Unprofitable PetroSA’s future hangs in balance, says auditor-general

PetroSA posts a loss for the year to end-March of R1.4bn compared with the previous year’s total loss of R449m.

The auditor-general has warned there is a “material uncertainty” over the ability of state-owned oil company PetroSA to continue operating as a going concern.

The company, which makes up 75% of the revenue of its parent, the Central Energy Fund (CEF), posted a loss for the year to end-March of R1.4bn compared with the previous year’s total loss of R449m.

PetroSA’s future is also threatened because of diminishing gas feedstock from its offshore wells, which feed its gas-to-liquid fuel plant in Mossel Bay, which is processing condensate as an alternative.

Contrary to the utterances of the auditor-general, PetroSA directors say the group can continue operating as a going concern provided it can produce its annual targeted production volume of 7.2-million barrels and achieve a profit margin of 8%. Costs will have to be contained, including “a review of conditions of employment”.

However, in the PetroSA annual report tabled in Parliament on Friday the directors highlighted that a deterioration in global crude oil prices and foreign exchange volatility could have a negative effect on profits “and place additional strain on the group’s resources”.

The CEF annual report notes, however, that because of low international crude oil prices — which are the benchmark for PetroSA’s products — the group’s unprofitability is likely to endure “barring drastic intervention”.

“The poor results are due to the new business model where PetroSA is processing condensate rather than gas due to the declining gas reserves”, CEF chairman Luvo Makasi said in his chairman’s statement.

The auditor-general also flagged the challenges PetroSA faces in meeting its rehabilitation liability of R9.6bn, which is underfunded by R7.4bn.

PetroSA expects these rehabilitation costs to be incurred up to 2027.

PetroSA’s revenue fell 34% to R10.4bn in 2016-17 from R15.7bn in 2015-16. It had a negative gross margin of 4.6%, with cost of sales of R10.8bn outstripping revenue of R10.4bn.

Its operating loss amounted to R1bn (R34m).

CEF revenue for the year amounted to R11.6bn, down from the previous year’s R20.7bn. The CEF made a net loss of R599m compared with the previous year’s loss of R194m. Its performance was adversely affected by the collapse in the gross profit margin from 22% to 5%.

Subsidiary the Strategic Fuel Fund generated revenue of R799m (R4.6bn) and a profit of R354m compared with the previous year’s loss of R118m, largely due to the R231m contribution from investment income.

Business Day

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