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A new refinery has been on the cards for South Africa since former Energy Minister Mmamoloko Kubayi referenced an investment in her budget speech in May this year. Now Energy Minister David Mahlobo has told Parliament that South Africa is looking to build a 400,000 barrel per day refinery with the assistance of BRICS, the trading bloc made up of Brazil, Russia, India, China and South Africa.

new local refinery on the cardsThe refinery will be structured by senior debt and equity, Mahlobo said, adding that the cost of a refinery was estimated at $10bn in 2010. West Africa and the Middle East, including Iran, were initially floated as potential partners.

“A new oil refinery will make South Africa less reliant on importing finished products. This is not positive in respect of energy security, nor for the advancement of industrialisation in the country,” Kubayi said when raising the topic.

“Local production is very important for our economic growth,” Mahlobo said, adding that government would want local entrants to participate in the refinery. “South Africa is at a tipping point regarding its refining capabilities.”

According to him, some refinery owners in South Africa want to exit the domestic market as a result of the high costs of upgrading refineries to meet cleaner fuel specifications. “The cost of the upgrades is estimated at over R40 billion and 24 billion litres of liquid fuels are sold annually, so this can be funded through some type of levy,” he said, referencing ongoing talks with industry about a possible cost-recovery mechanism.

“A new modern oil refinery will aid South Africa’s industrialisation efforts and make it less reliant on imports which are highly exposed to foreign exchange fluctuations,” Kubayi said in May. “South Africa spends a lot on foreign exchange to import oil, while prices are fluctuating. There’s also a bigger issue: we need to be able to plan and manage this and have minimum control over this. Even if we have our own refining capacity – it will never be enough. Our requirements grow on a daily basis.”

Image Credit :Flickr/GovernmentZA

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