Treasury Kept Out Of The Loop As Strategic Crude Oil Stock Is Sold Off In Secret


SA’s guardian of strategic crude oil stock, Strategic Fuel Fund (SFF), has sold it’s strategic crude oil stock amounting to 10-million barrels of crude oil which is close to its entire stockpile – in a closed tender at the lowest imaginable prices without obtaining the necessary permission from the Treasury.

The Strategic stockpiles include the reinsurance policy of a country in the event of a sudden supply crisis. The strategic fund is expected to hold stock for at least 20 days cover.

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However, it now has 300,000 barrels, less than a day of cover.

The strategic crude oil stock was sold off with the permission of Energy Minister Tina Joemat-Pettersson. But no authorization was gotten from the Finance Minister Pravin Gordhan, as provided by the Central Energy Fund Act.

According to the Public Finance Management Act (PFMA), even a state-owned entity is also required to obtain approval from the Treasury before any significant state asset can be sold off. Besides, all transactions must be transparent and competitive as specified in the act.

However, the Treasury was not informed of the sale and was reticent on the transaction yesterday.

CE of the fund Sibusiso Gamede and Joemat-Pettersson insisted that the transaction was not a sale, instead it was “a rotation” of stocks.

Gamede added that a stock “rotation” does not require any permission from the Treasury and this was not the first time of doing it as it has been done once before, in 1999. He emphasized on the need to ‘rotate’ the stocks as the grades held in storage were insufficiently refined for modern products and that they were declining over time.

“The sold stockpile still remains in the tank at the SFF Saldanha terminal with SFF having the first right to buy the crude oil and supply the market in the event of a crisis,”Gamede said.

As she presented her budget speech last month, Joemat-Pettersson described the sale as ‘a rotation’ of unsuitable stock, which was uneconomical of which, she said, “did not contribute to security of supply”.

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Though the crude still sits in the storage tanks belonging to the fund, whenever it needs to access it, it will need to repurchase them at the market price.

Meanwhile, oil analysts totally agree with the principle of ‘rotation’, but the problem with the arrangement is the cost of replacing the stock for the SFF, should it need to, including the risk involved in selling the entire stock at once.