The year 2018 brought plenty of tears, laughter, and frustration in South Africa with particular reference to the government and political antics that took place. One thing is certain: there is never a dull moment in our country on a daily basis. Many people could still find the light at the end of Eskom’s very dark tunnel when they implemented loadshedding a few years ago, but one thing that really crept under the skin of our Saffas is the price we had to pay for petrol in 2018.
At R17 per litre, many South Africans were forced to find alternative modes of transportation, many had to cut back on their monthly budgets, and a lot of people had to work a second job in order to fill their tanks. For weeks consumers felt the crunch as they paid more for one litre of petrol than they did for a loaf of bread. Fuel has been on everyone’s lips these past few months which is why it is important to remember the event that quickly became known as #oilgate.
In 2015 South Africa sold its entire oil reserve at $28 per barrel. Not a portion of the reserve; all of it. This meant that there would be nothing to use if there was greater demand. Why is this a controversy? Not only did the country gamble with the Strategic Fuel Fund (SFF) itself, but over 10 million barrels of crude oil left the country for at least $10 less than the global price of oil per barrel. Even amidst the financial and political chaos of 2015, this decision makes absolutely no sense. What exactly was the rationale behind this, if any?
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Let’s start at the very beginning
In order to ensure that countries have enough oil and petrol for the demand that they have to meet, several Strategic Petroleum Reserve Agencies have been put in place following disruptions in the Arab oil embargo and the Iranian Revolution in the 1970s. In South Africa’s case, the SFF was found. The International Energy Agency imposed several policies stating that nations should hold roughly 90 days’ worth of oil as strategic stocks in order to prevent any unprecedented disruptions affecting the consumption of fuel in a particular country. One can look at it as a type of emergency stock, and this is what was sold at $28 per barrel.
What was the reason for selling?
As with all things federal in South Africa, experts have noted that there is no sensible reason for the selling of the strategic oil reserves. Minister of Energy at the time, Tina Joemat-Petterson, announced that it was not a sale, but a strategic rotation of oil. Shortly after his, former president Jacob Zuma announced his infamous cabinet reshuffle, and Joemat-Petterson was replaced by Mmamoloko Kubayi. This excluded her from any parliamentary liability. Kubayi, however, contradicted her predecessor, stating that the reserves had been sold outright without the necessary permission from the previous finance minister, Pravin Gordhan.
Experts have noted that the deal was illogical in every way possible. Firstly, the oil market is in contango. This means that future oil prices are higher than current oil prices. If you decide to sell stock and have it delivered in the future, you will make more money at the end of the day. The decision to sell as soon as South Africa did, wasn’t a calculated move at all. Secondly, the obvious: why would you sell oil for less than it is worth?
Who bought the oil?
This is where the situation gets even more interesting and scandalous. According to the reports, a smaller company and two major international commodity traders, Glencore, and Vitol, were responsible for the purchase. The CEO of Glencore, Ian Glasenberg, and the company itself have been subpoenaed by the United States Government under money laundering and corruption laws. The smaller company have also had a history of trouble which the SFF should have known about from the start. Other companies like Chevron, that have access to the pipeline in Saldanha Bay where the oil is stored, weren’t even invited to apply for the tender of this sale, making it even more suspicious.
The argument that the government is making is that the oil is still in the country and that the nation has access to it. However, what they fail to mention is that South Africa has gone from being the owner of the oil to the position of buyer. If there is a need for the oil, the country will have to buy it again at the current rate per oil barrel. In addition to that, nothing is stopping the owners of the oil to remove it from the country and take it somewhere else. There really is no guarantee.
The controversy behind the selling price
As already mentioned, the controversy behind the sale of the oil lies in the price. Each barrel was sold at $28 which is at least $10 less than the international selling price. The price of a barrel of oil is closer to $40 on an international level. This means that at least $100 million was left on the table as profit. That cost South African taxpayers anywhere from R1.5 billion to R2.2 billion. The only explanation is that someone had their hands in several slices of that very expensive pie.
Many questions have stemmed since this was reported. Experts have asked if there was a need to sell, why not leave it in the barrels and sell it for future delivery. The seller would have gotten 15% to 20% more if they prolonged by 12 months which meant a higher profit. It doesn’t matter from which angle you look at it, unfortunately, the country was the victim again to embezzlement and corruption at the expense of its citizens.
Why does this matter in 2019?
You might be wondering why this is resurfacing a good 3 years from the actual scandal. It is important to understand that the decisions made years ago now impact on our livelihoods and more importantly, our finances. Even though we just moved out of a recession, it was never necessary for us to be there in the first place. We have reached junk status in terms of our economy. Our unemployment rate has skyrocketed. To top it all off, our global investors aren’t too confident when it comes to investing in our country.
Then, of course, we have the snowballing petrol price that just recovered from that horrible R17-mark. With government blaming global factors as a cause of the significant rise, one should remember that the African National Congress (ANC) and their accomplices were in one way or another complicit in selling off oil reserves for next to nothing.
Looking back, the country should have held onto those 10 million barrels of crude. Maybe we would never have felt the crunch of the crippling global economy on top of our own fragile financial state. It is tough to continue living in a place where those that were elected to take care of their people use national resources as a form of self-enrichment.
