Shell, BP to pay operational costs to buyer of South Africa's Sapref refinery

South African units of Shell and BP will pay around $15-million to State-run Central Energy Fund (CEF) for operational costs at Sapref refinery that the oil firms are selling to the government, a letter from Minister Gwede Mantashe to the finance ministry showed.

The payments could help kickstart the revival of South Africa's largest refinery as government looks to secure security of petroleum supplies amid declining refining capacity.

The CEF is in the process of seeking National Treasury's approval to buy the flood-damaged refinery, with a nameplate capacity of 180 000 bl/d, from Shell and BP for only R1.

The deal includes fixed assets and transmission pipelines in the east coast petrochemical hub of Durban.

A letter in May from then Mineral Resources and Energy Minister Mantashe, who has since been named Mineral and Petroleum Resources Minister, to the finance ministry seeking approval for the deal shows that Shell Downstream SA and bpSA agreed to pay a total amount of R286-million – R260-million plus a 10% contingent of R26-million – for operational costs for the first year, expected to be 2025, after the deal is finalised.

Mantashe stated in the letter that the refinery has a revenue stream of about R34-million a year in its current state.

The Department of Mineral Resources and Energy, which is being separated into the Department of Electricity and Energy and the Department of Mineral and Petroleum Resources, confirmed to Reuters the letter's authenticity, but did not provide further details.

BP and Shell declined to comment on the contents of the letter.

Sapref has not been operating since 2022 when joint venture partners Shell and BP halted operations. The plant was later damaged by flooding.

Shell and BP have scaled back their refining operations in recent years in the face of growing competition from Asia and the Middle East, and attempts to reduce harmful emissions.

CEF confirmed the provision for payment of operational expenses and possible severance packages in the first year operations resume, but declined to confirm the specific amounts.

CEF board chairperson Ayanda Noah said talks with the National Treasury were ongoing and that CEF was looking to raise "affordable capital" as part of efforts to revive Sapref.

A senior official in the energy department told Reuters that Sapref's rebuild, which may include a higher production output, was not expected to exceed $1-billion.