Western Cape Business News

Send  Share  RSS  Twitter  20 Oct 2011

PETROCHEMICAL: Oil Refineries In a Pickle


Recent Western Cape Business News

SOUTH AFRICA’s oil and refinery industry is descending into a crisis of Eskom proportions, says Michael Bagraim, President of the Cape Chamber of Commerce.

He was commenting on the shortage of bitumen and LPG gas that was beginning to hurt business and stop work on road construction and other projects. “We have men and machinery standing idle because they cannot get bitumen and that is costing money and it will soon lead to retrenchments. We already have some contractors on short time,” Bagraim said.

In the next few days or weeks businesses that use LPG will start to run out of gas and they, too might have to stop work,” he warned.

The heart of the problem was that South Africa’s refineries were old and no longer reliable. At present four of the six refineries were shut down for maintenance or other reasons and they were not producing gas or bitumen.

This is an industry which is subject to strict Government price control and this has snuffed out all competition. There is no incentive to improve efficiency or to provide a better service. All production is planned to take maximum advantage of the price control formula and this has created a situation where the oil companies have had no incentive to replace aging refineries.”

Peter Hugo, Chairman of the Chamber’s Transport Portfolio Committee, said there was an excess of refining capacity in the world and, consequently, there was a reluctance to build new refineries. The oil companies were international businesses and it made sense for them to import petrol and diesel from their refineries in other countries where they had excess capacity.

The planned Coega refinery was no solution as it was too far from the market and would require a pipeline twice as long as the pipeline being built from Richards Bay to Gauteng. “If the costs of the new pipeline are anything to go by then the whole Coega plan will be uneconomic from day one,” Hugo said.

It should be possible to import bitumen but plans to import LPG had been delayed for various reasons and it now seemed that there was little prospect of relief  before 2014.

Bagraim said businesses that had turned to gas after Eskom let them down now faced a new crisis and he called on the Government to do everything possible to speed up gas imports.

The stagnation in the oil industry is the result of government controls and unrealistic price formulas dating back to apartheid days. This control is now damaging the economy and it is essential that the whole industry should be opened up to real competition without delay,” Bagraim said. 

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