Page 4 - Downstream Monitor - MEA Week 28

DMEA Commentary DMEA
Saudi’s downstream
diplomacy moves
on to South Africa
News that Aramco and South Africa have agreed upon the location and size of their planned re nery and petrochemicals facility suggests that the project is making welcome progress.
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What:
The planned facility is to be built at Richards bay and will be capable of processing 300,000 bpd of crude.
Why:
South Africa has experienced stasis in its re ning sector, with the government offering little in way of support.
What next:
Aramco’s involvement suggests that the provision of feedstock will not be an issue, while Saudi’s downstream diplomacy takes another step forward.
SOUth Africa’s energy and mining minister Gwede Mantashe last week revealed the size and location of the downstream facility being developed in collaboration with Saudi Aramco, following the drawing up of a framework for the project in January.
Speaking to Argus, Mantashe said that the re nery and petrochemicals unit would be capa- ble of processing 300,000 barrels per day of crude and would be located at Richards Bay on the east coast in KwaZulu Natal, the site preferred by Aramco.
Earlier talks had failed over Pretoria’s pro- posed location, which was undisclosed but was deemed economically unattractive by the Sau- dis. Downstream MEA (DMEA) understands that sites at Richards Bay and at Coega near Port Elizabeth in the south were considered before the former was chosen.
In early March, Mantashe’s Saudi counter- part, Khalid al-Falih, con rmed the importance of the potential South African project in Aram- co’s international downstream plans. he said that such an investment would act as “as a platform forenteringtheAfricancontinent”. eJanuary talks also yielded a commitment to consider plans for the Saudi company to store crude at Saldanah Bay, on the west coast north of Cape town – where Pretoria is pursuing a slow-mov- ing drive to create an o shore services hub.
e progress stems from a meeting between Al-Falih and Mantashe’s predecessor, Jeff Radebe, which led to an agreement that Ara- mco and the local government-owned Central Energy Fund (CEF) would proceed with feasi- bility studies on the re ning and petrochemicals complex.
Good news
the news is a significant shot in the arm for South Africa’s downstream sector, which has been in some disarray amid the drawn-out e ort by US rm Chevron to sell its assets.
the company’s holdings were put up for sale in early 2016 and comprise a 110,000 bpd re nery near Cape town, a lubricants plant in Durban and a network of more than 800 retail outlets.
however, despite interest coming in various forms, strict regulations concerning changes of ownership in the downstream brought progress to a near-halt.
Despite having agreed a deal to trump a rival Chinese bid in 2017, it took until this year for Swiss-based commodities trader Glencore to win approval from the local competition authorities.
China’s Sinopec was named preferred bidder for the assets and had its bid approved by the government’s competition regulators, subject to stringent conditions, including investment of some US$400 million in upgrading the re nery, and maintaining the system of independent local marketers.
however, second-ranked bidder Glencore teamed up with the local minority shareholders, which had formed the O e Shelf (OtS) con- sortium and provided a loan of around $1bn to enable them to exercise pre-emption rights.
OtS signed a deal in October 2018 to acquire a 75% stake in Chevron South Africa for $973mn, with the business rebranded Astron Energy.
On March 15, the Competition tribunal accepted the recommendation of the Compe- tition Commission two weeks previously to approve Glencore’s acquisition of 75% of Astron’s shares, with the deal being nalised in early April and also including 100% of Astron Botswana.
As part of the deal, Glencore is required to operate the business on a largely stand-alone basis, maintain the local head o ce, meet exist- ing pension obligations, and fulfil contracts with the independent fuel marketers on no less favourable terms than those currently in force.
e company also committed to the re nery
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w w w . N E W S B A S E . c o m Week 28 17•July•2019