Page 15 - DMEA Week 30 2022

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Why all South Africa’s oil government’s cleaner fuels initiatives has been manufacture two engines for each vehicle -
The oil industry’s response to the
one for South Africa’s dirty fuels and another
refineries closing down robust. for Europe’s cleaner fuels.
Initially, it sought to blackmail the
The domestic auto industry has, like
could be good news government by threatening closure unless the refining, long been protected by the
government gave it the capital to upgrade its
government. It occupies a key position at
While South Africa has been preoccupied refineries, without any consequent ownership the heart of South Africa’s manufacturing
with rolling electricity blackouts, security of rights. industry and its interests appear to have been
liquid fuels supply has been overlooked even The industry euphemistically termed this chosen over those of the oil refining industry.
though - by my calculations - by value of sales a ‘cost recovery mechanism”. The government The refinery closures hold implications
it is 60% larger than electricity sales. eventually backed down from its deadlines. for the future of auto manufacturing and
The one liquid fuels related story that But it did not succumb to the demands for transport in the country.
attracted attention in the local media was the cash gifts. In the short term, fuel imports are meeting
temporary closure of an inland oil refinery In the latest round, the two Durban demand. But the auto manufacturers face
due to delays in crude oil supplies. refineries made good on their threats. Engen a new threat to their European markets -
The refinery is owned by Natref, a joint (Petronas) in 2020, following an explosion electric vehicles.
venture between the chemical and energy and fire, and Sapref (Shell and BP) after its Some local auto manufacturers have
company Sasol - the majority shareholder - temporary closure during the insurrection in appealed to the government to include electric
and Total Energies. July 2021. vehicles within its support and subsidy
No details have been given about the Natref appears to be playing a waiting programmes.
closure. But it is a rare occurrence and game on the government’s latest deadline, At present the import of electric vehicles
probably a consequence of disruptions to which has been shifted from 2023 to 2027. is actively discriminated against. But
global logistics and oil supplies caused by If the government holds the line Natref the Department of Trade, Industry and
Russia’s invasion of Ukraine. may also close, with possible knock-on effects Competition is dragging its heels.
Natref is the last surviving oil refinery in for Sasol’s coal-to-liquids plant in Secunda, There is a good prima facie case for South
South Africa. Three others were closed in the whose production is partially integrated with Africa to switch to electric vehicles.
past two years. Natref’s. Imported US dollar denominated
These refinery closures and the possible The closures of South Africa’s small, old petroleum could be substituted by mainly
permanent closure of the Natref refinery are and inefficient refineries are economically rand denominated solar and wind-based
shots fired in the long running contestation painful in the short term. But they also offer power generation.
between the oil refiners and the government, the prospect of better outcomes - economic, The productivity gains from more efficient
which has been trying to introduce cleaner environmental and security of supply - if electric vehicles and the impetus to South
fuels specifications. government acts sensibly, particularly in Africa’s emerging battery manufacturing
And, in parallel, policies requiring oil relation to electric vehicles. industry are part of the case. This could
companies to keep some stocks to act as a The government has pursued an import also be seen as the ultimate version of
buffer against occasional supply interruptions. substitution industrialisation approach to the the government’s long-running import
Both policies are in line with international liquid fuels industry since the 1930s and has substitution industrialisation.
trends. used various regulatory instruments to protect The closure of the oil refineries has actually
The attempt to move to cleaner fuel the oil refiners. made it easier for the government to switch its
specifications began in 2006 and is aimed at But the need to move to cleaner fuels to attention to electric vehicles, which would also
assisting the domestic auto manufacturing support local auto manufacture has proved to assist in meeting its international emissions
industry, which produces mainly for be a tipping point. targets. It also means that the adjustments
European markets, where engines need to The difficulty for the auto manufacturers envisaged in the just energy transition have,
match Europe’s cleaner fuels. is that it does not make commercial sense to in effect, already happened in the refining

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