Budget: South Africa to invest over R1 trillion in infrastructure over three years
Image: Armand Hough / Independent Newspapers
More than R1 trillion will be spent on infrastructure investment on roads, rail, energy, and water over the next three years.
Delivering his Budget speech, Finance Minister Enoch Godongwana said the 2025 budget demonstrated their resolve to change the composition of spending from consumption to investment.
Godongwana said allocations towards capital payments remained the fastest-growing area of spending by economic classification.
'Public infrastructure spending over three years will exceed the R1 trillion mark. This spending will focus on maintaining and repairing existing infrastructure, building new infrastructure and acquiring equipment and machinery,' he said.
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The infrastructure spend will focus on transport and logistics, energy and water and sanitation.
The budget document said of the R1.03 trillion to be allocated to public infrastructure, a total of R402 billion goes towards major allocations to roads, R219.2 billion energy, as well as R33.7 billion on water and sanitation.
According to Godongwana, of the R402 billion for transport and logistics, R93.1 billion is for the South African National Roads Agency to keep the 24,000 kilometre national roadwork in active maintenance and rehabilitation.
A total of R53.1 billion was for the maintenance and refurbishment of provincial roads.
'These investments will maintain our extensive road network in good condition allowing easy access and movement of freight and people within the country and beyond,' he said.
Godongwana also said R66.3 billion is allocated to the Passenger Rail Agency of South Africa (Prasa), with R18.2 billion meant for the rolling stock fleet renewal programme and R12.3 billion is provisionally allocated for the renewal of the signaling system.
'The spending will sustain progress in rebuilding the infrastructure to provide affordable commuter rail services. This will enable Prasa to increase passenger trips from 60 million in 2024/25 to 186m by the end of the Medium Term Expenditure Framework.'
The Minister said the energy sector will invest R219.2 billion on strengthening the electricity supply network, from generation to transmission and distribution.
The water and sanitation sector will spend R156.3 billion on expanding water resource and service infrastructure including dams, bulk infrastructure to service mines and factories.
Godongwana told MPs that the National Treasury continued to implement reform that will facilitate greater private sector participation in public infrastructure.
He said the new regulations for public-private partnerships (PPPs) were gazetted earlier this year and will take effect in June.
'The National Treasury has developed enabling guidelines and frameworks to support the new regulations,' said Godongwana, adding that the guidelines and framework will be published in the coming weeks.
The budget documents said a single structure overseen by the National Treasury will be established during 2025/26 to coordinate state participation in project preparation and planning, public-private partnerships (PPPs), funding and credit guarantees.
'It will consolidate two units currently in the Government Technical Advisory Centre that coordinate PPPs and capital appraisals with the Infrastructure Fund in the Development Bank of Southern Africa.'
It also said PPP regulations have been streamlined, reducing approval requirements for projects below R2 billion from June 2025.
'A clear framework is being established to receive and process unsolicited PPP proposals or bids from the private sector. Revised manuals and guidelines on PPPs are being produced and will be made available to the public.'
The document said state-owned companies, public entities, and municipalities will fund 72.7 per cent, which total R748.5 billion of total public-sector capital investment from their budgets.
'For the 2025 Budget cycle, the Budget Facility for Infrastructure has approved nine projects with a total value of R55.5 billion, of which R15.3 billion will be funded by the Facility, supporting critical areas such as hospital infrastructure, transport and logistics and water.'
It added that the 2025 Budget introduces a performance-based conditional grant for certain trading service entities that provide basic services, such as municipal water.
'This will incentivise financial and operational reforms to improve their functioning and sustainability.'
mayibongwe.maqhina@inl.co.za
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Daily Maverick
2 hours ago
- Daily Maverick
CEF ignores red flags and gives Shell and BP a clean break on Sapref oil refinery deal
The Central Energy Fund's purchase of BP and Shell's oil refinery in South Durban will have far-reaching repercussions as the state assumes the burden of addressing its environmental violations and eventually decommissioning it. In May 2024, the state-owned Central Energy Fund (CEF) announced that it would purchase the South African Petroleum Refinery (Sapref) oil refinery in South Durban – and all its related assets – for just R1. CEF says the deal is crucial to South Africa's energy security and to 'address the challenges in South Africa's energy future'. The reality is more complicated. The purchase – which releases previous owners BP and Shell from any responsibility for the refinery's liabilities – will have far-reaching repercussions. The burden to restore the refinery, address its environmental violations and eventually decommission it, will all now fall to the state and the public. In late 2024, Open Secrets was provided with a detailed complaint from a whistle-blower through the Organisation Undoing Tax Abuse (Outa) regarding CEF's purchase of Sapref. The complaint included more than 1,000 pages of documents provided to CEF as part of the due diligence process prior to the purchase, as well as the details of the final sale agreement. These documents reveal serious red flags about the purchase that CEF seemingly ignored, and that helps explain why Shell and BP were happy to walk away from the refinery for just R1. This is part one of a two-part series that examines the purchase. This article examines the deal in detail, focusing on the warnings and red flags raised with the CEF between 2021 and 2024. The second part will focus on the advisors who worked on the deal, and the CEF board that approved it. Sapref's dirty history Sapref has a long history of poor governance and environmental harm. Established in South Durban in 1963, the refinery was jointly owned by multinational oil giants Shell and BP until the sale in 2024. Residents of South Durban, which includes Bluff, Merebank, Clairewood, Umlazi and Wentworth, have long been subjected to unsafe living conditions due to the pollution from Sapref. The refinery also accrued significant environmental liabilities that have gone unaddressed for decades. In 2015, the South Durban Community Environmental Alliance (SDCEA) and the Vaal Environmental Justice Alliance (Veja) initiated legal proceedings to get the eThekwini Municipality to disclose atmospheric emission licenses and compliance reports of the Sapref and Engen refineries. Settler's Primary School, which sits between the two refineries, reportedly had asthma rates that were among the highest in the world. Pollution-monitoring company Ecoserv found that sulphur dioxide pollution in Merebank had exceeded World Health Organisation guidelines 124 times between 1 November 2000 and 31 October 2002, in a year where there was an overall decrease in sulphur dioxide pollution in this area. The refinery has posed major health and environmental risks since its inception, including accidents and petrol spills, explosions and fires, and day-to-day poisoning of air, land, water and bodies. In 2018, the KwaZulu-Natal Environmental Outlook report declared Durban's south basin an environmental 'hotspot'. CEF pursues the acquisition Despite this track record, the CEF and the then Department of Mineral Resources and Energy (DMRE) first expressed interest in purchasing Sapref in 2021. It came at a time when South Africa's refining capacity was severely constrained following the closure of several refineries. As a result, the country was (and remains) largely reliant on importing fuel. The SDCEA strongly opposed the purchase, urging the government to consult with all stakeholders before the purchase went ahead. The CEF and the new South African National Petroleum Company (SANPC) have used the decline of refining capacity to motivate for the purchase. They argue that the rehabilitation of the refinery is the answer to national energy security and job creation. Since the purchase, they have indicated their aim to increase the refinery's capacity from 180,000 barrels per day to 600,000 barrels per day, to create a ' mega-refinery '. This is strongly opposed by the SDCEA, which argues that ramping up refining capacity would severely worsen the already hazardous air pollution in South Durban. However, the purchase also comes with immense risks. The documents provided to Open Secrets by Outa reveal that CEF obtained transaction advice and due diligence from several firms when considering the deal. This included a 'Financial Due Diligence' report submitted by Mazars, a 'Technical Due Diligence' report submitted by Certis Engineering, and a 'Commercial Due Diligence' report drafted by Kearney for Mazars and CEF. All were completed at the end of 2021. Legal firm Fasken also conducted a legal due diligence in January 2021. Taken together, the reports expressed significant doubt about the financial and strategic value of CEF purchasing Sapref, especially if the sellers were to walk away from the refinery without any responsibilities. Ultimately, that's exactly what BP and Shell did, leaving the mess for CEF to clean up. To tell the story of the transaction, it's helpful to follow in chronological order. First, we will discuss the red flags raised during the 2021 due diligence, and the decision in 2022 to proceed with the purchase anyway. Then, we show the impact of the catastrophic floods in KwaZulu-Natal in 2022 that put the whole deal on ice. Finally, we show CEF decided to push ahead anyway, and how the terms of the final sale agreement in 2024 let BP and Shell off the hook. Red flags everywhere you look The due diligence reports obtained by CEF in 2021 highlighted a host of serious concerns that can broadly be divided into decommissioning liabilities, maintenance costs, long-term profitability and possible civil liability. 1. Decommissioning liabilities – perhaps the most important factor in weighing up CEF's decision to purchase Sapref is the liabilities it is assuming to ultimately decommission the refinery and its associated pipelines and infrastructure at the end of the refinery's life. The National Environmental Management Act and its accompanying regulations require financial provision to be made for the costs associated with safely decommissioning and remediating any environmental impacts from, among other activities, oil refineries. However, the Mazars financial due diligence from 2021 noted that Sapref's owners had neither calculated nor made provision for end-of-life decommissioning, and that any new owner would probably be required to take on this significant cost. Both Mazars and Certis found that, at a minimum, a $374-million (R6-billion at the time) provision should be available to decommission the refinery and its 'related onshore operations'. The Certis report indicated that 'robust negotiations took place to make sure that Shell and BP contribute to the decommissioning provision as good corporate citizens. It was proposed that a different approach be adopted to allocate the decommissioning provision equally between the Buyer and Seller, thus making each responsible for $187m'. By the time of the final deal, Shell and BP made no such contribution. 2. Capital spending needed for new fuel requirements – The Mazars and Certis due diligence highlighted legislation passed in 2021 requiring the move to significantly lower sulphur diesel production and use in South Africa. While this was supposed to be in force from 2023, it is now anticipated to come into effect in 2027. The due diligence estimated that between $545 and $1-billion (R8.7-billion-R16 billion) in capital expenditure would be required to upgrade the refinery to meet these requirements and stated that 'exactly how this will be funded is not yet certain'. 3. Required maintenance spending – the due diligence noted that the refinery needed extensive maintenance. The Certis report noted that Sapref had planned an extensive maintenance and turnaround programme in 2022 and 2023 that would cost around R3-billion over two years. Mazars confirmed that there was extensive corrosion of the refinery tanks – creating serious risk of leaks – and that many machines in operation at the refinery were 'not environmentally compliant', increasing the risk of fines and plant shutdowns. The Mazars report also cautioned CEF that Sapref had been increasing maintenance for years but it had 'not resulted in improved revenues or margins'. 4. Profitability and industry outlook – up until the refinery's closure in 2022, Sapref had the capacity to refine 180,000 barrels (bbl) per day. However, the due diligence documents found that the minimum production capacity for a refinery to be profitable was 400,000bbl. Thus, it was anticipated that in addition to the required spending on maintenance and retooling the plant for cleaner fuel, it would need to expand its capacity significantly to be financially viable. But Mazars noted the uncertain future for the market for petroleum products in the medium to long term, given the country's climate commitments, the climate crisis and the proposed shift to electric vehicles and cleaner fuels. The documents concluded that the electrification of the transport sector is a 'major long-term threat to refining'. It added that a pathway to adequately address carbon emissions would significantly reduce demand for petroleum in the coming decades, leaving 'very few refineries profitable'. When it was reported in early 2022 that CEF was interested in purchasing Sapref, the South African National Energy Association (Sanea) warned against it. Sanea said that it would cost more taxpayer money than it was worth to keep it operating, and that there was a likelihood that after spending that money, CEF would be left with a stranded asset in the next 10-15 years. Sanea's CEO said: 'Government is fixated with the idea that security of supply is linked to processing crude oil. That may have been the case several decades ago, but not any more'. 5. Possible civil liability – in the legal due diligence prepared by law firm Fasken, it warned that the Sapref refinery regularly violated South Africa's air pollution limits and its own licence requirements, including regular flaring incidents and the release of SO2 (sulphur dioxide) at far above legal levels. The report also noted community complaints about the high levels of cancer in surrounding communities and the allegations that this was linked to the refinery's emissions. The report noted that the CEF might find itself subject to criminal prosecution in the future if the refinery continued to contravene emission requirements. Despite these concerns, then minister of mineral resources and energy, Gwede Mantashe, gave his approval for the deal in December 2021. At that point, the deal envisioned an 'upfront acquisition cost of $10 million' to be paid by the CEF in cash, and that the CEF would raise a further $602-million in debt for required maintenance and inventory related to the refinery. This was R160-million in cash and R9.6-billion in debt in December 2021. By March 2022, a sale and purchase agreement had been drafted and edited by the legal teams for all parties. Open Secrets sent questions to National Treasury, querying whether the CEF had provided it with all the required documentation for the acquisition under the PFMA and whether Treasury had provided the requisite oversight. Treasury's response illuminated key issues. First, it stated that sections 51(g), 66 and 70 of the PFMA, relating to the granting of a government guarantee, were not applicable as CEF was only purchasing the Sapref assets and not taking on additional liabilities, as originally planned. However, Open Secrets' reading of the contract is that CEF did in fact take on additional liabilities, meaning it had done so without the government guarantee. When we provided National Treasury with the draft sale and purchase agreement, it stated it had not seen the document and could not comment further. Secondly, National Treasury pointed out that the CEF did not share additional information that Treasury had requested prior to the conclusion of the deal – this was pertaining to financial due diligence, the plans to decommission Sapref, and other operational costs. Treasury also requested engagement between itself, CEF and the DMRE on the status of the deal, but this engagement has not happened either. Both the CEF and DMRE failed to respond to Open Secrets' questions sent to them. The 2022 floods April 2022 saw the most catastrophic flooding disaster recorded hit Durban: 459 people were killed and 88 were still missing by the end of May 2022; 4,000 homes were destroyed, 40,000 people were left homeless and 45,000 people were temporarily left unemployed. The flood engulfed the Sapref refinery, leaving it under three metres of water, washing hydrocarbons on to surrounding beaches and mangroves, and causing 'extensive damage to equipment and infrastructure, including plant, roads, IT systems, electricity and water systems'. Sapref became inoperable at this point, and in April 2023, Sapref announced that it was retrenching half of its workforce, given the extensive damage to the refinery, adding that the damage required 'intensive capital investment of about three-five years' duration'. According to the post-flood transaction advice document from Mazars to CEF, CEF visited Sapref in June 2022 to inspect the site and subsequently, all negotiations were paused. This arguably should have been the end of the deal, and the state should have required Shell and BP to fully clean up and decommission the site, bearing all the costs. Instead, Shell and BP 'returned to the negotiating table in November 2023', and things moved quickly from there. A new MOU was signed by January 2024, and CEF had completed the purchase by the middle of 2024. The final deal gives Shell and BP a 'clean break' The 2022 flood would have hugely escalated the risks and costs associated with purchasing the refinery. Given the risks identified in 2021, the flood would have increased the capital investment and maintenance requirements and increased local environmental damage and clean-up costs. It also meant that the R3-billion maintenance that Shell and BP had earmarked, could not take place. Despite this, CEF pushed ahead with the purchase. BP and Shell were only too happy to give away the asset at this point, 'selling' Sapref to CEF for a nominal R1. The only additional commitment from Shell and BP was to pay CEF R280-million to cover some operational expenditure in the first year after the sale, and R55-million towards employees. It is clear from the final draft of the sale and purchase agreement and CEF's internal correspondence provided to Open Secrets that the sale was based on a 'clean break principle', or voetstoots (at the buyer's risk). In CEF's board memorandum recommending the deal, it noted that, 'Due to the clean break sale principle, the asset is sold to CEF on as is basis. CEF has to absorb all related liabilities link (sic) with asset'. This was despite the 2021 due diligence which insisted that the CEF should only consider the deal if it could ensure a sizeable commitment from the sellers towards the massive future decommissioning costs. This suggests that Shell and BP were the main beneficiaries of Sapref's sale to CEF. They have walked away with indemnity from billions in liabilities – actual and contingent – associated with an out-of-date, environmentally non-compliant refinery that will cost billions to decommission. Those liabilities are now the responsibility of the state and the South African public. Shell and BP declined to comment on the estimated costs of decommissioning, citing confidentiality. The conclusion of the sale also occurred without public consultation with communities in South Durban who have been living with the environmental and health harms caused by the refinery for decades. The SDCEA told Open Secrets that they believe that this sale was a missed opportunity to move towards a 'cleaner, renewable energy future' centred around environmental protection, public health and sustainable development. The decision to push ahead with the deal raises important questions about who encouraged CEF to pursue the deal, and whether the board properly applied its mind to the totality of the evidence before it. As we discuss in the next instalment in this series, CEF received slightly different advice in 2023 – after the flood – that seemed to downplay the previous warnings. This more positive advice was also provided by Mazars, but this time in partnership with a team from CLG, formerly known as the Centurion Law Group. CLG is a prominent presence in South Africa's oil and gas space and is linked to prominent oil and gas lobbyists. Mazars and CLG were also linked to another dodgy deal at PetroSA, a few months prior to its involvement at CEF, that has since gone completely belly-up. Both Mazars and CLG failed to respond to detailed questions from Open Secrets. The next article focuses on the role that Mazars and CLG played in the acquisition of Sapref, why the advice given to CEF suddenly changed after the 2022 floods, and the conduct of CEF's board in approving the deal. DM Open Secrets is a nonprofit organisation which exposes and builds accountability for private-sector economic crimes through investigative research, advocacy and the law. To support our work including the investigations that go into the Unaccountable series visit Support Open Secrets.
IOL News
10 hours ago
- IOL News
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Text Color White Black Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Background Color Black White Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Transparent Window Color Black White Red Green Blue Yellow Magenta Cyan Transparency Transparent Semi-Transparent Opaque Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Dropshadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps Reset restore all settings to the default values Done Close Modal Dialog End of dialog window. Advertisement Next Stay Close ✕ After an improved rainy season and prices for minerals such as gold firming up, Zimbabwean consumer firms are well placed for stronger consumer spending. Companies expected to benefit from this include beer and soft drinks manufacturer, Delta Corporation, which has cited stiffer competition in some beverage categories. 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It mentioned 'emerging cost pressures including the government's recent increase of 19.1% to the diesel levy' as further worsening costs for companies. Headwinds in Zimbabwe had already affected Hippo Valley, which has had to rightsize its workforce with 1 000 workers expected to be let go by August. OK Zimbabwe, another prominent retailer battling headwinds, is now undertaking a $30m rights issue to stabilize the company. The retailer has also announced further closures of stores, pointing to a 2025 year that 'remains volatile and fragile, but with a possibility of better performances' by consumer companies. BUSINESS REPORT
IOL News
15 hours ago
- IOL News
Steenhuisen rejects Mbeki's call for DA to attend National Dialogue
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