State to decide on refinery at Coega in three months

PetroSA backs Project Mthombo but private-sector support unlikely, writes Jana Marais

The government is expected to decide the future of a massive new crude-oil refinery at the Coega industrial development zone (IDZ) in the next three months, Coega officials said this week.

PetroSA's Project Mthombo, which expected to produce 360000 barrels a day, is seen as a crucial investment for Coega. More than 10 years after the IDZ was established, investments of R990-million have been lured and 15 projects are operational, with an employee count of 2228. About 25963 indirect jobs have been created.

The government has invested about R2-billion at Coega.

The board of PetroSA has approved the new refinery, which will cost about R80-billion and rely on imported oil. But the private sector is expected to lobby against it, arguing that it will place additional pressure on the low-margin industry and add to a global oversupply of refinery capacity.

SA has a refining capacity of 692000 barrels a day across eight existing refineries, and Mthombo will have to export up to 150000 barrels a day initially.

A decision to go ahead with Mthombo might also mean the end of Sasol's planned Project Mafutha, an 80000 barrel-a-day coal-to-liquids project in the Waterberg, now in its prefeasibility stage.

Khwezi Tiya, executive manager for business development at the Coega Development Corporation (CDC), said Mthombo was "one project that is key for us to be located at Coega. We will continue to engage with all the necessary stakeholders to ensure it happens".

What if Mthombo is not built? "We see that as an unlikely option," Tiya said. Rio Tinto Alcan's planned aluminium smelter, canned in 2008 over electricity concerns, was previously expected to be the Coega anchor tenant.

Mthombo is expected to create 18500 permanent jobs. The green light from government will start the front-end engineering and design phase, which will cost about R2.4-billion. Should the project go ahead, construction was expected to start at the end of 2012 and the plant would be operational in 2015, Tiya said.

Additional projects with an investment value of R2.13-billion were being implemented at Coega, while signed investments of R9.85-billion had been delayed, marketing manager Senzeni Ndebele said. The investments focus mainly on the automotive, agro-processing, general manufacturing, business process outsourcing, petrochemical and energy sectors.

Total investments under consideration, including those still under negotiation was R117-billion, including the cost of Mthombo, Tiya said.

Concerns from potential investors included the security of electricity supply, the efficiency and cost of transport infrastructure and skills availability, he said. Many foreign investors had also inquired about tax incentives, which Coega doesn't offer, but they were usually "comforted by the very efficient tax system".

Laura Peinke, an analyst at business research and consultancy firm Frost & Sullivan, said Coega was performing "really well" in some sectors, particularly agro-processing, where it was receiving support from the Industrial Development Corporation.