9 May 2017

Africa: Why Were SA's Oil Reserves Sold Illegally?

analysis

This past week South Africa's new Minister of Energy, Mmamoloko Kubayi, directly contradicted the statement that former minister Tina Joemat-Pettersson made to Parliament regarding the sale of South Africa's strategic oil stocks.

In May last year, there were revelations that Joemat-Pettersson had sold off Strategic Fuel Fund (SFF) reserves without the go-ahead of former finance minister Pravin Gordhan.

There were key questions to which there were no answers. Why did the sale of crude oil stocks (10 million barrels) at $29 a barrel in December 2015 take place at a time when the market was in 'contango' - i.e. when the current price of a commodity, such as oil, is lower than prices for delivery in the future? In other words, it was no time to sell.

By the time the controversy hit, oil had reached $50 a barrel. So, whoever bought this oil locked in some pretty decent profits.

Joemat-Pettersson denied that there was a sale, telling Parliament that it was simply a strategic rotation of unsuitable oil stock. Kubayi has confirmed that this was not the case and oil reserves were sold off. Kubayi has also confirmed to Parliament that the sale was made without the approval of the Central Energy Fund (CEF) board. She has asked that action be taken against those who approved the sale, though some of them are no longer at the CEF.

Whoever bought SA's oil stocks locked in some pretty decent profits

The revelations are shocking not only because there was no sign-off from the finance minister or the CEF board, but also - especially - because the former minister specifically told Parliament that no sale had taken place. How could she not have known about the sale, given that she said at the time that nothing like this would happen without her knowledge? That suggests only one conclusion: Joemat-Pettersson lied to Parliament and the people of South Africa.

Answers are needed. Who benefited from this action and why was Gordhan sidelined and the Public Finance Management Act (PFMA) breached? At best this seems like an act of gross incompetence; at worst, it smells like corruption - not unlike the arms deal perhaps? The PFMA stipulates that before a public entity concludes the 'acquisition or disposal of a significant asset', the accounting authority for the public entity must 'promptly and in writing inform the relevant treasury of the transaction'. That did not happen and has left South Africa vulnerable.

And so who is held to account and how? Of course, Joemat-Pettersson resigned as an MP after President Jacob Zuma reshuffled his cabinet and she lost her job. Any parliamentary process would thus preclude her.

Last year in Parliament, the Central Energy Fund board shrugged off the sale of oil reserves

Thembi Majola was Deputy Minister of Energy at the time of the sale and remains so. The Executive Members' Ethics Act 82 of 1998 and its Code applies to ministers and their deputies. If Majola had repeated the untruth told by Joemat-Pettersson, then surely she has acted in a way that 'compromises the credibility or integrity of government'. Such an alleged breach ought to be investigated, upon receipt of a complaint, by the public protector.

In any event, the public protector has the power to 'investigate any conduct in state affairs, or in the public administration in any sphere of government, that is alleged or suspected to be improper or to result in any impropriety or prejudice'. Clearly the sale of South Africa's oil reserves would fall into the category of 'prejudice', if not 'impropriety'. The auditor-general 'must audit and report on accounts' of 'any other institution or accounting entity required by national or provincial legislation' in terms of s188 (1) (c ) of the constitution.

The CEF falls squarely into this category given that it is a state-owned energy utility reporting to the Department of Energy. What oversight did its board have and who took the decision to sell the oil reserves? The auditor-general would not be able to deal with that, but any decisions made by the CEF to sell oil reserves would have had to be in terms of the Public Finance Management Act. In November last year the CEF board and management appeared before Parliament but shrugged off the sale of oil reserves. In terms of the PFMA, national assets may not be sold off without the approval of the Treasury.

If Parliament had any interest in good governance, it would investigate

Kubayi has committed herself to transparency and her first step should be to institute an in-depth investigation. If the president was curious enough he would have done so. The CEF board also needs to account both to Parliament and to Kubayi on what happened.

A breach of the PFMA of course attracts criminal sanction. The Prevention of Corrupt Activities Act 12 of 2004 creates the offence of corruption and attempts to prevent the illicit acquisition of wealth. Should it be found that the former minister or anyone else may have been involved in an act of corruption, it would attract a criminal sanction.

If Parliament itself had any interest in good governance and ascertaining who approved what, it would form an ad hoc committee to investigate. Whether it has the appetite or independent-mindedness remains to be seen.

All we know is that the sale of oil reserves took place without the Treasury's approval and that some individuals and companies benefited handsomely. Moreover, it appears that the former minister lied about what happened.

If such possible criminal conduct remains unexamined, it would yet again signal the Zuma administration's complete disregard for the law and its constraints, and South Africa's strategic and economic interests.

Judith February, Senior Research Consultant, ISS

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