South Africa Engages with Gazprombank to Revive Mossel Bay Refinery Amidst Controversy

In what can be construed as a controversial stride towards reinforcing its energy security, South Africa’s Cabinet has officially endorsed the collaboration between the state-owned Petroleum Oil and Gas Corporation of South Africa (PetroSA) and Gazprombank Africa for the refurbishment of the dormant Mossel Bay gas-to-liquid refinery. The Cabinet’s decree, disclosed in a public statement following the meeting on December 8, propels Gazprombank, a principal Russian financial institution embroiled in U.S sanctions, into a critical venture within the South African energy sector.

PetroSA’s commissioning of Gazprombank as its investment ally comes amidst a complex geopolitical landscape shaped by the Russian invasion of Ukraine. Gazprombank, recognised as Russia’s third-largest asset holder and interlinked with the state energy behemoth Gazprom, has faced lesser stringency in sanctions compared to other Russian banks, predominantly due to Europe's dependency on Russian energy provisions. The sanctions have not prohibited the bank from dollar transactions or accessing the international SWIFT banking communication system.

Amidst the reported sanctions and their international implications, Sesakho Magadla, the acting chief operations officer of PetroSA, asserted that these do not extend to the South African milieu. However, this decision by the Cabinet has ignited a spectrum of concerns and criticisms, speculating on the motives and the potential consequences for Africa's most industrialised nation.

The procurement process, scrutinised by investigative journalism outfit amaBhungane, laid bare a bidding operation that apparently favored Gazprombank heavily. With strict technical criteria sidelining nineteen out of twenty contestants, GPB Africa & Middle East, Gazprombank's local subsidiary, emerged as the sole qualifying entity. Revelations of leaked documents suggest the PetroSA bid evaluation committee and board faced internal opposition to this decision, yet proceeded with the partnership.

The strategic importance of this deal is underscored by the Mossel Bay facility's inactivity since December 2020 due to the depletion of its feedstock, paired with recent closures of other refineries that pose a security threat to the nation's fuel supply. In tandem with diminishing critical resources like power and water, the reconstruction of refining capabilities is viewed as vital for the country. Presently, PetroSA’s business model is primarily contingent on importing diesel for resale to the national power utility, Eskom.

Notwithstanding, the affinity with a sanction-laden Russian bank draws skepticism, particularly amidst Russia's compromised international reputation and the criticized conduct surrounding the bidding process. Gazprombank's involvement in the profits from the rejuvenated refinery begs broader questions regarding financial ethics and transparency.

Whilst South Africa maintains an ostensibly neutral position in the Russia-Ukraine conundrum, the South African Reserve Bank has previously alerted to potential financial instability arising from any perceived bias, which could invite further sanctions. As South Africa grapples with economic challenges, this deal suggests the government and PetroSA are engaging in a precarious balancing act of strategic interests and ethical governance.