South Africa contracts US-sanctioned Russian bank Gazprombank to revive gas refinery

South Africa has picked Russian state-owned bank Gazprombank to help its national oil company PetroSA revive a gas-to-liquids plant, a deal reportedly worth about $265mn.

The bank, under US sanctions since early 2022 over Russia’s invasion of Ukraine, won the contract after 19 fellow bidders were disqualified on technical grounds.

South African cabinet minister Khumbudzo Ntshavheni said the award to Gazprombank in line with the desire to increase trade and investment within the BRICS bloc of nations (Brazil, Russia, India, China and South Africa).

“There would be no point being in BRICS if South Africa did not partner with BRICS countries in trade and investment,” The Globe and Mail cited Ntshavheni as saying on December 11.

“It’s part of making sure that we build a resilient economy that is not susceptible to only one side of the global balance of powers.”

BRICS has expanded by accepting requests for membership from Iran, Saudi Arabia, Egypt, Argentina, Ethiopia and the United Arab Emirates.

The 45,000 barrel per day (bpd) facility at Mossel Bay on the country's southern coast stopped operations in 2020 after running out of feedstock. Its refurbishment and recommissioning are “critical components of PetroSA’s turnaround strategy,” Energy Voice reported on December 11, quoting Ntshavheni.  

The plant, said The Globe and Mail, is likely to play a key role in the development of a large South African gas project, following two huge offshore gas discoveries by French supermajor, TotalEnergies in 2019 and 2020.

The South African investigative journalism outlet amaBhungane reported in November that the 19 companies were disqualified from the competition because of “unusually strict technical criteria,” which, Energy Voice wrote, gave Gazprombank an advantage.

The report said PetroSA’s bid evaluation committee raised concerns about Gazprombank because of the US sanctions and the risk of South Africa facing secondary US sanctions. However, a second legal opinion concluded the risk was low, and thus cleared the transaction.

Kevin Mileham, a legislator with South Africa’s main opposition Democratic Alliance party, The Globe and Mail reported, said in November that any deal with Gazprombank would be “a foolish move” that would damage South Africa’s relations with Washington.