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Project to retrieve SA’s apartheid oil stash stalls

Contractor misses deadline to replace 300,000 barrels of crude.

A South African company that borrowed $15.4 million worth of oil sludge from the government to help fund the recovery of crude stored in a mine during apartheid has yet to implement the project more than three years after the contract was signed, according to a person familiar with the situation.

The project emanated from a request for proposals issued in 2013 by the Strategic Fuel Fund to recover and reprocess sludge, a lower-value product that accumulates when oil is stored. One of the respondents was Enviroshore Trade and Logistics (Pty) Ltd., which said it believed there could be as many as 5 million barrels of crude in the Ogies coal mine in the eastern Mpumalanga province. It offered to retrieve it on condition it be loaned 300,000 barrels of oil from the nation’s strategic reserves. Under the agreement it would keep 70% of any fuel recovered.

International sanctions hindered South Africa from buying oil during white-minority rule, which ended in 1994, and the SFF was tasked with ensuring South Africa had sufficient fuel supplies. The entity continued to manage South Africa’s strategic fuel stocks and storage facilities after apartheid ended. The government aims to have 60 days of reserves, according to the  Central Energy Fund, which oversees the SFF.

While a company borrowed crude from the SFF’s Saldanha storage facility on the west coast north of Cape Town, the rotation of the oil stocks was “irregular” because proper procedures weren’t followed, the CEF said in its 2016 annual report, which outlined details of the deal but didn’t identify the contractor. It disclosed that the oil was valued at R198.9 million ($15.4 million) on the agreed replenishment date and the contractual deadline to replace it was missed. The person who said the project hasn’t started asked not to be named because the information isn’t public.

Picture source: Bloomberg

Enviroshore confirmed that it had been contracted to do work by the SFF, but denied there was anything amiss.

“Enviroshore’s contract for the recovery of sludge and the pumping of water from the Ogies storage facility, as well as a subsequent related contract for the recovery of 300,000 barrels of sludge from the Saldanha storage facility, were entered into pursuant to the issuing and awarding of a fully-compliant public tender,” Vuyo Mkhize, a public affairs consultant to the company, said in an emailed response to questions. “Performance on these contracts is continuing to the satisfaction of both parties.”

Founded in 2006 and based in the eastern port city of Durban, Enviroshore trades in petroleum products and offers sludge recovery and storage-tank cleaning services, according to its website. The company declined to respond to questions about how much oil had been retrieved or its loan from the SFF.

The SFF came under fire last year after it emerged that it had sold 10 million barrels of crude stocks for $280 million in 2015, when prices were at an eight-year low. While Tina Joemat-Pettersson, the former energy minister, said the sale was a stock rotation, her successor Mmamoloko Kubayi identified “glaring governance problems” with the deal and said it will be probed.

“The issue of Enviroshore is a subject of a broader investigation undertaken at SFF,” the CEF said in an emailed response to questions. “We will not be making announcements on this matter until internal process are finalized.”

Enviroshore is unaware of any probe, and the need for one “simply does not arise,” Mkhize said. “Enviroshore is awaiting the SFF’s official response to its request for an explanation for the statements you are attributing to the Central Energy Fund,” he said.

© 2017 Bloomberg

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