Auditor-general casts doubt on PetroSA’s going-concern status
Concerns have been expressed by the auditor-general over the ability of state-owned gas-to-liquid fuel company PetroSA to continue operating.
This view is based on the fact that the company, which operates the Mossgas refinery in Mossel Bay, suffered a R666m loss in the year to end-March. This follows a loss of R1.6bn in the 2016/2017 financial year.
"A material uncertainty exists that may cast significant doubt on the entity’s ability to continue as a going concern," auditor-general Kimi Makwetu said in his report on the company.
Red flags are raised over a company’s going-concern status when there are fears that it doesn’t have the required resources to continue operating.
The annual report of PetroSA and other companies in the Central Energy Fund (CEF) group was tabled in parliament on Thursday.
The company recorded a R14.6bn net operating loss in the 2014/2015 financial year, the biggest by a state-owned entity. This was driven mainly by unsuccessful offshore exploration attempts to find new feedstock for Mossgas. The state-owned entity has also been hampered by a significant turnover of staff at senior management level.
As a net importer of fuel, Mossgas — the first refinery in the world to commercially use gas-to-liquids technology — plays a crucial energy security role in SA, along with Sasol’s operations that do not rely on imported oil.
Despite the concerns raised by the auditor-general, the directors said they are confident PetroSA will continue as a going concern in the year ahead.
"This assessment is based on the assumptions that the company will continue to meet its annual targeted production volumes of 7.2-million barrels and at the associated cash profit margin of 8%," the directors’ report said.
It also expected to "successfully execute the second phase of the statutory shutdown project on budget later in the following financial year; and continue to execute the various cost reduction initiatives. These initiatives include feedstock optimisation and a review of conditions of employment."
The directors cautioned, however, that there were several external factors that could negatively affect PetroSA’s financial performance, including international crude oil prices and foreign exchange volatility.
"Any further negative deterioration in these factors will impact the group’s profitability and place additional strain on the group’s resources," their report said.
Another of PetroSA’s problems is that it has a rehabilitation and decommissioning liability for its offshore and onshore operations of R8.1bn but has only set aside R2.4bn. This means that its provision is underfunded by R5.7bn.
The directors say that the company is working with key stakeholders to comply with the regulations before February 19 2024. The CEF, which oversees PetroSA, has committed to assist with this process.
Discussing the results in the annual report, the directors say that PetroSA recorded a slight improvement in revenue of 0.6% to R10.4bn, mainly due to improved trading conditions by PetroSA Ghana.
"During the current year the group secured significant inventory of condensate at more favourable prices than those from the prior year, resulting in a positive gross margin of R206m, against a gross loss of R475m from the previous year."
The CEF made a profit of R354m compared with 2017’s loss of R621m on revenue of R11.7bn (2017: R11.6bn).
This was as a result of improved profit margins, deferment of capital projects and higher dividend and interest income, it said.
The other subsidiary of the CEF, the Strategic Fuel Fund, which manages the country’s strategic fuel stocks, recorded comprehensive income of R236m (2017: R332m) on revenue of R640m (2017: R799m).