Location may be key to PetroSA’s R39bn oil refinery project

Posted On Friday, 26 October 2007 02:00 Published by eProp Commercial Property News
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On the face of it, the R39bn oil refinery that state corporation PetroSA plans to build at the Coega industrial development zone outside Port Elizabeth will bring much-needed additional refining capacity to an industry straining to provide growing demand for liquid fuel

Infrastructure IndustryHowever, as with real estate, the key word is “location”. And, questioning Eastern Cape as the location, industry commentators suspect the project may come at a huge cost to the taxpayer, while proving to be economically unviable.

With planned refining capacity of 200000 barrels a day, the plant will increase existing refining capacity a hefty 25%. Yet with by far the bulk of liquid fuel demand concentrated in the Gauteng market, the new refinery will leave significant new volumes of refined product decidedly remote from the primary market.

This presents a formidable logistical hurdle — getting product to the primary market. If anyone should know about the country’s strategic liquid fuel requirements, it is the industry body, the South African Petroleum Industry Association. Sapia executive director Connel Ngcukana, for one, is perplexed.

“My big concern is location. The decision could be linked to employment and the automotive industry in the region but the planned volumes are too big and the demand is inland. If there is one thing PetroSA should maybe explain, it is the choice of location,” says Ngcukana.

Other industry insiders concur. “Port Elizabeth is simply not a sensible location,” says one source . “My gut instinct is that this is a decision aimed to swing political sentiment in the Eastern Cape.”

PetroSA considered a number of locations for the multibillion-rand project, including Richards Bay, Durban and Secunda. But these were dismissed, mainly because of infrastructure constraints and port congestion at Durban.

PetroSA chief financial officer Nkosemntu Nika says the choice of Coega as the location for the refinery would be better for the geographical spread of SA’s refining capacity. “We will have our refinery clusters in a radius of 1500km, which means it is not all concentrated in one place,” he says.

Historic state sentiment also favours Coega, though. If Coega plays host to the refinery, this could just be the catalyst for the state’s longstanding dream of creating a petrochemicals hub at the coast. This means liquid fuel would not be the only production target. The refinery could provide inputs into a petrochemicals industry, and that means jobs.

Employment is a critical issue in Eastern Cape. The state’s decision to set up the industrial development zones — the biggest is at Coega — was primarily motivated by the desire to inject impetus into economically marginal areas and so grow jobs. The plan, and billions in capital, was approved despite pointed questions over the zones’ economic viability.

Other state plans underpin the project. If a petrochemicals hub materialises in Nelson Mandela Bay, it fits neatly with the industrial development drive, with chemicals one of the lead sectors earmarked for intervention to boost growth.

Sources point out, though, that a vast sum would go into the refinery, again raising questions of economic viability.

“These plans may look sweet,” said an industry insider, “but will the state get a return on capital? That’s the fundamental question. With capital-intensive projects one looks at the most economic way of doing things, but with state corporations the inclination is to look at the decision that would yield the biggest political dividends.”

 

Last modified on Saturday, 02 November 2013 10:23

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