Auditor-general finds disposal of strategic fuel stocks illegal

THE secret sale of SA’s strategic fuel stockpile last December 2015 was illegal because it did not have the permission of the finance minister and fetched only R3.9bn and not the R5bn that has been claimed, the auditor-general said in notes to his 2015-6 report on the Strategic Fuel Fund (SFF).

Both the fund and Energy Minister Tina Joemat-Pettersson have defended the transaction, claiming it was "a rotation" and not a sale, and did not require the permission of the finance minister.

However, Joemat-Pettersson has subsequently said she is investigating whether "the rotation" had taken place in line with all the preconditions she had set in a directive to the SFF.

In the fund’s annual report tabled in Parliament on Friday, the auditor-general, who was asked to specifically look into the matter by DA MP Pieter van Dalen, said the transaction contravened the Public Finance Management Act in two instances. First, the disposal of a state asset required permission of the finance minister; and, second, in selling the stocks, "reasonable care" was not exercised by the officials involved to safeguard a public asset.

The auditor-general did not, however, comment on whether due process was followed with regard to the sale of the strategic stocks. Instead the report noted the investigation initiated by Joemat-Pettersson and said that, as this included a review of all contracts entered into by the fund, including the stock rotation, this investigation would make a finding on the process.

The stocks — which included SA’s entire stockpile of 10-million barrels — were sold at rock bottom prices at a time when the crude oil price was at the bottom of the cycle. At the time, acting CE Sibusiso Gamede said the sale realised $280m, equating to an average price of $28 a barrel. Gamede said that strategic stocks would be reacquired when market conditions were favourable. However, the crude oil price has since risen to about $50 a barrel.

The SFF annual report notes that the sale of strategic stocks by the SFF has exposed the company to a potential shortfall of $173m (R2.5bn, should new stock be purchased at $45 per barrel).

Van Dalen, who has also complained to the public protector about the sale, said he would now insist that the fund reversed the sale. "It is now an illicit sale; the SFF must give back that money to the buyers. As the oil is still in the tanks this should be possible," he said.

Both Gamede and Joemat-Pettersson are on record as saying that the sale of the stocks raised R5bn. However, the auditor general’s report showed the amount was R3.9bn. At the time of the sale, Gamede said that as the oil was being stored in the fund’s Saldanha tank, it would also generate storage fees of R180m a year.

The auditor-general also found that the fund would have to write off an additional R60m for 300,000 barrels of crude oil, which had been loaned to a service provider that had not paid.