CEF's challenges exposed in Parliament

12th March 2019

By: Kim Cloete

Creamer Media Correspondent

     

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Parliament’s Portfolio Committee on Energy has accused the Central Energy Fund (CEF) of moving far too slowly to transform, following a litany of problems in the beleaguered group.

Committee chairperson Fikile Majola on Tuessday accused the CEF management and board of directors of merely "marking time".

“The CEF is an emergency in the order of Eskom. It’s just that we can see load-shedding. You can’t expect to continue doing the same things and expect a different result,” warned Majola during a hearing attended by a large delegation from the CEF and its subsidiaries. 

Members of Parliament (MPs) from various political parties also lambasted the CEF, questioning why it had been without a permanent CEO for several years and stating that in-fighting continued to plague its board.  

CEF interim CEO Sakhiwo Makhanya told MPs that the performance of the CEF had improved over the past financial year, but conceded that the entity needed "a radical change" in its business models, as did its operations.

The CEF has had problems ranging from financial losses and worrying Auditor-General findings to in-fighting at board level, and controversy surrounding the sale of its fuel stock.

The CEF oversees PetroSA, the Petroleum Agency of South Africa (PASA), the South African Gas Development Company (iGas), the African Exploration, Mining and Finance Corporation (AEMFC) and the Strategic Fuel Fund (SFF).

Makhanya, who was appointed to the acting CEO position in December, outlined a seven-month turnaround plan at PetroSA, where there has been no permanent executive management since 2013.

The PetroSA emergency plan has been described as a "rapid seven-month project that seeks to address a number of operational challenges" to stabilise the organisation. It is split along technical, commercial and human capital solutions. 

Makhanya said leadership stabilisation and capacitation were its key priority.

“As part of our seven-month plan, we need leadership stabilisation in certain key roles, mainly at our refinery.” He said external refinery expertise would be employed to look at the overall business performance of the refinery.

During question time at the hearing, MPs warned that current projections indicated that PetroSA could run out of gas by October 2020.

PetroSA’s gas reserves have declined. In order to continue operating the refinery, PetroSA has increased crude oil processing. This has significantly increased the input costs for the business.  

Makhanya said the trading, supply and logistics, finance and other roles within the organisation needed to be looked at.

CEF executives conceded that the CEF Group’s financial sustainability has been in decline in recent years and that PetroSA, the biggest entity in the group, is in a financially precarious position.

“PetroSA continues to lose market share, particularly in the petroleum industry, while the group continues to rely on interest income. Investments have been delayed, therefore, the financial returns expected from projects have not materialised,” the CEF said in its presentation.  

“We need to fix what is broken today, otherwise we will not have a PetroSA tomorrow,” said Makhanya.

As part of its transformation plan, Makhanya outlined the CEF’s Vision 2040+ programme, which he said would look beyond security of energy supply and would be a commercially driven strategy.

Makhanya said Vision 2040+ would be delivered in four phases, starting with the PetroSA emergency plan. It would include collaboration initiatives to create energy solutions from a continental and regional perspective. He said growth would be at its core, as it planned to improve its market position and relevance through scale.

“Although the CEF Group is faced with strategic challenges from a sustainability perspective as a result of the operational performance of our biggest subsidiary, PetroSA, we are confident that the new Group Strategy Vision 2040+ will provide the right foundation for exponential growth and long term sustainability.”

He said he expected the renewable energy market to grow exponentially in future while the gas market would grow significantly.

During the hearing, the CEF was criticised for being highly extravagant for bringing a delegation of 23 people to the committee hearing.

Edited by Creamer Media Reporter

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