ENERGY Minister Tina JoematPettersson has
asked the Central Energy Fund (CEF) to probe all the contracts of the
Strategic Fuel Fund (SFF) since April 2014, including the sale of the
country’s entire strategic fuel stock in December 2015.
Joemat-Pettersson has also asked the CEF to examine its governance procedures after SFF chairman Riaz Jawoodeen and acting CE Sibusiso Gamede put in a bid to buy Chevron SA in a $1m deal in June, without board or ministerial approval.
The two incidents exposed serious shortcomings in governance, which appears to have created an environment in which large and risky transactions could be undertaken without oversight.
The CEF is the holding company of the fuel fund as well as of other state-owned energy companies: Petroleum Oil and Gas Corporation of SA, iGas, the Petroleum Agency of SA, and African Exploration Mining and Finance Corporation.
In a statement on Wednesday, the Department of Energy said Joemat-Pettersson had met with the boards of the CEF and various entities and shared her concerns about "recent lapses in governance".
The CEF "was directed to undertake a thorough review of its governance processes as well as its turnaround strategies for the subsidiaries in the group".
Joemat-Pettersson also raised concerns about the fuel fund and ordered a thorough review of contracts from the 2014-15 financial year to date. "This review will include all contracts and transactions entered into in terms of the ministerial directive issued to the SFF, inclusive of the strategic stock rotation and storage and leasing agreements concluded…. Any lapse in governance processes or irregular actions will be further investigated," the statement read.
The disposal of the stocks took the Treasury by surprise. Under the Public Finance Management Act, the Treasury must give permission for the disposal of an asset by a state-owned enterprise. In the past, the disposal of strategic stocks had also required permission from the finance minister.
But while Finance Minister Pravin Gordhan was unaware of the sale, permission was sought from Joemat-Pettersson, who provided the fuel fund with a ministerial directive under the Central Energy Fund Act. In it, she outlined several conditions including that the integrity of the fuel stock level be maintained; that a trading division be established within the fuel fund; and that the fund report monthly on its activities.
A month later, Gamede indicated he planned to sell the entire stock, but undertook to replace it with 10.3-million barrels bought on the open market.
The transaction left several questions lingering. One was why the stock was sold in the first place. In Parliament in May, Joemat-Pettersson said the stocks "were useless" and needed replacing. But while the composition of crude oil changes over time, crude oil does not deteriorate.
The sale was held in a hurry in a by-invitation-only bid arranged by the SFF after the company had already closed for business in December. Three large firms were awarded the transaction: Dutch firm Vitol, which partnered with black economic empowerment firm Vesquin; Swiss firm Glencore, which partnered with Venus Trade; and Nigerian company Taleveras.
It also appears Joemat-Pettersson had been assured the stock was "a rotation" and not a sale. While the stocks are still in the SFF storage tanks, they are no longer owned by the fund and would have to be repurchased from the owners if required.
Joemat-Pettersson has also asked the CEF to examine its governance procedures after SFF chairman Riaz Jawoodeen and acting CE Sibusiso Gamede put in a bid to buy Chevron SA in a $1m deal in June, without board or ministerial approval.
The two incidents exposed serious shortcomings in governance, which appears to have created an environment in which large and risky transactions could be undertaken without oversight.
The CEF is the holding company of the fuel fund as well as of other state-owned energy companies: Petroleum Oil and Gas Corporation of SA, iGas, the Petroleum Agency of SA, and African Exploration Mining and Finance Corporation.
In a statement on Wednesday, the Department of Energy said Joemat-Pettersson had met with the boards of the CEF and various entities and shared her concerns about "recent lapses in governance".
The CEF "was directed to undertake a thorough review of its governance processes as well as its turnaround strategies for the subsidiaries in the group".
Joemat-Pettersson also raised concerns about the fuel fund and ordered a thorough review of contracts from the 2014-15 financial year to date. "This review will include all contracts and transactions entered into in terms of the ministerial directive issued to the SFF, inclusive of the strategic stock rotation and storage and leasing agreements concluded…. Any lapse in governance processes or irregular actions will be further investigated," the statement read.
The disposal of the stocks took the Treasury by surprise. Under the Public Finance Management Act, the Treasury must give permission for the disposal of an asset by a state-owned enterprise. In the past, the disposal of strategic stocks had also required permission from the finance minister.
But while Finance Minister Pravin Gordhan was unaware of the sale, permission was sought from Joemat-Pettersson, who provided the fuel fund with a ministerial directive under the Central Energy Fund Act. In it, she outlined several conditions including that the integrity of the fuel stock level be maintained; that a trading division be established within the fuel fund; and that the fund report monthly on its activities.
A month later, Gamede indicated he planned to sell the entire stock, but undertook to replace it with 10.3-million barrels bought on the open market.
The transaction left several questions lingering. One was why the stock was sold in the first place. In Parliament in May, Joemat-Pettersson said the stocks "were useless" and needed replacing. But while the composition of crude oil changes over time, crude oil does not deteriorate.
The sale was held in a hurry in a by-invitation-only bid arranged by the SFF after the company had already closed for business in December. Three large firms were awarded the transaction: Dutch firm Vitol, which partnered with black economic empowerment firm Vesquin; Swiss firm Glencore, which partnered with Venus Trade; and Nigerian company Taleveras.
It also appears Joemat-Pettersson had been assured the stock was "a rotation" and not a sale. While the stocks are still in the SFF storage tanks, they are no longer owned by the fund and would have to be repurchased from the owners if required.
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