Cabinet has given its approval to start a process to establish a single National Petroleum Company.

The entity will be made up of the three current subsidiaries of the Central Energy Fund, namely PetroSA, the Strategic Fuel Fund and iGas, Cabinet said in a statement following a meeting on Wednesday in which it was briefed on the rationalisation of the companies.

“Cabinet approved the proposed appointment of a professional restructuring company that specialises in mergers to investigate the most viable model of this single National Petroleum Company,” the statement read. It did not give the name of the restructuring group.

PetroSA, in particular, has been facing financial difficulties, with the Auditor General in his 2017/18 report raising doubts that the entity would be able to continue operating in future. Earlier this year Pragasen Naidoo was appointed as group CEO. The Strategic Fuel Fund, meanwhile, is in a court battle to invalidate its controversial 2015 sale of SA’s strategic oil stocks. Former director general of energy Nelisiwe Magubane was recently appointed as the new chairperson, Fin24 previously reported.

The combination of these state-owned companies into a single entity is in line with President Cyril Ramaphosa’s announcement during the state of the nation address in February that government would embark on a process to rationalise and repurpose state-owned enterprises, Cabinet notes.

In May the president told the South African National Editor’s Forum that Covid-19 would provide an opportunity for government to reform state-owned enterprises. Ramaphosa said that the names of those on the SOE Council, who will advise government on the way forward, would soon be announced.

Peter Attard Montalto, head of capital markets research at Intellidex, does not think that the rationalisation of the state fuel companies has anything to do with the reform of state-owned enterprises – but is rather about establishing a state company that can “deploy directors and take dividends” from upstream petroleum.

This is in line with the draft Upstream Petroleum Resources Development Bill released last year, he said. “[This] is going to be a key point of contention and blockage for actually creating an investor friendly gas exploration environment in SA in any reasonable timeframe,” said Montalto.

The upstream petroleum bill seeks to allow government to have a 20% stake in oil and gas projects, and sees the establishment of a Petroleum Agency, among other things, as Bloomberg previously reported.

https://www.news24.com/fin24/economy/cabinet-greenlights-process-for-merger-of-state-fuel-companies-into-single-entity-20200611