, the country must have 1.3-billion litres of finished product in storage facilities that should be close to the market and integrated with the existing transport infrastructure, specifically pipelines.

Radebe’s office said: “The SFF board supports the Ambrose Park terminals; any contrary position implied is misinformation.”

South Africa, through the CEF and SFF, has capacity for 10-million litres of strategic crude oil reserves, but these are embroiled in controversy after oil from the reserves was sold without the required approvals.

The sale, which is the subject of a court action by the government to reverse the sale to three oil traders, was prejudicial to the SFF as the oil was sold for much less than it was worth.

In March the M&G revealed that, should the CEF lose its bid to retain the oil, it will have to pay traders R1.3-billion to replace unusable oil and another R9.8-billion at today’s oil prices to replace the reserves. But should it win, it would still need R1.3-billion to replace the deteriorated stock.

READ MORE: Hawks investigate crude oil bribes

The Sunday Times reported this week that Radebe was rushing through an ambitious R14.5-billion oil exploration and production deal with South Sudan. The deal, which Radebe pushed to be signed on Tuesday, a day before the elections, will see the country invest in building an oil refinery and explore a new oil block in that country.

This is despite the CEF apparently advising against the deal.

Radebe defended it, saying it could help South Africa mitigate rising fuel prices. The newspaper reported that the minister pleaded with his South Sudanese counterpart, Ezekiel Lol Gatkuoth, to speed up the signing of an agreement to pursue the exploration before the elections. To get sign-off — while bypassing treasury regulations — the energy department said it had already chartered an aircraft to take the minister to Juba to sign the deal, and that the charter money would be lost if he did not go.