South Africa buys Shell-BP refinery for 1 rand, faces massive clean-up costs

South Africa’s acquisition of its largest refinery from Shell and BP for a symbolic rand has sparked significant environmental concerns. The 180,000-barrel-a-day Sapref plant’s transfer to the state-owned Central Energy Fund (CEF) raises alarms about potential clean-up liabilities, as highlighted by the South Durban Community Environmental Alliance. The group, citing decades of pollution and infrastructure failures, insists that Shell should handle remediation. With the refinery’s decommissioning likely to incur substantial rehabilitation costs, this deal underscores the challenges and responsibilities of managing aging industrial sites.

Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.

By Paul Burkhardt

South Africa’s purchase of the nation’s largest refinery from Shell Plc and BP Plc for a symbolic rand (five US cents) will transfer the environmental liability of the site to the government, according to a local advocacy group.

The state-owned Central Energy Fund, which manages South African energy assets, agreed to buy the 180,000-barrel-a-day Sapref plant, the Department of Mineral Resources and Energy said on Saturday. The asset will support the CEF’s growth strategy following the decline of local refining capacity, according to the department. 

But the South Durban Community Environmental Alliance says that could leave the fund with the clean-up bill for a refinery that’s been operating for six decades. Such sites face land rehabilitation costs when they’re permanently decommissioned.

“Let Shell remediate everything,” the alliance’s coordinator, Desmond D’Sa, said in an interview. “We don’t have the expertise to clean up this mess.”

Read more: BP, Shell divest South Africa refinery stakes to state-owned firm

Earlier this month, the group blamed the refinery’s aging infrastructure for fires, gas-flaring, oil leaks and spills, which have inflicted “severe consequences on local residents” over the years.

A spokesman for CEF confirmed the price paid, declining to comment on its plans or the environmental liability of the site.  

Shell and BP stopped refining operations at Sapref in 2022 as they considered options for the plant, pointing out that a sale was their preferred option.

The clean-up costs involved in totally shutting down refineries have deterred several oil companies from vacating their sites, according to a 2022 paper by Dave Wright, an independent consultant.

The Engen oil refinery in 2021 announced plans to convert the country’s oldest plant into a terminal after suffering annual losses for much of the past decade. A deal between state oil company PetroSA and a unit of Russia’s Gazprom Group to revive its gas-to-liquids refinery in Mossel Bay, which ran out of feedstock, has now moved into the feasibility stage.

Read also

2024 Bloomberg L.P.