🔒 From the FT: Russia’s inside track on SA gas: Gazprombank funding $200m Mosgas revamp

By Joseph Cotterill in Johannesburg and Anastasia Stognei of the Financial Times

Russia’s state-owned Gazprombank has won South African approval to refurbish a mothballed refinery in the country that would pave the way to restarting production.

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President Cyril Ramaphosa’s cabinet said on Monday it had endorsed a recommendation by PetroSA, South Africa’s state oil and gas group, to work with the African arm of Russia’s third-largest lender on the project, which is estimated to cost about $200mn.

“This selection of Gazprombank is still dependent on the final investment decision that will be informed by a joint bankable business case” and other terms to be met next year, the South African cabinet added.

The South African deal underlines how Gazprombank has become a key channel for the Russian state to make energy investments abroad in the face of western sanctions over the country’s invasion of Ukraine.

The bank has been subject to US sanctions on debt and equity financing since the start of the war, but it remains part of the Swift interbank payment system to allow energy and grain trading.

Gazprombank’s funding for the South African gas-to-fuel refinery would give it a share of the profits once the plant is up and running again, but also a central role in the energy crisis plaguing South Africa’s economy.

The refinery in Mossel Bay on South Africa’s south coast has been out of commission since 2020 over a lack of gas supply.

With other refinery closures, this has added to the country’s reliance on imports, in particular supplies of emergency diesel for Eskom, the troubled state power monopoly that has imposed rolling blackouts this year.

Like Eskom, PetroSA has been hit by mismanagement and is recovering from years of losses.

South Africa’s main opposition Democratic Alliance has said that Gazprombank’s involvement will increase the risk of international sanctions. The country patched up a rift with the US this year over Pretoria’s perceived closeness to Moscow.

“The actions of PetroSA executives are a clear indication that corporate governance has been severely compromised at the entity and decisions are being taken without adequate due diligence,” the DA said last month when Gazprombank was revealed as PetroSA’s prospective partner.

The South African refinery was originally built to evade oil sanctions on the former apartheid regime by creating substitute petrol and diesel from gas.

South Africa’s government has been hoping to supply the facility eventually from offshore gasfields that were discovered by TotalEnergies in recent years, but it has been slow to finalise a deal for future production.

PetroSA said this year that it would give preference to state-owned partners from oil and gas producing nations in bids to finance the refinery.

Despite interest from Azerbaijan’s national oil company and the state-owned China Machinery Engineering Corporation, Gazprombank was the only one of 20 bidders to qualify, South Africa’s amaBhungane investigative news outlet reported in November.

PetroSA and Gazprombank did not immediately respond to requests for comment.

Gwede Mantashe, South Africa’s energy minister, has harboured grand plans for gas investment, including the planned merger of PetroSA with other state assets under his control. Legislation for a new national petroleum company was recently tabled.

Investors and executives with knowledge of PetroSA and the sector have cast doubt on these plans. “First, the state doesn’t have any money. Second, the capacity within these organisations is nonexistent,” one said.

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