News and updates from the continent

Refineries’ R40 billion upgrade faces delays

Refineries’ R40 billion upgrade faces delays

Apr 22, 2014

According to an article by David Furlonger published on , the R40-billion to upgrade South Africa’s oil refineries and produce cleaner fuel is likely to rise in cost as delays plague the scheme and conjecture is rife.

By David Furlonger

A R40-billion programme to upgrade South Africa’s oil refineries to produce cleaner fuel seems likely to be delayed, which would see investment costs rise and motorists continuing to pay for environmental benefits they are not receiving.

The government announced in 2012 that the upgrade would be completed in 2017. But there are signs that the deadline will be pushed back until at least 2020.

Though the South African Petroleum Industry Association (Sapia) says 2017 is still the official date, the Department of Energy is understood to have told oil company executives that the deadline will have to be extended.

“The government called companies together and said it looked like 2017 was not a realistic date,” said an industry source.

“But no new date was put on the table so it has become an exercise in conjecture.”

Attempts to gain comment from the department were unsuccessful. Despite acknowledging receipt of questions e-mailed last Thursday, the department said yesterday that it had not yet been able to formulate responses.

The Treasury has promised to set aside money for the upgrade which, in 2012, was expected to cost R38bn. A year later, this figure had already risen. The 2013 budget stated: “An investment of about R40bn in the country’s six refineries is needed over the next five years.”

Delays could push the eventual bill even higher. Much of the technology and equipment has to be imported and Sapia executive director Fani Tshifularo told Business Day that “the upgrading cost is very sensitive to the rand/dollar exchange rate”.

Based simply on the weakening of the rand since the programme was announced on June 1 2012 – without making allowances for price inflation on the capital equipment needed – the figure would now be R47bn.

Whatever the eventual bill, Mr Tshifularo said the country’s six oil producers — Sasol, PetroSA, BP, Chevron, Engen and Total — had asked for “full estimated capital expenditure cost recovery”.

According to the 2013 budget statement, fuel prices will “be adjusted to accommodate cost recovery for the upgrades while minimising the impact on consumers”. Whether that will be a 100% recovery is not clear.

“The government is still considering the matter.

“A decision has not been made,” said Mr Tshifularo.

News of possible delays is causing anxiety in the South African motor industry.

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