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CEF turns the corner on cost cuts and higher crude prices – posted by

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The Central Energy Fund (CEF), a massive state-owned energy company, has bounced back from a loss last year to a R1.2 billion profit, but a network of companies under its umbrella have produced a motley set of financial statements for the 2011 financial year – with the foreign ventures of one of its biggest subsidiary companies, PetroSA, proving largely unsuccessful.

The fledgling African Exploration Mining and Finance Corporation – which to much fanfare was relaunched by President Jacob Zuma as the state’s entry into mining activity in March – has only survived because of a massive R140 million interest-free loan granted by the CEF.

Its directors are optimistic that its coal and torbanite ventures in Mpumalanga – from which they hope to extract gas and oil – will turn the entity into a cash-generating one in the coming year. It lost R23m in 2011, R13.7m last year and R9.7m the previous year.

The auditor-general, Terence Nombembe, expressed concern about the entity’s liabilities exceeding its total assets by R47m – its total assets in 2011 were R105m, compared with liabilities of R152m.

While PetroSA posted a profit of R831m for the year (2010: R356m loss) in the notes on the financial statements the directors reported that during the year a decision was taken to write off PetroSA’s R260m loan to PetroSA Gryphon Marin – an offshore concession in Gabon with Forest Oil – “due to recoverability” being doubtful.

Opposition energy spokesman Sej Motau questioned the wisdom of massive state-run energy and oil companies “either domestically or abroad”. He pointed out that South Africa had huge private sector companies involved in these businesses already.

Motau particularly objected to the plan by PetroSA to build a crude oil refinery at Coega in the Eastern Cape when the price of crude oil was fixed internationally.

PetroSA, which runs the world’s largest gas-to-liquids refinery at Mossel Bay and holds exploration land in Mozambique, Equatorial Guinea, Namibia, has also dabbled in business activities in Sudan, Nigeria, the US and Europe.

Mputumi Damane, who resigned last month as CEF group chief executive, said PetroSA had moved into profit by reducing costs and boosting revenues (2011: R10.5bn, 2010: R8bn).

Operating costs were cut from R2.3bn in 2010 to R1.9bn in 2011, largely due to a drop in expenditure on PetroSA Equatorial Guinea and the scrapping of a drilling campaign of PetroSA Egypt – which drove up costs in the previous year.

He noted that Brass Exploration Unlimited – a Nigerian incorporated company in which PetroSA Nigeria had a share – had been classified “as discontinued operations”.

Losses amounted to R19m in 2011. The financial statements of PetroSA Equatorial Guinea (South Africa) Pty Ltd indicate a R464m loss (2010: R493m).

The Strategic Fuel Fund Association, which manages strategic crude oil reserves, turned a profit of R451m (2010: R208m and 2009: R162m).

Operating expenses dropped from R287m to R103m this time, which was attributed to “consistent demand for storage facilities”. It has storage in Ogies, Saldanha and Milnerton.

Damane attributed the turnaround in the parent company’s fortunes to high average crude oil prices – an average of $116.25 (R935) in 2011, compared with $78 in 2010 financial year – cost reduction initiatives and the end to “the drilling campaign” in Egypt – which had made figures look less rosy in 2010, when the CEF reported a loss of R74m. – Donwald Pressly


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