Ministerial clash over South Africa’s oil and gas assets signals brewing conflict

Two influential South African ministers are locked in a fierce struggle over the fate of the country's oil and gas assets.

What? At the heart of this conflict are two rival bills, each presenting starkly different paths for the management and control of state-owned oil and gas entities.

Why? The ongoing battle underscores deep-rooted ideological divisions and competing visions for the country's energy future.

What next? The outcome of this ministerial battle will not only shape the trajectory of South Africa's oil and gas industry but also define the contours of the nation's energy policy for years to come.

In a high-stakes showdown within the South African government, two influential ministers are locked in a fierce struggle over the fate of the nation's oil and gas assets. The clash between Public Enterprises Minister Pravin Gordhan and Mineral Resources and Energy Minister Gwede Mantashe has escalated in recent months.

The ongoing battle underscores deep-rooted ideological divisions and competing visions for the country's energy future, as reported by the amaBhungane centre for investigative journalism.

At the heart of this conflict are two rival bills, both tabled by the ruling African National Congress (ANC) party, each presenting starkly different paths for the management and control of state-owned oil and gas entities.

Contrasting visions

The first salvo was fired in September 2023, when Gordhan introduced the National State Enterprises Bill. This legislation, if enacted, would effectively wrest control of the Central Energy Fund (CEF) and its valuable oil and gas holdings from the purview of the Department of Mineral Resources and Energy (DMRE).

Gordhan's proposal seeks to establish an independent holding company tasked with overseeing a range of state-owned enterprises, including PetroSA, South Africa’s national oil and gas company, and the South African Gas Development Company, known as iGAS, which have long been plagued by political interference and corruption.

Gordhan's move however was met with swift opposition from Mantashe, who fired back with his own legislative gambit: the South African National Petroleum Company Bill. Under Mantashe's proposal, the CEF's assets would be consolidated into a new state-controlled entity, the South African National Petroleum Company (SANPC), to be directly administered by the DMRE. This countermeasure represents a direct challenge to Gordhan's vision of depoliticising state-owned enterprises and centralising oversight under the Presidency.

When amaBhungane asked Mantashe about Gordhan’s proposal in October last year, he replied: “It’s a debate, that one… leave it to be exhausted internally.” Asked if there was an ideological battle coming over CEF’s future, he said: “Yes. A big one.”

Central Energy Fund (CEF)

The battleground in this ministerial skirmish is around the CEF, a pivotal institution established in 1977 with the mandate of safeguarding South Africa's energy security. Within its portfolio are critical assets, including PetroSA and iGas. The CEF also manages the Strategic Fuel Fund, which looks after the country’s strategic stockpile of crude oil and controls around ZAR11bn ($581mn) in assets.

Despite its strategic importance, the CEF has been marred by a litany of mismanagement scandals, from PetroSA's disastrous project Ikhwezi, when the company blew ZAR14.5bn drilling for oil offshore in the early 2010s, to the unauthorized sale of the nation's strategic fuel stocks worth $5bn in 2015, as reported by amaBhungane. Also, in December 2023, PetroSA announced it would enter into a ZAR3.7bn deal with Russia’s sanctioned Gazprombank to refurbish the gas-to-liquids refinery in Mossel Bay. Despite the uproar, PetroSA went ahead with the transaction.

The crux of Gordhan's National State Enterprises Bill lies in a comprehensive restructuring aimed at insulating state-owned enterprises (SOEs) from political interference and enhancing corporate governance. By centralising oversight under a presidential-appointed holding company, Gordhan seeks to shield these entities from the whims of individual ministers and streamline decision-making processes.

"This would separate the state’s ownership functions from its policy-making and regulatory functions, minimise the scope for political interference, introduce greater professionalism, and manage the state’s assets in a way that protects shareholder value," Gordhan told Parliament in 2022.

The proposed reforms draw inspiration from the recommendations of the Presidential SOE Council, comprising government officials and industry leaders, which advocates for a more accountable approach to state asset management.

However, Mantashe's SANPC Bill presents a starkly contrasting vision, emphasising the retention of control within the DMRE and rejecting the notion of centralised oversight. Instead, Mantashe advocates for the consolidation of CEF's subsidiaries under a single entity to bolster the state's presence in the oil and gas sector. This approach aligns with the ANC's resolution to place sector specific SOEs under the auspices of relevant government departments, a decision made at the party's December 2022 elective conference.

According to amaBhungane, the proposed merger of CEF's subsidiaries, including iGas, PetroSA, and the Strategic Fuel Fund, has been met with both anticipation and apprehension. While proponents argue that such consolidation would enhance operational efficiency and coordination, critics warn of potential conflicts of interest and diminished transparency. The fate of CEF's assets hangs in the balance as the rival bills navigate the legislative process, with implications extending far beyond the realm of energy policy.

PetroSA

Against this backdrop of legislative manoeuvring, PetroSA, the crown jewel of CEF's portfolio, finds itself embroiled in a series of controversies and questionable dealings. From opaque procurement practices to dubious partnerships with sanctioned entities like Russia's Gazprombank, PetroSA's conduct has come under intense scrutiny. The company's questionable dealings and controversial agreements have raised serious concerns about accountability and transparency in South Africa's energy sector.

Amidst mounting scrutiny and public outcry, PetroSA's future hangs in the balance, its fate intertwined with the outcome of the ministerial clash over CEF's assets. As the ANC-led government grapples with competing visions for the management of state resources, the stakes could not be higher. The outcome of this ministerial battle will not only shape the trajectory of South Africa's oil and gas industry but also define the contours of the nation's energy policy for years to come.