The South African Cabinet has approved the submission of the South African National Petroleum Company (SANPC) Bill of 2024 to Parliament. This bill paves the way for the creation of a new state-owned entity by merging PetroSA, the South African Gas Development Company (iGas), and the Strategic Fuel Fund Association (SFF), following a decision made in June 2020. The move aims to consolidate South Africa’s main petroleum entities, enhancing the country’s capacity to safeguard its energy security.

Khumbudzo Ntshavheni, Minister in The Presidency, warned that the country’s reliance on international oil companies (IOCs) for refining poses a risk, as many IOCs are closing local facilities. The SANPC is intended to serve as a national oil and gas champion, holding exploration rights and taking equity stakes in privately held operations.

Additionally, Cabinet has approved the release of the draft Petroleum Products Bill for public consultation. This legislation seeks to secure the supply of petroleum products while promoting the development of cleaner, renewable fuels to diversify South Africa’s energy mix.

The SANPC will play a central role in restoring the country’s refining capacity, which has dwindled to just two operational refineries. Plans to restart the Sapref and PetroSA facilities, which can collectively produce 288,500 barrels of refined petroleum per day, are underway. Upgrades will aim to meet international fuel standards.

This move comes late into a long-term decline in the refinery sector. In recent years we have rapidly lost even those refineries which do the established work of turning crude oil into petrol, and our infrastructure is simply not meeting the demands imposed by population growth, as Brandon Gaille reports.

SASOL has long since disinvested from South Africa, and its market is increasingly overseas. The national company PetroSA – a twenty-year old brand on a fifty-five year old national company, does little more than draw from a small and low-productivity well off the coast of Mosselbaai. For years now, the entity has primarily been used to purchase and store foreign fuels, since it can be 75% cheaper to convert a refinery into a storage facility than to upgrade it.

There are several reasons why our refineries are uneconomical. First, they are small. All four of our refineries produce little more than 100 000 barrels per day. At a global level, a refinery of 250 000 b/d can be considered small (see e.g., table 3 in this report). According to an industry standards, levels of sulphur must be below 30ppm to avoid corroding modern engines. While Europe is on the EURO6 standard (<10ppm), we are still operating on the much more lenient EURO3 standard, allowing up to the highly corrosive level of 500ppm of “regular diesel”, with similar issues in petrol due to low-spec imports.

South African refineries can now no longer afford to use the required technology to cut sulphur emissions, which can cause severe environmental hazards to the surrounding area, and cause asthma, cancer and leukaemia in people living nearby. The International Council on Clean Transportation reported in 2019 that 1,420 premature deaths could be attributed to these emissions, a 6.5% increase from 2010. Clean fuel regulations being imposed are now unaffordable, and many companies are divesting, while others simply flout the rules.

While import duties on finished petroleum products are not exorbitant in themselves, taxes on consumer fuels are very heavy, and is taxed at two further stages after import – a 31% general fuel levy(32% in coastal regions), and an RAF levy of 17-18%, meaning that 48-50% of the cost of petrol is retail-point taxes. The additional VAT, road levy, car tax, carbon tax, pipeline fees, retail margins and corporate taxes add together to take up the overwhelming majority of the value of the petrol.

Perhaps unsurprisingly considering rising taxes, South African imports of mineral fuels and distillation products have fallen significantly since 2014 despite taking up an increasing share of the local market,.

This demonstrates that the change is in part due to falling local consumption, which has been in steady decline since 2008, according to official statistics on aggregate fuel sale volumes. While falling petrol consumption indicates an ailing economy, in our case the resilient diesel consumption figure can be reasonably attributed to the increased use of diesel generators to replace coal power, which may now itself decline as old coal-fired power plants come back online.

Recently the South African Fuel Industry Association confirmed that we would now be getting 55% of our capacity for refined fuels from overseas – already risen from the 40% share we were importing at the start of the year. This is the result of several pressures, not least of which are South Africa’s exorbitant fuel excise charges. Their latest annual report (from 2022) outlined the risks of further shutdowns: 

"The closure of the refineries during 2022 [...] is an issue that SAPIA and its members have raised with Government over the past decade. It is not feasible to invest in upgrading facilities in the absence of financial incentives. [Government] have steadfastly refused to listen. Without these incentives, refiners will run their plants until they can no longer meet required products standards and then terminate operations. But when these facilities are finally shut, together with them will leave a major manufacturing base, a large number of highly paid and highly skilled people and the various industries serving refining will be severely impacted. When this happens the country will become largely reliant on imports (Secunda the only facility likely left), which will place increasing pressure on Durban and associated infrastructure to perform. The outlook for the port of Durban as a supply hub to service the liquid fuels requirements in the country (approximately 70% of liquid fuels supply is through Durban) is not favourable and the risk to security of supply is significant. Already, some of the berths dedicated to liquid fuels are almost fully utilised, which suggests any interruption in production at either Natref or Secunda will result in stockouts."

Recent changes to fuel levies have been marginal, and reforms to corporate taxes, employment equity, and other structural pressures have failed to give way in the manner required to make the economic environment favourable to high-risk-low-margin sectors of the economy.

The restructuring of the sector may well give the refineries more favourable access to state subsidy, but the general economic effects of this are unlikely to be favourable.