South Africa: Process to Establish a National Petroleum Company to start on September 1st

The Central Energy Fund (CEF) has said it will start a process to consolidate its three subsidiaries, PetroSA, Strategic Fuel Fund and Igas to establish a National Petroleum Company of South Africa next month in an effort to create a commercially viable new company.

According to CEF CEO Dr Ishmael Poolo the fund has selected a consortium of external advisers to help with the consolidation expected to cost R65-million.

This decision which was reported by the board in June is a culmination of a policy statement made by CEF’s shareholder, the Minister of Mineral Resources and Energy, Mr Gwede Mantashe at the Portfolio Committee on Mineral Resources and Energy held on 7 May 2020. This policy statement was also endorsed by Cabinet’s approval on 10 June 2020, paving a way to appoint a professional restructuring company specializing in mergers to investigate the most viable model to establish a National Petroleum Company.

The rationalisation of these subsidiaries into one single National Petroleum Company would be on the basis that each company be properly structured so as not to transfer operational and financial inefficiencies into the new entity. Key features of the rationalisation plan will be anchored on the following three phases:

1. Improving Operational Efficiencies

As part of improving the operational efficacy within the Group’s value chain and to deliver shareholder value, the rationalisation process would be geared to minimise duplications that inhibit it from being a catalyst to reignite the South African economy and create much-needed jobs.

This process would also result in enhanced cost reductions, integrated common systems, processes, and improved shared service models to maintain strategic relevance and sustain a competitive edge in a rapidly changing Oil and Gas industry.

2. Improve Scale & Market Share

In the last few years, the Group experienced a turbulent period to deliver on its mandate geared to ignite the economy and create much-needed jobs. A number of strategic initiatives were delayed due to operational inefficiencies that resulted in the Group losing market share and revenue decline.

The implementation of the rationalisation process would amongst other interventions enable the Group to effectively leverage on the combined financial resources and operating assets of the three entities to bring stability and certainty to ensure that the country is ready to achieve a “just and fair” energy transition.

3. Operationalise a Commercially Viable National Petroleum Company

The operationalisation of a commercially viable National Petroleum Company will be a game-changer not only for South Africa but also for the continent as a whole. This new entity will play a critical role in supporting the government’s broader strategic initiatives as well as fostering regional integration on matters related to oil and gas.

“South Africa needs a very strong and agile energy company to be able to compete and advance key components of the National Development Plan aimed at creating a capable state as well as supporting the government to address the triple challenge of unemployment, poverty and inequality, ” CEF Group CEO, Dr Ishmael Poolo said in June.