Diversity in Energy

DIVERSITY

The first task from a CEF perspective is to understand our role. We are accountable for the security of supply of energy in the country. This energy includes the fuels that we use for transportation, and electricity used by various customers such as in the manufacturing and services sectors,” explains group chairperson, Ayanda Noah. The second task, she notes, is to understand and recognise that the CEF is owned by government and therefore has a dual mandate. The first mandate is a commercial one, where the focus is on profitability to ensure the sustainability of the enterprise. The second mandate deals with the issues of South Africa’s developmental state. “In other words, we have an obligation to support government in dealing with the issues that it is seized with such as unemployment, poverty and challenges that can have a multiplier effect in the economy such as rising prices of electricity and other forms of energy,” reveals Ayanda. SINCE ITS INCEPTION IN THE 1950S, THE CENTRAL ENERGY FUND (CEF) GROUP HAS PLAYED A CRITICAL ROLE IN ENSURING SOUTH AFRICA’S SECURITY OF ENERGY SUPPLY, AS WELL AS MAKING A SIGNIFICANT CONTRIBUTION TO THE SOUTH AFRICAN ECONOMY AND SERVING AS A STRATEGIC PARTNER TO THE DEPARTMENT OF MINERAL RESOURCES AND ENERGY (AND ITS PREDECESSORS), BY PROVIDING INSIGHTS TO SUPPORT POLICY DEVELOPMENT AND REGULATION.

It’s a broad remit that the group has to fulfil provide strategic insight to its principal; ensure independence and profitability; support government’s broad objectives; provide thought leadership and ultimately secure reliable energy supply chains. At the best of times this would be a challenging set of responsibilities. Presently, this task is more vexed than usual with the global energy market in a state of transition and the local supply of electricity constrained.

THE SUPPLY OF ENERGY IN THE COUNTRY

ACWA PROJECT

CEF HOUSE

STRATEGY & VALUES

Appointed in 2020, as group chairperson of the CEF Board, Ayanda took the opportunity to immerse herself in the group’s challenges and bring strategic clarity to the role of the company. Since her appointment, the South African gas development business iGas, the South African state oil corporation PetroSA, and the Strategic Fuel Fund (SFF), all subsidiaries of the CEF, have been seized with merger activities aimed at the formation of the South African National Petroleum Company that may take place in the future.

The South African Gas Development Company (SOC) Ltd

It signalled an important shift in the strategic approach of the CEF in which it is actively seeking to strengthen its subsidiaries. It is an approach that Ayanda, who has three decades of experience in the energy sector, believes will see the CEF make a strong contribution to assisting with the country’s energy challenges. Her motivation for helping to steer the CEF towards crafting an impactful yet flexible strategy is simple: “I believe one should always be focused on finding the best benefit for the end-user, the customer. This means our stewardship of resources and how we apply them to resolve the energy challenges of today and the future, needs to be approached holistically. The work that we do in supporting the state needs to be done in such a manner that the generations who follow in our footsteps know that we showed our support while being cognisant of not limiting their future options through our current actions.”

The group’s strategy is one of the key factors in this regard, as is its shareholder compact and its corporate plan. These plans provide a way to not only cascade the group’s strategic intent through the various levels of the organisation but also help its management and executive team to align their activities in pursuit of organisational goals.

Ayanda is also of the view that the group’s vision and values are critical elements in its overall success: “Values anchor an organisation and help it focus on the approach that needs to be adopted to move the company forward.”

Internally the CEF refers to its values as BRICS, wherein the acronym reflects the various aspects of its values as follows: Batho Pele - a commitment to working together to put its people first. Respect – holding all stakeholders in high esteem. Integrity – doing things the right way all the time. Continuous improvement – the pursuit of operational excellence, innovation, agility and quality in all activities. Stewardship – to lead in a responsible manner. “Our values are critical at so many levels,” says Ayanda. “COVID-19 has hampered dialogue both internally and with our external stakeholders. We have recently started with those open dialogues again in an effort to help the public understand what it is that we do and how we go about our work. “Fortunately, all stakeholders can see that even during this period when dialogue could not flow easily, we worked towards staying true to our values while implementing our strategies. Thereby underscoring the importance of the values to the group.”

DIVERSE OPERATIONS

The group is active throughout the energy sector value chain through its wholly owned subsidiaries and minority interests it holds in renewable energy ventures.

The group’s subsidiaries are:

AFRICAN EXPLORATION MINING AND FINANCE CORPORATION

African Exploration Mining and Finance Corporation – which mines coal in Mpumalanga for Eskom.

The South African Gas Development Company (also knowns as iGas) – this company owns a stake in the Mozambique-to-South Africa gas pipeline and is working on other gas delivery schemes. Petroleum Agency SA – which is the national petroleum and gas promotion and licensing agency.

The South African Gas Development Company (SOC) Ltd

THE SOUTH AFRICAN GAS DEVELOPMENT COMPANY PETROLEUM AGENCY SA

THE PETROLEUM OIL AND GAS CORPORATION OF SOUTH AFRICA

The Petroleum Oil and Gas Corporation of South Africa (also known as PetroSA) – this is the group’s main company and operates a gas-to-liquids refinery using indigenous gas as feedstock. It also has a stake in an oil field in Ghana.

STRATEGIC FUEL FUND ASSOCIATION

Strategic Fuel Fund Association - which handles vital crude oil infrastructure and reserves, as well as providing oil pollution control services in Saldanha Bay. Ayanda points out that the activities of the companies within the group are in a large part influenced by the precepts of government’s Integrated Resource Plan. Launched in 2019, this is a strategy for the development of energy infrastructure based on the least-cost power supply and demand balance, while also considering supply security and the environment through the reduction of negative emissions.

“It guides us in terms of the type of thinking that we need to have in terms of the energy mix we need to establish over a period of time,” shares Ayanda. “On the one hand it is about taking a collaborative approach and engaging with an entity like Eskom to determine how we can partner with them to support their future endeavours. On the other hand, the plan also demands that our investments in the energy value chain support a diverse energy mix and not have a narrow focus.”

Seeking impactful investment opportunities One of the group’s objectives is to be the leading diversified energy investment company in the country. In fact, it has a R67 billion project pipeline in the energy value chain, which has the potential to significantly alter the energy landscape in the region. To maximise the value of this investment pipeline the group is constantly weighing a variety of investment approaches.

These include: the importance of coal in future electricity generation as the country has significant coal reserves; the potential of gas powered technology, nuclear energy; renewable energy and even investments in regional power generators that utilise hydro-electrical systems.

The group approaches all of these investment opportunities through the lens of baseload capacity building while being cognisant of the importance of moving from high carbon intensity to low carbon intensity. In other words securing electrical supply for those industries that need electricity on a 24/7 basis in order to manufacture goods for the market and keep the economy productive.

“We look for acquisitions all the time and where we can, aggressively explore opportunities in the market. We look at any opportunity that aligns with our vision of a secure and sustainable energy supply, so that we can meet the requirements of the future,” says Ayanda.

This includes looking at nuclear energy generation which has developed a controversial reputation. Ayanda acknowledges that the capital costs of getting nuclear energy system established are unfortunately very high. But points out on the positive side, “This type of energy generation is one of the most economical to operate”.

She is of the view that to manage the establishment costs one can approach it on a modular basis where initial investments are made into systems that provide for immediate energy needs and allows for scalability as needed.

“It is also a clean, safe and very reliable energy source. Therefore, one does not have the environmental challenges associated with a coal fired energy plant,” adds Ayanda.

While the group believes there is potential in older and established energy generation systems it is not ignoring future possibilities and is considering the role it can play in the energy transition phase South Africa has entered. Gas to power is an important aspect in this regard. As part of South Africa’s transition there are coal-fired power stations that will be decommissioned. These can be converted to gas to power systems, thereby maximising the value of existing infrastructure investments and smoothing a transition to a new energy future.

This is evidenced by the investment that the group has made in Renergen’s project in the Free State and the establishment of a gas trading company partly owned by the Mozambique government, which will bring a new and essential source of energy online at a time when South Africa is experiencing serious energy constraints.

The CEF is also active in the midstream sector of the energy value chain. This is the part of the oil and gas business that is in charge of the processing, storage, and transportation of goods including crude oil, natural gas, and natural gas liquids.

It connects remote petroleum production regions with population centres where consumers can be found. The midstream petroleum industry includes transmission pipeline companies. Bulk terminals, refinery tanks, and holding tanks for crude oil and refined liquids are examples of storage facilities for crude oil and refined liquids. Midstream development and investment by the CEF are vital as they are an important link in the energy chain.

The future beckons Ayanda shares that the group is cognisant of the need to explore new approaches to energy generation and highlights its investment in a concentrated solar energy producer in the Northern Cape as one of the steps it has taken to embrace a green power generation future. In fact, solar (photovoltaic, solar thermal), wind, biogas (such as landfill gas/wastewater treatment digester gas), geothermal, biomass, low impact hydroelectricity, and various emerging technologies such as wave and tidal power are all renewable power technologies, that are under consideration by the group.

“Renewable energy has environmental and economic benefits such as producing energy with no greenhouse gas emissions from fossil fuels and lowering some forms of air pollution, diversifying energy supply, and reducing reliance on existing energy production systems.

“Additionally, renewable energy systems can provide affordable energy systems and as with all of our initiatives, it allows for entrepreneurs, particularly from previously disadvantaged backgrounds, to participate in a sector that was previously dominated by a number of large operators,” says Ayanda.

The debates that take place within the energy sector and amongst the South African public in general, place a significant onus on the CEF to use its R67 billion project pipeline in a way that contributes to addressing immediate challenges and future concerns. “The CEF has accepted the challenge and in the same way that we have taken the baton from previous leaders at the group, we are committed to handing the baton over to future leaders, knowing that we have positively contributed to taking important steps in resolving South Africa’s energy security challenges,” Ayanda concludes.