Tsantsabane Fuel Depot
The development of a fuel storage and distribution facility is proposed on the remainder of Erf 1, Postmasburg, Northern Cape Province, South Africa. The property is situated north-west of Postmasburg, along the R385 road.
- District: ZF Mgcawu District Municipality
- City/Town: Postmasburg (Tsantsabane Local Municipality)
- Physical address: Erf 1 (Beeshoek Road), Postmasburg
- GPS Coordinates (approximate): 28°18’35.79″S, 23° 2’45.44″E
The Tsantsabane Fuel Depot project is the result of over five years of research and development conducted by its promoters, Mabour Ink Enterprise. Intense market investigations of fuel consumption and the lack of fuel infrastructure in the Northern Cape Province has confirmed the following:
- According to the Energy Security Master Plan of 2005, South Africa has between 10 and 14 days of emergency stock in storage. The world norm in this regard is 28 days of emergency stock in storage. National Government resolved to encourage private sector investment in bulk fuel storage and, through Transnet, invest further in infrastructure. The Northern Cape Province is a net importer of finished fuel products from Gauteng, due to inadequate depot storage (8.9 million liters for the entire province) and the province is not currently linked to the new Multi Product Pipeline. The national average of 10 to 14 days available emergency stock translates to 5 to 7 days available emergency stock for the Northern Cape.
- According to research conducted by the Tshipi Entle Mine, approximately 80% of the world’s known economic manganese resources are contained in the Kalahari manganese field in South Africa, meaning that if any natural disaster may occur on the N14 or R31 roads, this entire area will be cut off from fuel supply and the world economy may be affected by that.
- South Africa remains the leading manganese supplier to the seaborne market, accounting for more than 35% of global production, excluding China.
- There is no NERSA approved storage facility in and around the entire Kalahari Basin (KMF). This further makes the area vulnerable to fuel shortages that might affect mining operations.
According to the 2017 Sustainability Report of Kumba Iron Ore, the mine spends just over R12-billion a year on suppliers, which equates to roughly R33-million a day. Out of this, R9-billion is spent on BBBEE suppliers and only R2-billion of the R9-billion is spent on local suppliers.
Through a possible fuel contract with the Tsantsabane Fuel Depot, Kumba will be spending R2-billion a year on a local supplier, taking its current BBBEE local spent from R2-billion to R4-billion and in the process creating jobs and stimulating the local economy.
Five years ago, the management of Mabour Ink Enterprise, a Kuruman/Mapoteng Village based 100% black female-owned oil company, decided to pursue their vision of establishing the first Northern Cape based oil major and, in the process, transform the economy for the benefit of the Northern Cape Province. The concept of establishing the Tsantsabane Fuel Depot emerged from this passion and vision.
Work on the project officially commenced in 2016, with engagements taking place between the sponsors and the Tsantsabane Local Municipality, Transnet and the mines in the region. VGI Consulting Engineers developed a conceptual design accompanied by an engineering study, which will form the basis of the bankable feasibility study. In 2018, the project officially entered its scoping phase with the conceptual designs being finalized by the engineering team.
The project officially entered feasibility stage in early 2019, currently approaching the completion phase of the EIA, with the land being secured from the municipality and an MoU signed with Transnet for a rail siding in Postmasburg and approval for a pipeline account between Durban and Tarlton in Krugersdorp.
Sometimes tank farms are also called Oil Depots or Oil Terminals. They are used to store crude oil in large quantities at one place to ensure the pipelines and refineries are always running. Once the crude oil is refined into various petroleum products, these products are stored at Product Tank Farms. Based on the demand from the neighbouring demographic locations, the petroleum products are transferred to local tank farms to ensure supply of petroleum products to everyone.
Tsantsabane Fuel Depot will be a new bulk fuel storage and distribution facility which will be located around the mining town of Postmasburg (Northern Cape). The facility will handle the storage and distribution of 20 000 000 litres of petrol (ULP), diesel, transmission oil and lubricants to be imported directly from the Middle East through the Port of Durban and moved by pipeline to Krugersdorp and later by rail to Postmasburg.
The project aims to achieve the following:
Reduction of fuel cost
Fuel pricing in South Africa is classified according to Magisterial District Zones. This classification depend on various factors, one of them being availability of NERSA approved bulk storage. The target area is currently classified as 13C (R15.84), which is the upper-most tariff areas in the country. It is anticipated, through the fuel depot development, that NERSA will reclassify the area to 11C (R15.65) or 12C (R15.68) at the least, which will reduce the overall price of fuel in the entire district, benefiting the ordinary person on the ground and the big corporates who depend of fuel for production.
Road to Rail
Transnet estimates that by moving 20 million litres of fuel by rail will reduce road traffic by as much as 50 road tankers per day off the major routes between Gauteng and Postmasburg. This estimate is arrived at by estimating the number of wagons (42) employed to move 20 million litres of fuel as compared to the number of trucks it will take to carry the same amount of fuel over a number of days.
Transnet Freight Rail has developed and is implementing a major new strategy which is part of Transnet’s greater “Market Demand Strategy’’ (MDS). The key element of this strategy is a shift of traffic from road to rail. Rail-friendly traffic may be defined as freight that typically includes heavy minerals and mining commodities being conveyed over long distances (coal, manganese, iron ore, magnetite, chrome and rock phosphate) but also includes agricultural products and containerized commodities and goods.
Security of liquid fuel supply refers to the development of supply chain solutions for South Africa’s liquid fuels supply challenges, management of liquid fuels demand and emergency response as identified in government’s 2007 Energy Security Master Plan. In addition to improving the other infrastructure capacities along the petroleum supply chain, there is an urgent need for investment in adequate depot infrastructure serving pipelines, rail and road. These investments will alleviate some of the constraints identified by the FSSTT study, which include the inability of most of the depots to receive the large pipeline shipments. An expansion of the pipeline, as expected in 2010, will exacerbate the need.
The 20 million litre, R400-million fuel storage facility proposed by Mabour Ink Enterprise will form part of private sector contribution to economic infrastructure in South Africa and the Northern Cape in particular. This investment fits well into the Energy Security Master Plan of 2007.
Diversify the mining economy
It is the understanding of the project promoters that most mining towns usually deteriorate after mine closures. Many examples can be shared, Kimberley being one of them. It is also known that mines operate only for a finite period based on the life of mine. The fuel depot, once fully operational, will service clients beyond the mines’ geographic areas and can sustain the local economy for a long period after mine closures. This project will therefore act as a mechanism to diversify the Tsantsabane economy, which is highly dependent on mining.
Downstream Oil and Gas (Petroleum): According to NERSA, the Northern Cape only has approved depot capacity of 9 million litres of fuel at any given point whereas the total consumption per year according to the Department of Energy is in the region of 500 million litres per year in the Northern Cape. It is clear from the above that this project will serve a strategic purpose both for the country and for the Northern Cape Province by adding 20 million litres of storage capacity to the national and provincial grid.
Localisation of Mining procurement spend, job creation in the Northern Cape and transformation of the petroleum industry: Mabour Ink Enterprise firmly believes that an investment of this scale, with anchor tenants such as Kumba Iron Ore, Sishen Iron Ore and Kolomela mine, the project will have an enormous economic impact in the region
Logistics/Infrastructure: The 20 million liter, R400-million fuel storage facility proposed by Mabour Ink Enterprise will form part of private sector contribution to economic infrastructure in South Africa and the Northern Cape in particular. The project will further benefit from the current logistical developments in the province.
The engineering team has been hard at work, estimating the construction and total development costs of the project. An initial estimate done by VGI Consulting Engineers, presented a total CAPEX cost estimate of R400-million, whereas a possible EPC revised this amount downwards to an estimated R300-million. The IDC, on rough estimates and comparisons of similar projects, also estimates the total Capex at roughly R300-million. A further R15-million is needed to complete the current feasibility stage and move the project to bankable feasibility.
Number of jobs to be created
A total of 4 000 jobs are to be created by the project, with a break-down provided below. Mabour Ink Enterprise’s human resources mission is to ensure a strong and sustainable competitive advantage through the competence, creativity and initiative of all employees. Our commitment to empowerment is matched by its commitment to employment equity targets and the ongoing development of its entire staff through training and development.
In order to maintain global standards of operation, a comprehensive Skills Development Programme will be implemented to provide a progressive platform for the recognition, development and advancement of previously disadvantaged individuals. As part of this process, Tsantsabane Fuel Depot will create the following jobs:
- Direct jobs to be created during construction: 2 000
- Indirect jobs: 1 400
- Operational jobs: 435
- Potential number of artisans to be trained or to be absorbed for apprenticeship: 180 – 300, depending on skills funding available.
The project will be registered with the merSETA. The merSETA is one of the 21 Sector Education and Training Authorities (SETAs) established to promote skills development in terms of the Skills Development Act of 1998 (as amended). The 21 SETAs broadly reflect different sectors of the South African economy. The merSETA encompasses Manufacturing, Engineering and Related Services.
The various industry sectors are covered by five chambers within the merSETA:
- Metals and Engineering
- Auto Manufacturing
- Motor Retail and Component Manufacturing
- Tyre Manufacturing
- Plastics Industries
Together, the five sub-sectors comprise about 40 000 companies of which about 14 600 are levy paying. The workforce employed by the total number of companies is about 600 000. The total levy income is approximately R1.308-billion.
Artisans required include:
- Boiler Makers
- Fitters and Turners
- Pipe Fitters
- Control and Instrumentation Technicians
Lesedi, a possible EPC partner, has a training academy which could facilitate the training of the necessary artisans for this specific project. It would require that the training is funded by external funds.
In addition to merSETA, the other SETA for consideration is CHIETA (The Chemical Industries Sector Education & Training Authority), covering:
- Process Engineering
- Chemical Production
- Chemical Engineering (Specialization: Petroleum Engineering)
- Enterprise Development (30% of Capex for local contractors).
The project will endeavour to first and foremost secure contracts for the various construction packages with local contractors (those situated within the Tsantsabane Local Municipality boundaries). Much of the work required to construct the plant will require specialist contractors which may not be available within local vicinity. The EPC contractor will endeavour to source as much from the local community as is practical.
Recognizing the inequities of the past and the importance of giving preference to previously disadvantaged suppliers, the Tsantsabane Fuel Depot is committed to affirmative procurement as a valuable tool to establish and support a competitive, sustainable and viable base of black-owned businesses that will contribute to the mainstream economy.
In line with existing Company Procurement Practices and with a view to aligning the Company with current government policy and mandate to create opportunities for previously disadvantaged people in the petroleum and gas industry, our Preferential Procurement Policy defines and formalises these practices while recognising the need not to compromise the quality and efficiency of goods and services supplied.
The affirmative procurement policy governs all purchasing and subcontracting of goods and services to be acquired by the project, and preference will be given to Black Business Enterprises (BBEs) that reflect a combination of the following factors/activities:
- Black Equity ownership;
- Black Management at executive level (decision making control);
- Black Women Equity ownership;
- Proven commitment to Black Economic Empowerment;
- Purchases from BBEs;
- Subcontracting to BBEs;
- Transfer of skills to BBEs;
- Joint Ventures with black-owned or -managed enterprises
The project promoters, through the assistance of various professional consultants, have engaged all the major DFIs in South Africa and several private equity partners both locally and abroad.
Type of private sector involvement sought:
- Equity Partners / Investors
- BBBEE Equity Partners / Investors
- Commercial Companies
The Industrial Development Corporation (IDC) has issued a Letter of Intent (LoI) to provide finance for the project, as the transaction falls within the Basic and Speciality Chemicals SBU of the IDC’s mandate. The IDC could consider participating in providing finance towards the transaction, provided that:
- It is satisfied with the completion and submission of a bankable transaction feasibility study report;
- It is satisfied with the outcome of an unlimited scope due diligence investigation into the transaction;
- the transaction complies with the IDC’s funding policies, terms and conditions;
- the transaction complies with all regulatory and any required approval(s) applicable to transaction of this nature;
- the project investor/ developer group is satisfactorily constituted with the required capability, capacity (including financial capacity) and experience to execute the project;
- the various parties to the transaction enter into satisfactory transaction arrangements.
The IDC proposed the following funding structure:
That they partner with Mabour Ink through a Joint Development Agreement for 50% of the equity share in the Tsantsabane Fuel Depot and that they also will fund 50% of all outstanding feasibility work to be done. Once this milestone is accomplished, they will further participate in the debt financing of the transaction at construction phase.
The Development Bank of Southern Africa (DBSA) largely focus on the financing of economic infrastructure in South Africa and across the SADC region. The project has a mandate fit with their Energy, Transport and Logistics business unit. Below is the feedback granted from the DBSA after our initial engagements:
- Market risk: Because the depot will be importing, transporting, storing and distributing the fuel, there is a market risk on the off-take side. Therefore, the sponsor should secure Heads of Terms of undertaking from the prospective mines highlighting their appetite in terms of volumes, pricing, the period of off-take and any other conditions;
- Commodity risk: Since the mines are the intended off-takers, there is commodity risk associated with the off-takes itself. The sponsor should analyse the target off-takers and get comfort on their ability to fullfil their obligations over the project life cycle;
- Supplier risk: Undertaking from the suppliers of fuel in terms of volume. Where will the fuel come from?
- Logistics: Allocation by Transnet to move the fuel by rail from Johannesburg to Postmasburg;
- Project site: the land to implement the project.
The sponsor should also secure their contribution to the bankable feasibility study. We limit our contribution to 25% of the total project preparation costs. These costs strictly relate to the cost of hiring Transaction Advisors to do the project preparation work and exclude the sponsor’s internal operating costs;
- The project sponsor must utilise part of their contribution to finance the pre-feasibility studies. The DBSA only gets involved from the bankable feasibility stage;
- The sponsor must also start engaging NERSA on the licencing requirements to build the fuel storage facility.
The National Empowerment Fund (the NEF) is a driver and thought-leader in promoting and facilitating black economic participation by providing financial and non-financial support to black-empowered businesses, and by promoting a culture of savings and investment among black people.
The Strategic Projects Fund is at the centre of NEF’s investment strategy when it comes to securing the participation of black business in early stage projects. Its core function is to provide Venture Capital Finance aimed at developing South Africa’s new and strategic industrial capacity within strategic sectors identified by government as key drivers to economic growth.
The proposed project falls within the mandate for the NEF’s Strategic Projects Fund. The NEF is prepared to further assist with early stage equity that will see the project move to bankable feasibility. This will also be accompanied by equity financing on behalf of broad-based groups such as employee trust, community trust, etc.
The only issue raised by the NEF thus far was that the project should get some form of market feedback, off-take agreements or Letters of Intent from potential customers.
Northern Cape Department of Economic Development
The custodian of the project in the Northern Cape is the Northern Cape Department of Economic Development and Tourism. Mabour Ink Enterprise is glad to report that the project has received the endorsement of the Department and will be receiving the necessary support in this regard. This endorsement further improves investor confidence in the project and thus positions the project for much needed financial support.
The Department of Economic Development and Tourism has been urged to have this bulk storage facility under their incubation for planning integration and support. The Department is also earmarked to Chair the Project Steering Committee to be established during project implementation phase. The project has been presented to the Department and follow-up consultations are scheduled to define roles and gauge the level of investments that is possible from the Department on the evolution of the concept.
Tsantsabane Local Municipality
Consultations have been conducted with the Tsantsabane Local Municipality on the availability of land, which led to the identification of ERF 1 as a suitable site for the development of the depot. An offer to purchase has been signed between the municipality and the project promoters for the project site. The municipality will further be involved and back the project through zoning and availing of all bulk services required.
Transnet is the custodian of the petroleum pipelines in South Africa and the majority of cargo rail stock. Any new distribution network to be initiated involves Transnet. Mabour Ink Enterprise has already been allocated a pipeline approval by Transnet for the transport of fuel stock. This will enable Tsantsabane Fuel Depot to import petroleum and have it transported by rail to the storage facility in Postmasburg.
It is against this background that Transnet shared their future petroleum distribution strategy for the Northern Cape, which involves the rail hubs of Hotazel (Sishen-Saldhana corridor), Kimberley, and De Aar. The Postmasburg Depot can be viewed as a complementary facility to these national plans. Upon the depot being identified as functional and sustainable, Transnet may decide to adopt the depot as part of its fuel distribution network for the Northern Cape Province. A Memorandum of Understanding was signed with Transnet regarding the rail line between Krugersdorp and Postmasburg and the possible construction of a rail siding at Postmasburg. Transnet has also approved Mabour Ink Enterprise for a pipeline account between Durban and Krugersdorp.
Lesedi (possible EPC and private equity investor)
Lesedi has expressed an intention to partner with Mabour Ink Enterprise as a private equity investor and EPC for the development of the project up to financial close. Talks between the parties are at an advanced stage.
Lesedi evolved from Intens Engineering, which was founded in the mid-1980s. Lesedi has since diversified into a major engineering, procurement and construction (EPC) company, having successfully completed numerous key projects in nuclear, industrial power, mining and oil and gas environments. Lesedi provide clients with comprehensive services, ranging from feasibility studies and process engineering, to the execution of complete front-end engineering packages on an EPCM or EPC basis.
As a single-source solution, Lesedi’s services range from feasibility studies and process engineering to the execution of complete front-end engineering packages on an EPCM or EPC basis. Lesedi’s considerable experience in the inspection and repair of fuel oil storage tanks gives clients peace of mind that their storage facilities always comply with statutory and code requirements, and the company’s expertise and extensive network of suppliers and contractors ensure compliance with specific client requirements quickly, reliably and competitively.