Whenever last year’s sale of 10 million barrels of old crude oil by the Strategic Fuel Fund pops up in the media, it is usually accompanied by adjectives like “disastrous”, but looking at it with an open mind does not result in anything justifying that description.
The Central Energy Fund and the Minister of Energy – advised no doubt by her officials for motives of their own, seem to seize any opportunity to avoid finding the sale was both rational and legal, sullied only by its unfortunate timing, and failure to tick some bureaucratic boxes.
Much has been made by people who ignorantly think that all crude oil of whatever quality and age can be sold for the same price as high-quality Brent Crude, whose price is published daily. It can’t, especially when high-quality crude is sloshing about on the world oil market.
More still has been made of the “strategic nature” of crude stock, as though all of it is akin to gold bars in the national vault, when the fact is that if crude oil has been sitting in a tank – as the 10 billion barrels had been for more than a decade – it does not remain pristine. Instead, over time, it settles into a good deal of sludge at the bottom of its tank and loses valuable petroleum fractions from the top.
Public outrage has been sparked by the fact that the sale was not done by public tender – as though anyone and his dog could raise the US dollars in cash to buy 10 million barrels at R28 USD each.
As it happened, only 11 oil traders who were thought able to raise the cash were invited to bid. Most dropped out – probably when they realised that it had to be a bank-to-bank transfer as well as being of less-than-perfect-quality oil. A more public tender assumes that all eleven potential bidders were mutes.
It is alleged that the Treasury was never informed of the sale, that it was sold for peanuts, that the managers of the Central Energy Fund knew nothing about it. Indeed, one claimed the first indication of the sale was a large sum of money appearing in the SFF bank account.
Further alleged evidence that something was up was with the former minister calling it a normal rotation of stock. When it turned out that it was indeed a sale, this was taken as proof that the sale was stupid and crooked.
Yet the former Minister Ms Joemat-Pettersson certainly knew about it. That the chairman of the CEF knew at the time was a fact. He felt compelled to resign about another matter entirely – the offer to buy Chevron – as did the acting MD of the SFF, who also fell on his sword for the same reason.
That the Treasury knew all about it is certain because it had to approve the considerable sum of money from the sale to remain in a USD ABSA account – where it still sits.
Indeed a meeting with Treasury officials did take place where it was agreed that it did not have to give permission – the Minister of Energy had to – and she had done so.
By the way, according to the non-profit nature of the SFF (a section 21 company registered as not-for-gain), the money cannot be used for any other purpose other than the buying of new oil stocks.
All this and more has been said in this column. Instead, there is a determination by the new Minister of Energy to investigate the matter again.
The first investigation was by a law firm whose knowledge of oil trading is next to zero, and the second by the now notorious auditing firm KPMG.
The lawyers’ report regurgitated the ignorant views of the press clippings except for a sub-set investigation carried out into a decision nearly four years ago to gift 300 000 barrels of highly marketable crude from the strategic reserve to a company called Envirosure.
This remarkable sweetheart agreement was so that Envirosure could sell the oil to finance a cleanup of the oil sludge remaining in the old Ogies Mine shafts where the company assured the SFF, it could recover some 5 million barrels of usable crude.
Envirosure also promised that within six months it would replace the 300 000 barrels of “borrowed” crude, and deliver to the SFF a bonanza of recovered crude from the Ogies sludge.
That was four years ago.
None of these promises have been kept. What it means is that a large chunk of money has been given to Envirosure on the basis of what appears to be a kiss and a promise.
Nothing remotely like an open tender for the clean–up of Ogies has been forthcoming. Neither does there appear to be any serious effort on the part of the SFF nor the CEF to get their “loan” repaid.
Instead, we are enjoined at every chance to look at the sale of the 10 million barrels — a sale which at least produced cash in the bank. Now there is to be another investigation into how much the CEF “may” have lost in the deal.
It is looking increasingly likely that when KPMG submitted its findings, its conclusion was that the sale was logical, indeed rational.
The Minister was advised not to release it because of the general doubt about KPMG that had by then arisen, underlined by the new head of the Treasury demanding that all KPMG work for all government departments be re-examined.
Another perfect excuse.
So what we appear to have is one alleged “scandal” where the funds of the sale are in the bank and the oil sold is in SFF tanks, plus another “scandal” where the borrowed oil has disappeared, the new replacement oil has never arrived, and the promised bonanza of recovered oil from Ogies caverns has not materialised.
Which, one may ask, is the real scandal? How about asking Deloitte’s to try and find out this time?
If, as the odds suggest, it will find the Envirosure deal is the more malodorous of the two will the CEF obfuscate once again and focus again on proving that the 10 million barrel sale was crooked?.
As for the Minister of Energy’s decision to suspend the entire board of the Central Energy Fund, that looks like a step in the right direction insofar as there are any board members left who were party to the Envirosure deal.
Otherwise it looks like a case of shutting the stable door after the horses have bolted.
Maybe that has been the plan all along.
Keith Bryer is a retired journalist and oil company communicator with an interest in energy