Global energy group BP has announced a R5.5-billion, five-year investment plan for South Africa and Mozambique, including a R2.5-billion capital expenditure programme to upgrade the Sapref refinery, in Durban, positioning it to produce fuels to a Euro V specification level.

Sapref is a joint venture with Shell, which would also be investing in the upgrade to meet government’s July 2017 deadline for the introduction of South Africa’s so-called cleaner fuels 2 (CF2) specification. The new standard stipulates a reduction in sulphur, benzene and aromatics levels in the petrol and diesel produced.

The project was proceeding despite there being no finality on the cost-recovery mechanism for what was essentially a regulatory-induced upgrade.

Group CEO of refining and marketing Iain Conn said the group expected that the “remuneration mechanism” would be “finalised shortly”.

Department of Energy (DoE) director-general Nelisiwe Magubane said her department was working with the National Treasury on the “modalities”, which should be announced during the second half of 2013.

Conn, who has historical associations with South Africa by virtue of the fact that he is the nephew of the late anti-apartheid campaigner and Black Sash stalwart Sheena Duncan, said the investment plan demonstrated the group’s commitment to a region where investor confidence was growing on the back of improved policy certainty and sustained growth.

Speaking in Johannesburg, he revealed that South Africa would receive the lion’s share of the investment, with R4.7-billion set aside for projects in South Africa and R800-million for investment in Mozambique.

Besides the R2.5-billion refinery upgrade, BP would spend R1-billion on new fuel terminals; R2-billion to upgrade and expand its retail network, including the roll-out of 120 Pick ‘n Pay Express stores on its forecourts; and the creation of a new enterprises development fund, which would be established in partnership with the National Empowerment Fund.

LIQUID FUELS MASTER PLAN

Magubane welcomed the refinery-upgrade plan, which she said placed pressure on government to finalise its cost-recovery plan.

She also said that it offered greater certainty on the future of the existing refinery fleet and its ability to meet the CF2 specifications. This, in turn, would help government finalise its liquid fuels master plan for the coming 20 years.

The master plan had been finalised, but Cabinet was still due to deliberate on its contents in the coming months.

It was likely to attempt to strike a security-of-supply balance that was premised on brownfield refinery investments, the development and expansion of fuel import infrastructure, and longer-term plans to bolster South Africa’s refining capacity through greenfield investments.

Conn said that South Africa’s migration toward the Euro V fuel standard would help shore up supply-side security, owing to the fact that there was likely be surplus capacity to produce such fuels for the foreseeable future.

“Provided South Africa has import capabilities, [the migration to Euro V] gives South Africa options on importing available fuel or manufacturing itself,” he said.

He also emphasised BP’s support for the National Development Plan, which asserted that the "least risky and most cost-effective option is to continue importing a share of refined product until the country reaches a stage when it can absorb the output of either a new refinery or a major upgrade to an existing refinery”.