Back in May, I worked for a now-defunct Taxpayers’ Union organisation for two weeks. I wrote several articles for them which were never published. I feel they are still relevant today, and hope you find them interesting.
A nation’s success in the international economy depends on its ability to climb the value chain. At the bottom are raw resources, and at the very top are service-based economic activities like finance and IT. In between there is a great deal of manufacturing and service activities which, because of having been a settled part of civilisation for generations, are highly competitive, and therefore extremely thin profit margins.
Oil refinery is one of these. It makes it a difficult industry to break into, and a fragile one, favouring massive companies capable of absorbing financial and market fluctuations by taking out loans. Back under the old regime, South Africa developed syngas – a special technology which allowed SASOL to convert coal into any petroleum derivative product – methane, petrol, diesel, paraffin – by first converting it into a mixture of hydrogen and carbon monoxide and subjecting it to different pressure distillations.
Today, we are rapidly losing even those refineries which do the established work of turning crude oil into petrol, and our infrastructure is simply not meeting the demands imposed by population growth, as Brandon Gaille reports. SASOL has long since disinvested from South Africa, and its market is increasingly overseas. Left with the sick men like PetroSA – a twenty-year old skin on a fifty-five year old rusting hulk, that does little more than draw from an anaemic well off the coast of Mosselbaai. For years now, the entity has primarily been used to purchase and store foreign fuels, since it can be 75% cheaper to convert a refinery into a storage facility than to upgrade it.
There are several reasons why our refineries are uneconomical. First, they are small. All four of our refineries produce little more than 100 000 barrels per day. At a global level, a refinery of 250 000 b/d can be considered small (see e.g., table 3 in this report). According to an industry standards, levels of sulphur must be below 30ppm to avoid corroding modernengines. While Europe is on the EURO6 standard (<10ppm), we are still operating on the much more lenient EURO3 standard, allowing up to the highly corrosive level of 500ppm of “regular diesel”, with similar issues in petrol due to low-spec imports.
South African refineries can now no longer afford to use the required technology to cut sulphur emissions, which can cause severe environmental hazards to the surrounding area, and cause asthma, cancer and leukaemia in people living nearby.The International Council on Clean Transportation reported in 2019 that 1,420 premature deaths could be attributed to these emissions, a 6.5% increase from 2010. Clean fuel regulations being imposed are now unaffordable, and many companies are divesting, while others simply flout the rules.
And now the refinery business is dead on its feet. Both Engen in Durban and Astron in Cape Town are shut down for major repairs, though whether they will be able to return is uncertain, given the shift to imported finished products. Recently the South African Petroleum Industry Association confirmed that we would now be getting 55% of our capacity for refined fuels from overseas – already risen from the 40% share we were importing at the start of the year. This is the result of several pressures, not least of which are South Africa’s exorbitant fuel excise charges.
While import duties on finished petroleum products (0,091c/li for petrol - 2710.12.02; 0,183c/li for paraffin - 2710.12.26; 11c/li for petroleum oils - 2710.20) are not all that high, taxes on consumer fuels is incredibly exorbitant, and is taxed at two further stages after import – a 31% general fuel levy(32% in coastal regions), and an RAF levy of 17-18%, meaning that 48-50% of the cost of petrol is retail-point taxes.The additional VAT, road levy, car tax, carbon tax, pipeline fees, retail margins and corporate taxes add together to take up the overwhelming majority of the value of the petrol.
Perhaps unsurprisingly considering rising taxes, South African imports of mineral fuels and distillation products have fallen significantly since 2014despite taking up an increasing share of the local market,.
This demonstrates that the change is in part due to falling local consumption, which has been in steady decline since 2008, according to official statistics on aggregate fuel sale volumes. While falling petrol consumption indicates an ailing economy, in our case the resilient diesel consumption figure can be reasonably attributed to the increased use of diesel generators to replace coal power.
The relatively flat trajectory of the diesel consumption line indicates that little of the electricity lost to worsening electrical grid conditions is being made up for by diesel generators since 2014. Coal consumption has also stagnated (see lefthand graph), showing that virtually none of the financially indicated economic growth of the past decade is being reflected in real activity. While the economy grows on the books, the material indicators show a slight decline.
Due to the suffocating effect of high labour costs, disruptions due to strikes, fire damage, high taxation, government incompetence and greed, the de-industrialisation of South Africa’s energy industry is well under way. Soon much of the country will be entirely dependent on foreign imports, which are controlled almost entirely by ANC-affiliated corporations capable of choking off supply to necessary fuels whenever extra funding is necessary.
Much like Nigeria, or indeed most of the rest of Africa, we can look forward to a future where, dependent on diesel generators for the basic functions of modern commerce and life, a few state- or cadre-owned regional monopolies can squeeze an arbitrary amount from the consumer until nothing remains but flickering candles and a few bright resorts for the wealthiest of the ruling class, all surrounded by darkness and destitution and rusting farm equipment.