PetroSA risking economic sanctions in suspicious tender with Russian petroleum giant Gazprom

Following the leak of official documents by investigative journalism team amaBhungane, South Africa’s state-owned Petroleum Oil and Gas Corporation, PetroSA, seeks to collaborate with Russia’s Gazprombank for the revival of the gas-to-liquids refinery in Mossel Bay.

A tender in January attracted 20 bids, but the engineering of the technical criteria on the bid led to the elimination of all but Gazprombank’s local subsidiary, GPB Africa & Middle East.

The leaked documents reveal concerns raised by PetroSA’s bid evaluation committee about partnering with Gazprombank, which is under US sanctions. Legal opinions vary, with one advising negotiations with other bidders, but PetroSA seems inclined towards Gazprombank.

The department acquired a legal opinion from Ledwaba Mazwai Attorneys which said it had “no right to entertain other offers” aside from the Russians’. However, the department ignored further advice from the legal team which suggested restarting the bidding process to avoid accusations of tender rigging.

The Mossel Bay refinery, crucial to Energy Minister Gwede Mantashe’s plans, has been inactive since December 2020. If the deal proceeds, Gazprombank will invest R3.7 billion and provide gas condensate.

PetroSA’s controversial choice of Gazprombank as a partner for the Mossel Bay refinery raises concerns about potential sanctions, geopolitical repercussions, and adherence to legal processes. The unfolding situation underscores the challenges of navigating international collaborations in an era of heightened geopolitical tensions.

The Reserve Bank has warned of the potential financial instability if South Africa faces sanctions over its ties with Russia. South Africa has already run a close risk of sanctions over its continued joint naval operations, its ambiguous diplomatic stance, and the arrival of the Lady R Russian naval vessel, which stimulated speculation of arms and other illicit shipments.

Despite legal opinions advising against it, PetroSA appears to be moving ahead with Gazprombank, potentially presenting the name to Cabinet soon.

The refinery, built in 1989, aims to jumpstart South Africa’s gas industry and revitalize PetroSA. It can process 46,000 barrels of fuel per day. Gazprombank, despite its ties to Russian state-owned Gazprom, has avoided the strictest sanctions, largely due to continued dependence on Russian gas in much of the world.

This all comes in the context of increased administrative centralisation in the sector.

The government recently issued the draft for the South African National Petroleum Company Bill, following the passing of the Upstream Petroleum Resources Development (UPRD) Bill, which aims to separate petroleum and mineral provisions in South Africa.

The bill proposes the establishment of the South African National Petroleum Company (SANPC), merging three existing state-owned companies: iGas, Strategic Fuel Fund (SFF), and PetroSA, under the sole shareholdership of the Minister of Mineral Resources and Energy.

This further entrenches the corrupt and incompetent control of essential energy supply by the ruling party.

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