INFORMATION surrounding the R1 sale of Sapref last year has been revealed in a series of leaked documents exposing how possible red flags were ignored when BP Southern Africa and Shell Downstream South Africa sold the company to the government. Open Secrets recently revealed this.

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In 2024, the Central Energy Fund (CEF), a government-owned entity, bought Sapref “voetstoots”, including all liabilities. This came after the minister of the Department of Mineral Resources and Energy, Gwede Mantashe, granted CEF permission in 2021 to acquire Sapref, which included the refinery precinct in Prospecton, and the Island View facility on The Bluff from Shell and BP.

CEF was expected to raise around R8.9b for the required upgrades and maintenance of both facilities.

Before the 2022 floods, which severely damaged the plant, due diligence reports obtained by CEF in 2021 flagged several major concerns. These were mainly grouped under decommissioning liabilities, maintenance expenses, long-term profitability, and potential civil liability. As joint owners of Sapref, BP and Shell were required by the National Environmental Management Act to decommission the refinery, which includes remediating any environmental impacts the company may have had.

However, a report by audit company Mazars on Sapref’s financial due diligence from 2021 noted that the refinery’s owners had neither calculated nor made provision for end-of-life decommissioning, and that any new owner would likely be required to assume this significant cost. Auditors noted that a minimum of R6b should be set aside to decommission the refinery. The report also flagged the impact of a 2021 legislation mandating a transition to lower-sulphur diesel production and consumption in South Africa. Although initially scheduled to take effect in 2023, the regulations are now expected to be implemented in 2027. The report estimated that upgrading the refinery to comply would require between R8.7b to R16b in capital investment, noting that the source of these funds remains uncertain.

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“Given the asset’s historic financial and operational performance issues, there are significant sustainability and profitability challenges to overcome post the potential transaction,” concluded the report.

In its legal due diligence report, law firm Fasken flagged that the Sapref refinery frequently breached South Africa’s air pollution regulations as well as its own licence conditions. These violations included repeated flaring incidents and sulphur dioxide emissions well above permitted levels. The report also referenced community concerns over elevated cancer rates in nearby areas, with allegations linking these health issues to refinery emissions. It cautioned that the CEF could face potential criminal prosecution if such contraventions persisted.

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Following the floods, another Forvis Mazars report noted that in June 2022, CEF visited Sapref to inspect the site, and subsequently, all negotiations regarding the sale were put on hold as the damage had led to retrenchments and damage to the plant and the environment. In 2023, however, all parties resumed talks before the sale was finalised the following year, despite the warnings.

Mantashe said the deal excluded Sapref’s Island View terminal operations on The Bluff.

“The acquisition of Sapref and its revitalisation thereof will ensure that South Africa, through CEF, continues with the exploitation, development, and distribution of petroleum products,” he said.

CEF had not responded to questions at the time of publishing.

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