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Shell nyse Shel and Bp nyse Bp to Pay Operational Costs in South Africas Refinery Transaction

Shell (NYSE: SHEL) and BP (NYSE: BP) to Pay Operational Costs in South Africa’s Refinery Transaction

CAPE TOWN – South African units of Shell (NYSE: SHEL) and BP (NYSE: BP) will pay around $15 million to the state-run Central Energy Fund for operational costs at the Sapref refinery that the oil firms are selling to the government, a letter from the energy minister to the finance ministry showed.

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

The Central Energy Fund (CEF) is in the process of seeking the National Treasury’s approval to buy the flood-damaged refinery, with a nameplate capacity of 180,000 barrels per day, from Shell and BP for only 1 rand ($0.0539).

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

A letter in May from energy minister Gwede Mantashe to the finance ministry seeking approval for the deal shows that Shell Downstream SA and bpSA agreed to pay a total amount of 286 million rand ($15.42 million) – 260 million rand plus a 10% contingent of 26 million rand – for operational costs for the first year, expected to be 2025 after the deal is finalized.

Mantashe stated in the letter that the refinery has a revenue stream of around 34 million rands a year in its current state.

The energy department 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 (NYSE: SHEL) and BP (NYSE: 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.

($1 = 18.5521 rand)

(Source: Reuters)