Issued by: The Minister of Mineral and Energy Affairs
MEDIA STATEMENT BY THE MINISTER OF MINERAL AND ENERGY AFFAIRS, MR R F (PIK) BOTHA
Pretoria Sunday 29 October 1995
THE FUTURE OF MOSSGAS
Open reply to the Sunday Times Business Times Report: "It's R800 million or bust, Pik tells Cabinet in Mossgas plea" and the Sunday Times editorial "Enough is enough"
I categorically deny that I support a "proposal" for a five-year extension of Mossgas' life with a capital injection of R800-million as you allege. Your editorial on the subject is equally fallacious, based as it is on your newspaper's own inaccurate reporting.
The proof is to be found in my written reply last Thursday to the question you faxed to me. I quote the relevant extracts (the full text of my reply accompanies this Media Statement):
"If we do nothing gas reserves will run out in early 1997 and that would mean the end of Mossgas. Mothballing of about R1,3 billion or net abandonment costs of R625 million would be incurred. This is our worst cast.
"Less bad is to invest further in the compression model" (introducing pressure into the existing well in order to maximise its yield) "as well as in the development of the satellite fields. We can then continue production until 2001 but at the end of that period mothballing or abandonment costs will still be with us.
"In my view the best chance of a solution lies in the direction of involving companies, local and international, that have the human and financial resources... to implement a solution."
In other words, negotiated privatisation. Surely, one cannot say I support a proposal I call "less bad", when immediately thereafter I explain what I consider to be the "best chance"?
In my reply I repeatedly say that no decision has been taken to make any further investments. I say that a Cabinet proposal is in the process of preparation and will be submitted as soon as a Report from the Mossgas Monitoring Panel is available. I explain that the Panel has been set up in response to requirement of the Joint Standing Committee on Public Accounts that "no further money be invested (in Mossgas) without a comprehensive investigation, independently verified". I point out that that investigation must "demonstrate conclusively that further investment is financially justified.. taking into account all... costs to the motorist, the taxpayer and the Government".
I now repeat my standpoint: my personal view is that Mossgas should be made available for purchase by that interested party or parties which, after an uninfluenced process open to all, negotiate the best overall deal with the Government. By "best overall deal" I mean best for the country, best for the taxpayer, best for the motnment.
But the decision does not rest with me. It rests with the Cabinet. I am awaiting the Report of the Mossgas Monitoring Panel and the reaction to that Report of the Parliamentary Joint Standing Committee on Public Accounts, the Auditor General and the Parliamentary Portfolio Committee on Mineral & Energy Affairs before proceeding to Cabinet for a decision.
We can hold different views on many matters. But for the life of me I cannot understand how, on the basis of my written response, you could have written an editorial indicating to your readers that a course of action is being contemplated which is not the case at all. It cannot be borne out by my written reply. I have an idea that the journalist who wrote the original story shares my views. Despite a busy programme I went out of my way to respond to your journalist's enquiry in order to be helpful. Ironically, if I had perhaps not responded at all there might have been a more favourable reaction from you.
In one sense, I could not have put it better than you do. From my side, indeed, "Enough is enough".
The result of a comprehensive investigation launched by CEF, assisted by consultants, was presented to a restructured and independent Monitoring Panel for verification on 15 September 1995. The CEAS submitted its final report on the future socio-economic benefits of Mossgas on 10 August 1995. The Department of Mineral and Energy Affairs submitted proposals for a policy framework for CEF and Soekor. These were agreed to by Cabinet Recommendations with regard to Mossgas are now being finalised and will, subject to verification by the Panel, be submitted to the Committee. The Auditor General is also being consulted and his input is given to the Public Accounts Committee. All alternative uses have been carefully evaluated; results will be submitted to the Panel for verification. The possible privatisation of Mossgas is under consideration. The Government has decided that since the strategic reasons which led to the establishment of Mossgas no longer apply, the Project should in future be evaluated purely according to economic and socio-economic criteria. The Project, if not privatised, will therefore have to compete with other similar projects for capital.
SPECIFIC ANSWERS
1a A proposal to Cabinet on the future of Mossgas is in the process of preparation and will be submitted as soon as the Report of the Monitoring Panel is available. Without anticipating what Cabinet will decide, one of the options will be to invite negotiated bids from interested parties to by Mossgas. "Negotiated bids" means that is will not be a simple knock-down sale but a carefully structured process during which the relative merits of the various bids will be carefully evaluated.
The question of extending the life of Mossgas at a certain capital investment cost is a separate, albeit related, issue. If proceeded with the funding would probably come from the Central Energy Fund. However I wish to emphasise that no decision has been taken to make any further investments. We are awaiting the Report of the Monitoring Panel.
1b Mossgas' ther improve Mossgas' cash positive position. The cuts could even bring about some marginal inefficiencies but they will not outweigh the benefits of the cost savings achieved.
1c It is not clear as to which plan is referred to. If by "plan" is meant the plan for the future of Mossgas, the reply is that the terms of that future cannot be known until negotiations with the eventual new masters of Mossgas have been completed or the Cabinet decides on some other option. If instead "plan" refers to the proposed extension of the existing operation, the existing regulatory environment will continue to apply unless and until it is overtaken by general reform of the liquid fuels sector or the completion of negotiations with a possible interested purchaser.
2. See 1c.
3. There is no link between thre of Mossgas. This does not preclude the possibility of such a link in the future but no such link has been conceived of so far.
4. See 1a for the answer to the first part of this question. The question as to whether to invest additional funds to tap the extra resources of the Mossgas field in the light of the possibility of selling the project is being considered thoroughly as indicated above, but no decision has as yet been taken. The independent Monitoring Panel of experts advising the Government on Mossgas needs to asses whether there is sufficient financial advantage in proceeding with the extra investment whatever happens to Mossgas. The Monitoring Panel will also assess the risks involved. We are awaiting its Report.
5. Other options have not been rejected. All options are being carefully considered.
6. E-BT will be producing at a rate of 20 000 barrels per day from the start of production. "The conservative estimate used for economic evaluation is that the field would take 3 years to recover the estimated minimum yield of 13,4 million barrels.
The initial cost of R349 million" quoted in the Sunday Times of 22 October 1995 is in conflict with my media release of 21 October 1995 which correctly reflected the estimated capital cost at US$75 million (R270 million. The cost per barrel will therefore be $5.6.
Given the relatively fixed nature of oil reserve development, cost per barrel is, by definition, inversely proportional to reserve size: the smaller the field, the higher the cost per barrel. While there are fields in production in the Middle East at productions costs of $2 per barrel, these are all giant fields (greater than 200 million barrels) and onshore (where costs are significantly lower than offshore). Total cost per barrel is unique to each field and is a function of the fields' development cost, operational cost and resby world standards and in order to make its development viable, SOEKOR had to find a low cost development and production system.
A technical and economic analysis has been thoroughly audited by several international experts appointed by SOEKOR. It is on this basis that the Government has sanctioned the project.
The oil field was discovered in 1990. A decision to proceed with the development has only now been taken - 5 years later - which indicates that a thorough investigation and assessment on the viability of the Project has been made. In addition, the private sector namely Engen, has a 20% share in the E-BT Project.