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News24
2 days ago
- Automotive
- News24
Dirty Fuels part 2: PetroSA's R11 billion ‘contaminated' petrol deal
Gallo Images/GO!/Karin Schermbrucker PetroSA pursued a three-year deal – potentially worth R11 billion – to buy chemically adulterated unleaded petrol from little-known company Nako Energy. But after only six months, the fuel was pulled from the market after numerous complaints from customers that it was staining the paintwork of their cars. Tests found that the fuel – sourced from the UAE – was pumped up with N-methylaniline, a chemical additive that improves the octane levels of low-quality fuel but leads to other problems, including gum build-up that can damage engines. Despite the adverse test results and alarm from the fuel industry, PetroSA agreed to buy another cargo of the same fuel at a cost of R634 million, which it then struggled to sell. In December 2023, TotalEnergies started to notice that something was off with a new kind of unleaded petrol that it was selling in the Garden Route. The petrol, known as Mogas 95, left stains on the petrol pumps. Worse, it had damaged the paintwork on some of customers' cars. In some cases, the only solution was to have the cars resprayed. Unbeknownst to Total, its rival Caltex was having the same problem in Knysna: cars and motorbikes that filled up with the petrol were coming back with stains as well. The Sunday Times and Top Auto first raised the alarm about contaminated fuel in April 2024. In December 2023, both Total and Caltex lodged formal complaints with PetroSA, the state-owned petroleum company that had supplied the petrol. By February 2024, Shell and Engen had joined the chorus: where exactly had PetroSA sourced this fuel? they wanted to know; and what was causing the stains? A year earlier, PetroSA had been offered an enticing deal: a little-known company, Nako Energy, said it could secure unleaded petrol from the United Arab Emirates (UAE) at a very attractive price. PetroSA would make 50 cents for every litre imported, meaning every oil tanker would generate R25 million of pure profit. 'There's 50 million litres [in a tanker], so PetroSA would make R25 million profit, which is higher than any diesel cargo. That's when, really, the interest in Nako became bigger,' the company's founder and majority shareholder, Nkosinathi Ngwenya, told us. He added, '[PetroSA] said, 'No, we don't believe this is the case. Can you do a test cargo?'' If you've read part 1 of our Dirty Fuels investigation, you'll know that Nako would later secure a R933 million diesel deal from PetroSA that was riddled with irregularities. Ngwenya had a background in mining, but Nako itself had been in business for less than a year. PetroSA had been in business for 58 years – long enough for cheap fuel from an obscure supplier to set off alarm bells. Instead, the traders agreed to buy 50 million litres – a R668 million experiment, just to see. Petrol on steroids 95 octane petrol can be produced in two ways: it can be refined from crude oil, or it can be blended. Nako's fuel would be sourced from a supplier in Fujairah in the UAE that specialises in producing blended fuels. The idea was to take a low-quality fuel – with an octane rating of 89 to 91 – and blend it with chemicals to boost the octane rating, turning an 89 into a 95 unleaded petrol. A bit like producing petrol on steroids. 'This particular blend, it was supposed to be a gamechanger,' PetroSA's former head of trading, Vusi Xaba, who oversaw the deal, recently told us. Octane-boosters are an everyday part of the fuel business: until it was banned, lead was used to boost the octane of fuel. It has since been replaced by compounds like benzene and ethanol, but recently other chemical additives have been creeping into fuel as well. Tests would later confirm that Nako's chemical of choice was N-methylaniline (NMA), which is banned as a fuel additive in Europe, China and Russia because of concerns about its toxicity and the damage it can cause to engines. Where NMA is used, it's normally in concentrations of below 1.2%. At 3% NMA can boost the octane rating of fuel by up to 8 points, but at such high levels NMA causes other issues, including gum that leaves deposits on engines and causes seals to swell, increasing the chance of oil leaks. According to an internal PetroSA investigation, tests later found that Nako's fuel contained 6.6% NMA. It's unclear how much the PetroSA trading team knew when they placed the order. They evidently knew enough to tell the board, in June 2023, that Nako's fuel had a 'pre-blend' octane rating 'of 89-91', making it a very low-quality fuel that would be boosted to a 95 'using low-cost approved components'. Ngwenya told us that PetroSA had sent a technical team to view its suppliers' blending facility in the UAE: From January until about May this was the back and forth, testing and verifying, 'Is this sanctioned product, who are your suppliers?'... eventually they were satisfied. But Xaba was coy about whether PetroSA knew the fuel contained NMA: 'Let's put it this way, when a trader trades gasoline, they would say this has got intellectual property, so they wouldn't actually be telling you… what components they bring and at what ratio – they would not necessarily share that with you.' R150 million prepayment In July 2023, Nako's first shipment of unleaded petrol arrived in Mossel Bay, but for the next three months the oil tanker, Sea Adore, just sat waiting to discharge. Part of the problem was that Nako – a brand-new company with no track record – did not qualify for credit and so had to pay its supplier upfront. According to the internal PetroSA investigation, which was concluded in February this year, the contract was then amended to give Nako a R150 million prepayment. Public finance rules don't allow state-owned entities to make prepayments, except in exceptional circumstances, so another amendment was drafted in August 2023 to turn the R150 million prepayment into a payment for a small portion of the fuel that would be discharged first. Ngwenya, however, blamed the delay on PetroSA: 'They were not ready to receive that cargo, because they also didn't believe that it would actually arrive, they didn't believe the price, so by the time it arrived everybody had to run around to try get it right.' By September, PetroSA was satisfied that Nako could actually deliver the fuel at the price it promised. Without waiting for Sea Adore's test cargo to discharge, PetroSA signed a cooperation agreement with Nako. The cooperation agreement was just a prelude to a binding joint venture agreement that would need to be signed within 30 days. This agreement would make Nako (50%), PetroSA (25%) and its UAE supplier (25%) partners in a three-year contract. It's unclear how much the contract would be worth, as demand and the price of petrol would go up and down, but a rough estimate is R11 billion. In October 2023, the Sea Adore discharged the first 50 million litres of unleaded petrol into the storage tanks at Mossel Bay. Six weeks later, complaints started arriving about the petrol. The market for petrol If you've read Part 1 of our Dirty Fuels investigation, you'll know that PetroSA was importing cargoes of diesel into Mossel Bay to be sold to Eskom and burnt in the open cycle gas turbines, which helps keep loadshedding at bay. The market for petrol is different: Eskom doesn't need it, but there are plenty of petrol stations along the Garden Route that do. 'In Mossel Bay, the established arrangement is that the oil majors have supply agreements with PetroSA,' Phila Mzamo, the spokesperson for the Fuels Industry Association (FIASA) explained. 'Currently, PetroSA supplies these companies using imported fuel… The oil majors collect their fuel from the Shell Voorbaai depot, which is supplied directly by the PetroSA refinery.' Graphic: amaBhungane Each fuel company can add their own secret sauce later – Caltex adds Techron, a cleaning additive, for example – but the underlying petrol is the same. The risk, however, is that a contaminated batch of fuel can quickly spread to petrol stations throughout the region. According to the internal PetroSA investigation, complaints about Nako's petrol first surfaced at Total stations in the Garden Route and Caltex stations in Knysna about a month after the Sea Adore discharged. Two weeks later, in December 2023, Nako delivered another 50 million litres of unleaded petrol at a cost of R585 million, and by March 2024, a third cargo worth R634 million was waiting to offload. But by now, PetroSA couldn't ignore the clamour of complaints coming from its customers, which included Total, Caltex, Shell, Engen and eventually even the farming co-op SSK. Colour-changing fuel In March 2024, PetroSA put together a six-person team to investigate the complaints. Over the next month, they collected and tested samples from garages, PetroSA's tanks and even the fuel aboard the Daytona, the third vessel anchored off the coast of Mossel Bay waiting to discharge. What they noticed was that under a UV light, the fuel changed colour: 'The ULP 95 reacted to the car paint to the extent that these cars needed to be repainted. The ULP 95 affected certain paints and not all of them and also seemed to affect older cars. This was confirmed by the panel beaters in Mossel Bay who treated a few of these cars that needed to be repainted,' the internal investigation later concluded. 'Further tests were done using painted panels from the panel beater… It was confirmed that the ULP 95 did stain these panels which confirmed what the customer experienced.' At this point, the investigation team wasn't sure what was causing the fuel to change colour – the high gum content, additives, octane boosters, dyes or contaminants – but according to the report, Nako had at least been willing to confirm that the fuel contained NMA. Tests passed with flying colours When Nako's fuel arrived in South Africa it was tested – and passed. 'We can… confirm that over 90 tests were conducted on the product, all of which verified compliance with the required specifications,' Nako's CEO Nqobani Mkhwanazi told us in a written response. 'We therefore find it difficult to understand the ongoing issue about the quality of the product supplied by Nako.' The problem is that the official South African National Standard (SANS) for unleaded petrol doesn't include limits for NMA. It refers to 'additives' that can be used to improve the performance of fuel, provided these don't cause cars to malfunction. It's debatable whether NMA, which can damage both paintwork and engines, clears this bar, but because there is no threshold for NMA, the standard tests won't look for it. Even a fuel pumped full of NMA can therefore still pass the tests with flying colours. PetroSA's internal investigation would later conclude that more comprehensive testing should have taken place given that the fuel was a new product. 'At the time of the arrival of the Sea Adore (first cargo), there was insufficient communication to all relevant stakeholders to highlight that the ULP 95 purchased was not tested and was a blended product,' the report concluded. And because there was no disclosure about the chemicals in the fuel, 'the standard testing methodology was exercised, which did not initially always include potential gum, mainly because ULP 95 previously had low existent and potential gum'. It was only after customers complained that 'a series of tests were conducted on the samples of all three vessels', the report noted. The results The rest of the industry, meanwhile, wasn't waiting for PetroSA to fess up to the problem. In March, Engen had reached out to the Fuels Industry Association (FIASA) about 'potential contamination issues' with petrol in the Mossel Bay area. 'The query was forwarded to Shell who confirmed same and confirmed that they had contacted Astron to analyse the product. FIASA then contacted Sasol who expressed a willingness to assist,' the association's spokesperson, Phila Mzamo, explained. Soon, samples had been collected and sent to Sasol and Astron's labs for testing. This had enraged Ngwenya, Nako's founder: 'Nako has had its samples handed over to the industry without proper consultation or adherence to established policies and procedures. This allowed the majors to conduct analyses on our product and request information that seriously infringes on our intellectual property,' he later wrote in a letter to the Department of Mineral and Petroleum Resources. On 5 April 2024, FIASA convened a meeting of all the big players: Engen, Shell, BP, Total, Astron, Sasol, Puma and a reluctant PetroSA. The tests, run by Sasol and Astron, had found NMA at a concentration of 6.6%, according to the investigation report. The report added: This would indicate (in alignment with Astron thinking), that the base octane without N-methylaniline addition is very low. Neither Sasol nor Astron would speak to amaBhungane, but FIASA confirmed the findings: 'Both Sasol and Astron Energy analysed the product and found in excess of 6% NMA,' Mzamo told us. She added: 'The NMA recommended rate is only around 1.2% – it is known above this level that gum formation is accelerated and furthermore compatibility with other materials is brought into question.' The tests run by Sasol had also found 'extremely high gum content', putting the fuel out of specification with SANS standards. PetroSA's own tests found high levels of gum, but not high enough to flunk the tests. According to FIASA, PetroSA asked the two labs to run the tests again on a new sample of Nako's fuel. 'Samples were sent to Astron and Sasol – Astron analysed these and found similar results. The Sasol sample never arrived since it was recalled by PetroSA,' Mzamo said. In a follow-up response, however, Mzamo told us that PetroSA's actions had been more aggressive: 'At a subsequent meeting PetroSA confirmed that the Sasol sample had been intercepted – recalled is too polite – and requested Astron to destroy their samples.' We asked PetroSA why it asked Astron to destroy the samples considering that this was potential evidence of what was causing the problems, but this was one of the questions they chose to ignore. Astron, having spoken to its lawyers, advised PetroSA that the samples 'would not be destroyed', Mzamo said. Public denials A week after the tense meeting with the oil majors, the Sunday Times reported that garages had been instructed to 'immediately lock out all VP95 nozzles' and stop selling the fuel. Publicly though, PetroSA was conceding nothing. When PetroSA's chief operations officer Sesakho Magadla was interviewed on SABC later that day, she stuck to the line that Nako's fuel had passed the SANS tests. 'As PetroSA, we would like to assure the motorists as well as the industry at large that the product we sell is compliant to the product specification of this country which is SANS 1598,' she said, without mentioning the high levels of NMA in the fuel. 'There has been no concerns with regards to the quality itself in terms of the product but what we've seen is… a general concern on the staining.' This wasn't even close to true. Concerns had been raised – loudly – not just about staining but about potential engine damage and the toxicity of the chemical. NMA is classified as toxic if it is swallowed, inhaled or comes into contact with skin. Shell in particular had raised concerns about 'the toxicity and the amount used' as well as 'the threat towards groundwater', the investigation team later reported. At the time, Magadla said PetroSA would investigate but was sceptical that the problem could be laid at its door: 'Even though we know that we are selling a product that is compliant to the specification we have embarked… on an independent investigation… from the preliminary investigation there is no conclusive evidence that indicates that this concern that is raised by motorist could be isolated to the product that is sold by PetroSA,' she told the SABC. Neither innocent nor independent For Ngwenya, Nako's founder, the questions about the quality of Nako's fuel weren't as innocent or as independent as they seemed. 'The majors have used product quality as a weapon to undermine Nako's operations,' he told the department's director-general, Jacob Mbele, in an August 2024 letter. 'Our products have been subjected to numerous tests, often leading to demands that Nako and [our supplier] disclose our blending formulas and mix ratios for producing ULP 95.' Nako, he added, had 'resisted these demands to protect our intellectual property'. The 17-page letter to Mbele failed to mention the high levels of NMA found in the tests. Instead, Ngwenya took aim at the 'monopolistic practices' of the oil majors. 'Every vessel we have imported has been met with what can only be described as war-like tactics,' he wrote. This view was echoed by others in PetroSA. When Magadla was interviewed by the SABC in April when the questions over Nako's fuel first surfaced, she said: 'It's quite interesting that with these concerns, there has also been interesting competition tactics being deployed by our competitors… so it is not only the technical issues that we need to investigate, it is also the competition behaviour by our competitors.' At the heart of the problem, she and others believed, was PetroSA's decision to take back the supply of unleaded petrol to Mossel Bay. 'When this issue of self-supply was changed, it was not liked by the majors. They hated it, they hated the whole notion,' former head of trading Vusi Xaba told us. PetroSA did not want to respond to the 78 questions we sent them, but Xaba told us that in his view, Nako's fuel passed the SANS tests, so what was the problem? This didn't matter though: the industry was no longer willing to buy it. Cargo #3 The question now was what to do with Nako's third cargo of unleaded petrol. The Daytona had been moored off the coast of Mossel Bay since 1 March 2024, quietly running up a demurrage bill of an estimated $50 000 (R900 000) a day. (This is unusually high for demurrage which normally costs $35 000 or R650 000 a day.) By mid-June 2024, the demurrage bill on the Daytona had reached R99 million, according to an internal document. Technically, the fuel had passed the SANS tests, which meant that PetroSA might be legally obliged to accept it. Faced with a difficult decision, PetroSA agreed to take another 50 million litres of unleaded petrol from Nako at a cost of R634 million. Leverage It's at this point that our two Dirty Fuels investigations come together. If you've read Part 1, you'll know that PetroSA had been trying to sell a cargo of diesel that had initially been intended for Eskom. On 10 June 2024, it had agreed to sell the cargo to Nako, despite Nako failing to put up payment guarantees. Ngwenya would later tell us: 'For us, our interest is being able to be paid what we are owed [on Daytona]. So we said to PetroSA, 'Okay, we'll buy, since you are asking us to buy this cargo [of diesel]'… considering that they are already sitting with close to a billion rands of our product, that is enough security for them.' The Jag Pushpa would discharge 50 million litres of diesel into Nako's tanks in Durban, just as the Daytona was discharging 50 million litres of the tainted unleaded petrol into PetroSA's tanks in Mossel Bay. The deal was a bad one for PetroSA: it had effectively swopped a valuable cargo of diesel for a cargo of unleaded petrol that no one wanted to touch. Selling off the fuel For the next four months, the unleaded petrol sat in PetroSA's tanks. PetroSA still had another 10 million litres of Nako's second cargo and after testing the bottom of the tanks, the technology support department had raised concerns that the remaining product could be damaging them, 'especially given that the product was not evacuated as planned and left for months'. 'Shell was saying there's an issue with the quality, that product must be sold for next to nothing,' Ngwenya told us. 'We know there's no issue with the product so we're saying, 'let's go pick it up'.' Nako, he told us, agreed to buy back a portion of the fuel at a discount; it would then be trucked to its own network of 60 garages across the country and sold. When we interviewed Ngwenya, we did not have the results of the internal PetroSA investigation. In follow-up questions we asked him whether Nako had told its customers that the fuel contained NMA, but by this point, Nako said it couldn't answer any more questions. This still left PetroSA with at least 50 million litres of chemically tainted petrol that urgently needed a buyer. The plan, according to a senior PetroSA source, had been to move some of the unleaded petrol to PetroSA's storage tanks in Bloemfontein, where buyers were apparently unfazed by the chemical content of the fuel. PetroSA had also been talking to Shell about the possibility of diluting Nako's fuel with other cargoes of unleaded petrol. But Shell had been outspoken about the risks posed by the NMA and, according to the investigation report, 'refused to accept fuel that contained NMA'. Ngwenya insists that Shell did eventually agree to buy some of the fuel. 'The same product that they said a year ago there were quality issues, Shell has been picking up,' he told us. We put this to Shell, but it refused to answer our questions. Instead, it offered a bland response, saying it was 'committed to quality control processes' and would stop supply if any petrol was 'found to be of concern'. 'As a matter of principle, Shell Downstream South Africa does not comment on commercial relationships about its business partners,' it added. So whether any of the fuel has been moved or sold remains a mystery. The final page of PetroSA's investigation report, written in February this year, notes: 'Based on the serious hazard and dangerous classification… PetroSA could still be exposed if the product is released into the market.' A bid for intervention In August 2024, Nako had written to Jacob Mbele, the director general in the Department of Mineral and Petroleum Resources, asking him to intervene on Nako's behalf. 'We formally lodge a protest and complaint against the ongoing attacks, sustained investigations, and insinuations that we may be receiving preferential treatment or undue attention,' Ngwenya wrote. Of course, it would be hard to deny that Nako had received undue attention. In the space of two years, PetroSA had sold Nako two cargoes of diesel for R1.5 billion, bought three cargoes of unleaded petrol for R1.8 billion and proposed a three-year deal worth roughly R11 billion. Nako had so far done little more than connect PetroSA to its supplier in the UAE, but in March 2024 a joint venture agreement had been drawn up to give Nako the lion's share (50%) of the partnership, with PetroSA and the supplier taking 25% each. Long term, Nako's ambition was to set up a fuel blending project in South Africa. However, PetroSA's head of legal had refused to sign the joint venture agreement: 'Nako was labelled by PetroSA's head of legal as an untrusted company that should not be allowed to conclude a joint venture with PetroSA,' Ngwenya told the department. 'This characterisation was based on our supposed youth, inexperience, and lack of trustworthiness – despite the fact that we have over 60 years of combined experience and the support of one of the UAE's most successful blenders.' We asked Mbele what action he took after receiving Nako's letter with Ngwenya's plea for 'immediate intervention'. Sources have told us that the department repeatedly raised the issue with PetroSA. In a written response, however, the department downplayed its involvement, telling us: 'As this was a commercial issue between Nako and PetroSA, the department referred the letter to PetroSA who indicated to the department that they were engaging with Nako Energy to resolve their commercial disputes.' Settlement Nako not only wanted PetroSA to pay for the third cargo of unleaded petrol (R634 million), it also wanted R168 million in demurrage fees for the three cargoes that had spent months waiting offshore. In his August letter, Ngwenya had told the department: 'Our outstanding invoices now exceed R950 million, and our demurrage invoices have accumulated to over $12 million (R214 million)'. In short, Nako now wanted almost R1 billion from PetroSA, while PetroSA was asking for roughly the same amount – R933 million – for the cargo of diesel that Nako had taken. The only difference was that Nako could sell the diesel, while no one wanted to buy unleaded petrol with high levels of NMA. Initially, Nako had been paying for the diesel cargo in R20 million/week instalments, but after four months, it stopped: 'Nako has paid constantly, hoping that when we pay them, they'll pay us for Daytona, but… nothing has ever come back to us,' Ngwenya told us. In December 2024, PetroSA's executive committee agreed to investigate Nako's unleaded petrol deal and appoint its chief economist and head of corporate planning, Mxolisi Landu, to head up the team. The report, which we have been quoting from throughout this article, concluded that PetroSA had suffered 'financial losses, reputational damage and loss of customers' as a result of the Nako fuel debacle. FIASA told us that the major fuel companies no longer buy fuel from PetroSA in Mossel Bay and 'have been servicing their network from Cape Town, Port Elizabeth and East London since this incident'. Under lessons learnt, Landu wrote that PetroSA had failed to identify the risks and 'possible challenges in the oil industry accepting the ULP'. The introduction of this new product 'did not follow appropriate processes and procedures' or align with 'statutory and regulatory requirements', he wrote. There had also been a lack of consultation with PetroSA's technology support division and a 'lack of transparency from the suppliers of ULP 95 that contains NMA'. The conclusion? The fuel contained 'high concentration of NMA impacting on the potential gum [which] raises several concerns regarding the potential risks and exposure to PetroSA'. Within days of Landu's sobering report being delivered in February 2025, PetroSA's leadership was shuffled: acting CEO Mmete Fusi, under whom the investigation began, was replaced by Sesakho Magadla, the former COO. Back in April 2024, it was Magadla who had confidently told SABC that there was nothing wrong with Nako's fuel, despite PetroSA having evidence to the contrary. But the efforts to sweep the Nako fuel debacle under the carpet may have an expensive conclusion. Last month, Ngwenya told us that PetroSA and Nako were discussing a settlement. 'It's fairly advanced, we're just arguing around the demurrage,' he told us. 'They've acknowledged that they owe us. We're now at the point where we're [discussing] offset arrangements.' Two weeks later, he told us that PetroSA and Nako had quietly reached a deal: 'With regards to PetroSA and Nako our accounts have been settled,' he told us over WhatsApp. 'Whatever issues we had, have been resolved amicably. And all amounts settled.'
Daily Maverick
2 days ago
- Automotive
- Daily Maverick
Dirty Fuels: PetroSA's R11bn ‘contaminated' petrol deal (Part 2)
PetroSA pursued a three-year deal to buy chemically adulterated unleaded petrol from a little-known company, Nako Energy. But after only six months, the fuel was pulled from the market after numerous complaints. In December 2023, TotalEnergies started to notice that something was off with a new kind of unleaded petrol that it was selling in the Garden Route. The petrol, known as Mogas 95, left stains on the petrol pumps. Worse, it had damaged the paintwork on some of the customers' cars. In some cases, the only solution was to have the cars resprayed. Unbeknownst to Total, its rival Caltex was having the same problem in Knysna: cars and motorbikes that filled up with the petrol were coming back with stains as well. The Sunday Times and Top Auto first raised the alarm about contaminated fuel in April 2024. In December 2023, both Total and Caltex lodged formal complaints with PetroSA, the state-owned petroleum company that had supplied the petrol. By February 2024, Shell and Engen had joined the chorus: where exactly had PetroSA sourced this fuel, they wanted to know, and what was causing the stains? *** A year earlier, PetroSA had been offered an enticing deal: a little-known company, Nako Energy, said it could secure unleaded petrol from the United Arab Emirates (UAE) at a very attractive price. PetroSA would make 50 cents for every litre imported, meaning every oil tanker would generate R25-million of pure profit. 'There's 50 million litres [in a tanker], so PetroSA would make R25-million profit, which is higher than any diesel cargo. That's when really the interest in Nako became bigger,' the company's founder and majority shareholder, Nkosinathi Ngwenya, told us. He added, '[PetroSA] said, 'No, we don't believe this is the case. Can you do a test cargo?'' If you've read Part 1 of our Dirty Fuels investigation, you'll know that Nako would later secure a R933-million diesel deal from PetroSA that was riddled with irregularities. Ngwenya had a background in mining, but Nako itself had been in business for less than a year. PetroSA had been in business for 58 years — long enough for cheap fuel from an obscure supplier to set off alarm bells. Instead, the traders agreed to buy 50 million litres — a R668-million experiment, just to see. Petrol on steroids A 95 octane petrol can be produced in two ways: it can be refined from crude oil, or it can be blended. Nako's fuel would be sourced from a supplier in Fujairah in the UAE that specialises in producing blended fuels. The idea was to take a low-quality fuel — with an octane rating of 89 to 91 — and blend it with chemicals to boost the octane rating, turning an 89 into a 95 unleaded petrol. A bit like producing petrol on steroids. 'This particular blend, it was supposed to be a gamechanger,' PetroSA's former head of trading Vusi Xaba, who oversaw the deal, recently told us. Octane-boosters are an everyday part of the fuel business: until it was banned, lead was used to boost the octane of fuel. It has since been replaced by compounds such as benzene and ethanol, but recently other chemical additives have been creeping into fuel as well. Tests would later confirm that Nako's chemical of choice was N-methylaniline (NMA), which is banned as a fuel additive in Europe, China and Russia because of concerns about its toxicity and the damage it can cause to engines. Where NMA is used, it's normally in concentrations of below 1.2%. At 3% NMA can boost the octane rating of fuel by up to 8 points, but at such high levels NMA causes other issues, including gum that leaves deposits on engines and causes seals to swell, increasing the chance of oil leaks. According to an internal PetroSA investigation, tests later found that Nako's fuel contained 6.6% NMA. It's unclear how much the PetroSA trading team knew when they placed the order. They evidently knew enough to tell the board, in June 2023, that Nako's fuel had a 'pre-blend' octane rating 'of 89-91', making it a very low-quality fuel that would be boosted to a 95 'using low-cost approved components'. Ngwenya told us that PetroSA had sent a technical team to view its suppliers' blending facility in the UAE: 'From January until about May, this was the back and forth, testing and verifying, 'Is this sanctioned product, who are your suppliers?' … eventually they were satisfied.' But Xaba was coy about whether PetroSA knew the fuel contained NMA: 'Let's put it this way, when a trader trades gasoline, they would say this has got intellectual property, so they wouldn't actually be telling you … what components they bring and at what ratio — they would not necessarily share that with you.' R150m prepayment In July 2023, Nako's first shipment of unleaded petrol arrived in Mossel Bay, but for the next three months the oil tanker Sea Adore just sat waiting to discharge. Part of the problem was that Nako — a brand-new company with no track record — did not qualify for credit and so had to pay its supplier upfront. According to the internal PetroSA investigation, which was concluded in February this year, the contract was then amended to give Nako a R150-million prepayment. Public finance rules don't allow state-owned entities to make prepayments, except in exceptional circumstances, so another amendment was drafted in August 2023 to turn the R150-million prepayment into a payment for a small portion of the fuel that would be discharged first. Ngwenya, however, blamed the delay on PetroSA: '[T]hey were not ready to receive that cargo, because they also didn't believe that it would actually arrive, they didn't believe the price, so by the time it arrived everybody had to run around to try get it right.' By September, PetroSA was satisfied that Nako could actually deliver the fuel at the price it promised. Without waiting for Sea Adore's test cargo to discharge, PetroSA signed a cooperation agreement with Nako. The cooperation agreement was just a prelude to a binding joint venture agreement that would need to be signed within 30 days. This agreement would make Nako (50%), PetroSA (25%) and its UAE supplier (25%) partners in a three-year contract. It's unclear how much the contract would be worth, as demand and the price of petrol would go up and down, but a rough estimate is R11-billion. In October 2023, the Sea Adore discharged the first 50 million litres of unleaded petrol into the storage tanks at Mossel Bay. Six weeks later, complaints started arriving about the petrol. The market for petrol If you've read Part 1 of our Dirty Fuels investigation, you'll know that PetroSA was importing cargoes of diesel into Mossel Bay to be sold to Eskom and burnt in the open cycle gas turbines, which helps keep load shedding at bay. The market for petrol is different: Eskom doesn't need it, but there are plenty of petrol stations along the Garden Route that do. 'In Mossel Bay, the established arrangement is that the oil majors have supply agreements with PetroSA,' Phila Mzamo, the spokesperson for the Fuels Industry Association (FIASA) explained. 'Currently, PetroSA supplies these companies using imported fuel… The oil majors collect their fuel from the Shell Voorbaai depot, which is supplied directly by the PetroSA refinery.' Each fuel company can add their own secret sauce later — Caltex adds Techron, a cleaning additive, for example — but the underlying petrol is the same. The risk, however, is that a contaminated batch of fuel can quickly spread to petrol stations throughout the region. According to the internal PetroSA investigation, complaints about Nako's petrol first surfaced at Total stations in the Garden Route and Caltex stations in Knysna about a month after the Sea Adore discharged. Two weeks later, in December 2023, Nako delivered another 50 million litres of unleaded petrol at a cost of R585-million, and by March 2024, a third cargo worth R634-million was waiting to offload. But by now, PetroSA couldn't ignore the clamour of complaints coming from its customers, which included Total, Caltex, Shell, Engen and eventually even the farming co-op SSK. Colour-changing fuel In March 2024, PetroSA put together a six-person team to investigate the complaints. Over the next month, they collected and tested samples from garages, PetroSA's tanks and even the fuel aboard the Daytona, the third vessel anchored off the coast of Mossel Bay, waiting to discharge. What they noticed was that under a UV light, the fuel changed colour: '[T]he ULP 95 reacted to the car paint to the extent that these cars needed to be repainted. The ULP 95 affected certain paints and not all of them and also seemed to affect older cars. This was confirmed by the panel beaters in Mossel Bay who treated a few of these cars that needed to be repainted,' the internal investigation later concluded. 'Further tests were done using painted panels from the panel beater… It was confirmed that the ULP 95 did stain these panels which confirmed what the customer experienced.' At this point, the investigation team wasn't sure what was causing the fuel to change colour — the high gum content, additives, octane boosters, dyes or contaminants — but according to the report, Nako had at least been willing to confirm that the fuel contained NMA. Tests passed with flying colours When Nako's fuel arrived in South Africa it was tested — and passed. 'We can … confirm that over 90 tests were conducted on the product, all of which verified compliance with the required specifications,' Nako's CEO Nqobani Mkhwanazi told us in a written response. 'We therefore find it difficult to understand the ongoing issue about the quality of the product supplied by Nako.' The problem is that the official South African National Standard (SANS) for unleaded petrol doesn't include limits for NMA. It refers to 'additives' that can be used to improve the performance of fuel, provided these don't cause cars to malfunction. It's debatable whether NMA, which can damage both paintwork and engines, clears this bar, but because there is no threshold for NMA, the standard tests won't look for it. Even a fuel pumped full of NMA can therefore still pass the tests with flying colours. PetroSA's internal investigation would later conclude that more comprehensive testing should have taken place, given that the fuel was a new product. 'At the time of the arrival of the Sea Adore (first cargo), there was insufficient communication to all relevant stakeholders to highlight that the ULP 95 purchased was not tested and was a blended product,' the report concluded. And because there was no disclosure about the chemicals in the fuel, 'the standard testing methodology was exercised which did not initially always include potential gum, mainly because ULP 95 previously had low existent and potential gum'. It was only after customers complained that 'a series of tests were conducted on the samples of all 3 vessels', the report noted. The results The rest of the industry, meanwhile, wasn't waiting for PetroSA to fess up to the problem. In March, Engen had reached out to the Fuels Industry Association of South Africa (FIASA) about 'potential contamination issues' with petrol in the Mossel Bay area. 'The query was forwarded to Shell who confirmed same and confirmed that they had contacted Astron to analyse the product. FIASA then contacted Sasol who expressed a willingness to assist,' spokesperson Phila Mzamo explained. Soon, samples had been collected and sent to Sasol and Astron's labs for testing. This had enraged Ngwenya, Nako's founder: 'Nako has had its samples handed over to the industry without proper consultation or adherence to established policies and procedures. This allowed the majors to conduct analyses on our product and request information that seriously infringes on our intellectual property,' he later wrote in a letter to the Department of Mineral and Petroleum Resources. On 5 April 2024, FIASA convened a meeting of all the big players: Engen, Shell, BP, Total, Astron, Sasol, Puma and a reluctant PetroSA. The tests, run by Sasol and Astron, had found NMA at a concentration of 6.6%, according to the investigation report. 'This would indicate (in alignment with Astron thinking), that the base octane without N-methylaniline addition is very low,' the report added. Neither Sasol nor Astron would speak to amaBhungane, but FIASA confirmed the findings: '[B]oth Sasol and Astron Energy analysed the product and found in excess of 6% NMA,' Mzamo told us. She added: 'The NMA recommended rate is only around 1.2% — it is known above this level that gum formation is accelerated, and furthermore compatibility with other materials is brought into question.' The tests run by Sasol had also found 'extremely high gum content', putting the fuel out of specification with SANS standards. PetroSA's own tests found high levels of gum, but not high enough to flunk the tests. According to FIASA, PetroSA asked the two labs to run the tests again on a new sample of Nako's fuel. 'Samples were sent to Astron and Sasol — Astron analysed these and found similar results. The Sasol sample never arrived since it was recalled by PetroSA,' Mzamo said. In a follow-up response, however, Mzamo told us that PetroSA's actions had been more aggressive: 'At a subsequent meeting PetroSA confirmed that the Sasol sample had been intercepted — recalled is too polite — and requested Astron to destroy their samples.' We asked PetroSA why it asked Astron to destroy the samples considering that this was potential evidence of what was causing the problems, but this was one of the questions they chose to ignore. Astron, having spoken to its lawyers, advised PetroSA that the samples 'would not be destroyed', Mzamo said. Public denials A week after the tense meeting with the oil majors, the Sunday Times reported that garages had been instructed to 'immediately lock out all VP95 nozzles' and stop selling the fuel. Publicly though, PetroSA was conceding nothing. When PetroSA's chief operations officer Sesakho Magadla was interviewed on SABC later that day, she stuck to the line that Nako's fuel had passed the SANS tests. '[A]s PetroSA, we would like to assure the motorists as well as the industry at large that the product we sell is compliant to the product specification of this country, which is SANS 1598,' she said, without mentioning the high levels of NMA in the fuel. '[T]here has been no concerns with regards to the quality itself in terms of the product but what we've seen is … a general concern on the staining.' This wasn't even close to true. Concerns had been raised — loudly — not just about staining but about potential engine damage and the toxicity of the chemical. NMA is classified as toxic if it is swallowed, inhaled or comes into contact with skin. Shell in particular had raised concerns about 'the toxicity and the amount used' as well as 'the threat towards groundwater', the investigation team later reported. At the time, Magadla said PetroSA would investigate but was sceptical that the problem could be laid at its door: 'Even though we know that we are selling a product that is compliant to the specification we have embarked … on an independent investigation … from the preliminary investigation there is no conclusive evidence that indicates that this concern that is raised by motorists could be isolated to the product that is sold by PetroSA,' she told SABC. Neither innocent nor independent For Ngwenya, Nako's founder, the questions about the quality of Nako's fuel weren't as innocent or as independent as they seemed. '[T]he majors have used product quality as a weapon to undermine Nako's operations,' he told the department's director-general Jacob Mbele in an August 2024 letter. 'Our products have been subjected to numerous tests, often leading to demands that Nako and [our supplier] disclose our blending formulas and mix ratios for producing ULP 95.' Nako, he added, had 'resisted these demands to protect our intellectual property'. The 17-page letter to Mbele failed to mention the high levels of NMA found in the tests. Instead, Ngwenya took aim at the 'monopolistic practices' of the oil majors. 'Every vessel we have imported has been met with what can only be described as war-like tactics,' he wrote. This view was echoed by others in PetroSA. When Magadla was interviewed by SABC in April when the questions over Nako's fuel first surfaced, she said: '[I]t's quite interesting that with these concerns, there has also been interesting competition tactics being deployed by our competitors … so it is not only the technical issues that we need to investigate, it is also the competition behaviour by our competitors.' At the heart of the problem, she and others believed, was PetroSA's decision to take back the supply of unleaded petrol to Mossel Bay. 'When this issue of self-supply was changed, it was not liked by the majors. They hated it, they hated the whole notion,' former head of trading Vusi Xaba told us. PetroSA did not want to respond to the 78 questions we sent them, but Xaba told us that in his view, Nako's fuel passed the SANS tests, so what was the problem? This didn't matter though: the industry was no longer willing to buy it. Cargo #3 The question now was what to do with Nako's third cargo of unleaded petrol? The Daytona had been moored off the coast of Mossel Bay since 1 March 2024, quietly running up a demurrage bill of an estimated $50,000 (R900,000) a day. (This is unusually high for demurrage which normally costs $35,000 or R650,000 a day.) By mid-June 2024, the demurrage bill on the Daytona had reached R99-million, according to an internal document. Technically the fuel had passed the SANS tests, which meant that PetroSA might be legally obliged to accept it. Faced with a difficult decision, PetroSA agreed to take another 50 million litres of unleaded petrol from Nako at a cost of R634-million. Leverage It's at this point that our two 'Dirty Fuels' investigations come together. If you've read Part 1, you'll know that PetroSA had been trying to sell a cargo of diesel that had initially been intended for Eskom. On 10 June 2024, it had agreed to sell the cargo to Nako, despite Nako failing to put up payment guarantees. Ngwenya would later tell us: 'For us, our interest is being able to be paid what we are owed [on Daytona]. So we said to PetroSA, 'Okay, we'll buy, since you are asking us to buy this cargo [of diesel]' … considering that they are already sitting with close to a billion rand of our product, that is enough security for them.' The Jag Pushpa would discharge 50 million litres of diesel into Nako's tanks in Durban, just as the Daytona was discharging 50 million litres of the tainted unleaded petrol in PetroSA's tanks in Mossel Bay. The deal was a bad one for PetroSA: it had effectively swapped a valuable cargo of diesel for a cargo of unleaded petrol that no one wanted to touch. Selling off the fuel For the next four months, the unleaded petrol sat in PetroSA's tanks. PetroSA still had another 10 million litres of Nako's second cargo and after testing the bottom of the tanks, the Technology Support department had raised concerns that the remaining product could be damaging them, 'especially given that the product was not evacuated as planned and left for months'. 'Shell was saying there's an issue with the quality, that product must be sold for next to nothing,' Ngwenya told us. 'We know there's no issue with the product so we're saying, 'let's go pick it up'.' Nako, he told us, agreed to buy back a portion of the fuel at discount; it would then be trucked to its own network of 60 garages across the country and sold. When we interviewed Ngwenya, we did not have the results of the internal PetroSA investigation. In follow-up questions we asked him whether Nako had told its customers that the fuel contained NMA, but by this point, Nako said it couldn't answer any more questions. This still left PetroSA with at least 50 million litres of chemically tainted petrol that urgently needed a buyer. The plan, according to a senior PetroSA source, had been to move some of the unleaded petrol to PetroSA's storage tanks in Bloemfontein, where buyers were apparently unfazed by the chemical content of the fuel. PetroSA had also been talking to Shell about the possibility of diluting Nako's fuel with other cargoes of unleaded petrol. But Shell had been outspoken about the risks posed by the NMA and according to the investigation report 'refused to accept fuel that contained NMA'. Ngwenya insists that Shell did eventually agree to buy some of the fuel. 'The same product that they said a year ago there were quality issues, Shell has been picking up,' he told us. We put this to Shell, but it refused to answer our questions. Instead, it offered a bland response, saying it was 'committed to quality control processes' and would stop supply if any petrol was 'found to be of concern'. 'As a matter of principle, Shell Downstream South Africa does not comment on commercial relationships about its business partners,' it added. So, whether any of the fuel has been moved or sold remains a mystery. The final page of PetroSA's investigation report, written in February this year, notes: 'Based on the serious hazard and dangerous classification … PetroSA could still be exposed if the product is released into the market.' Political intervention In August 2024, Nako had written to Jacob Mbele, the director general in the Department of Mineral and Petroleum Resources, asking him to intervene on Nako's behalf. 'We formally lodge a protest and complaint against the ongoing attacks, sustained investigations, and insinuations that we may be receiving preferential treatment or undue attention,' Ngwenya wrote. Of course, it would be hard to deny that Nako had received undue attention. In the space of two years, PetroSA had sold Nako two cargoes of diesel for R1.5-billion, bought three cargoes of unleaded petrol for R1.8-billion and proposed a three-year deal worth roughly R11-billion. Nako had so far done little more than connect PetroSA to its supplier in the UAE, but in March 2024 a joint venture agreement had been drawn up to give Nako the lion's share (50%) of the partnership, with PetroSA and the supplier taking 25% each. Long-term, Nako's ambition was to set up a fuel blending project in South Africa. However, PetroSA's head of legal had refused to sign the joint venture agreement: 'Nako was labelled by PetroSA's head of legal as an untrusted company that should not be allowed to conclude a joint venture with PetroSA,' Mgwenya told the Department. 'This characterisation was based on our supposed youth, inexperience, and lack of trustworthiness — despite the fact that we have over 60 years of combined experience and the support of one of the UAE's most successful blenders.' We asked Mbele what action he took after receiving Nako's letter with Ngwenya's plea for 'immediate intervention'. Sources have told us that the Department repeatedly raised the issue with PetroSA. In a written response, however, the Department downplayed its involvement, telling us: 'As this was a commercial issue between Nako and PetroSA, the Department referred the letter to PetroSA who indicated to the Department that they were engaging with Nako Energy to resolve their commercial disputes.' Settlement Nako not only wanted PetroSA to pay for the third cargo of unleaded petrol (R634-million), it also wanted R168-million in demurrage fees for the three cargoes that had spent months waiting offshore. In his August letter, Ngwenya had told the Department: 'Our outstanding invoices now exceed R950-million, and our demurrage invoices have accumulated to over $12-million [R214-million]'. In short, Nako now wanted almost R1-billion from PetroSA, while PetroSA was asking for roughly the same amount — R933-million — for the cargo of diesel that Nako had taken. The only difference was that Nako could sell the diesel, while no one wanted to buy unleaded petrol with high levels of NMA. Initially, Nako had been paying for the diesel cargo in R20-million/week instalments, but after four months, it stopped: 'Nako has paid constantly, hoping that when we pay them, they'll pay us for Daytona, but … nothing has ever come back to us,' Ngwenya told us. In December 2024, PetroSA's executive committee agreed to investigate Nako's unleaded petrol deal and appoint its chief economist and head of corporate planning, Mxolisi Landu, to head up the team. The report, which we have been quoting from throughout this article, concluded that PetroSA had suffered 'financial losses, reputational damage and loss of customers' as a result of the Nako fuel debacle. FIASA told us that the major fuel companies no longer buy fuel from PetroSA in Mossel Bay and 'have been servicing their network from Cape Town, Port Elizabeth and East London since this incident'. Under lessons learnt, Landu wrote that PetroSA had failed to identify the risks and 'possible challenges in the oil industry accepting the ULP'. The introduction of this new product 'did not follow appropriate processes and procedures' or align with 'statutory and regulatory requirements', he wrote. There had also been a lack of consultation with PetroSA's Technology Support division and a 'lack of transparency from the suppliers of ULP 95 that contains NMA'. The conclusion? The fuel contained 'high concentration of NMA impacting on the potential gum [which] raises several concerns regarding the potential risks and exposure to PetroSA'. Within days of Landu's sobering report being delivered in February 2025, PetroSA's leadership was shuffled: acting CEO Mmete Fusi, under whom the investigation began, was replaced by Sesakho Magadla, the former COO. Back in April 2024, it was Magadla who had confidently told SABC that there was nothing wrong with Nako's fuel, despite PetroSA having evidence to the contrary. But the efforts to sweep the Nako fuel debacle under the carpet may have an expensive conclusion. Last month, Ngwenya told us that PetroSA and Nako were discussing a settlement. 'It's fairly advanced, we're just arguing around the demurrage,' he told us. 'They've acknowledged that they owe us. We're now at the point where we're [discussing] offset arrangements.' Two weeks later, he told us that PetroSA and Nako had quietly reached a deal: 'With regards to PetroSA and Nako our accounts have been settled,' he told us via WhatsApp. '[W]hatever issues we had, have been resolved amicably. And all amounts settled.' DM
News24
27-05-2025
- Business
- News24
Dirty fuels: Inside PetroSA's shambolic diesel trading empire
In June last year, state-owned PetroSA sold a R933 million cargo of diesel to Nako Energy, a little-known company that did not qualify for credit and had failed to put up payment guarantees. Nako was given 60 days to pay, but almost a year later, Nako still owed R825 million. The Nako deal is just the tip of the iceberg: PetroSA's financial records show that it has been gambling recklessly by importing cargoes of diesel that couldn't find buyers, resulting in oil tankers sitting offshore for weeks accumulating R389 million in demurrage fees. These losses, along with PetroSA's price gouging of Eskom, would have come to light sooner if PetroSA – backed by Minerals and Petroleum Minister Gwede Mantashe – hadn't hidden the inner workings of its diesel trading business behind claims of commercial secrecy. For more financial news, visit the News24 Business front page. In May last year, two oil tankers set sail for South Africa, each carrying $35 million (R650 million) worth of diesel. Their destination: Mossel Bay, where the diesel could potentially be piped into Eskom's open cycle gas turbines and burned to keep load shedding at bay. When the tankers arrived, however – Jag Pushpa on 11 May and Centennial Matsuyama on 16 May – they found there was no room at the inn: PetroSA's storage tanks were full. With demurrage costs increasing at $35 000 (R650 000) a day, PetroSA 'scanned the market' looking for a buyer and settled on a little-known company, Nako Energy, who offered to buy the diesel at a hefty discount. Nako didn't qualify for credit and PetroSA would make a R19 million loss, but hey, this was an emergency. *** This, at least, is the story that PetroSA employees concocted in an internal memo in a bid to explain why they handed over R933 million worth of diesel without Nako paying for it or providing payment guarantees. The memo was compiled in August 2024, a month before Nako was due to make full and final payment for the diesel. Almost a year later, however, Nako still owed PetroSA R825 million. PetroSA declined to comment: 'PetroSA has considered the questions provided and will not be providing any commentary in this regard,' spokesperson Nonny Mashika-Dennison told us. Nako's CEO, Nqobani Mkhwanazi, was more forthcoming: 'PetroSA approached Nako to urgently assist in offloading diesel cargoes under significant time pressure … Nako stepped in at PetroSA's request,' she told us in a written response. But even she conceded that the deal was irregular. 'No guarantees were provided for these cargoes by any financial institution,' Mkhwanazi confirmed in a follow-up response. As for a written contract governing the almost R1 billion sale? 'To our knowledge, no such agreement exists,' she said. Yet the evidence suggests is that the Nako deal – with its hefty discounts and missing paperwork – is just the tip of the iceberg: PetroSA has been gambling recklessly in its diesel trading business and hiding its losses behind claims of commercial secrecy. A secret business As the state-owned petroleum company, PetroSA's role is to ensure that the country has access to petrol and diesel. Historically that meant refining, but since 2020, when its Mossel Bay refinery closed, PetroSA's only real business has been trading fuel. And although it is technically insolvent, PetroSA has been kept afloat largely by one client: Eskom. Thanks to load shedding, which has created an unslakable thirst for diesel, PetroSA's revenue grew from R11 billion in 2019 to R23 billion in 2024. Figures provided by Eskom show that at the height of load shedding, 80% of Eskom's diesel was supplied by PetroSA. This covert bailout – funded by Eskom and electricity users – may have injected as much as R500 million into PetroSA in the last financial year. This wouldn't have happened if the Department of Minerals and Petroleum had granted Eskom a fuel wholesale licence, but it refused, arguing that Eskom did not qualify as a wholesaler. Without a wholesale licence, Eskom cannot apply for a diesel import licence and is forced to buy from importers like PetroSA. This comes at a premium: another internal memo from March this year shows PetroSA discussing how it would make a profit of between R29 million to R50 million on a cargo of diesel sold to Eskom, while noting that it would barely break if it sold the same cargo to the oil industry. That doesn't mean that PetroSA is charging Eskom more than the oil majors – in fact, Eskom told us that PetroSA offered it the best discount on the market. But what it does show is how costly PetroSA's role as an unnecessary middleman to Eskom has become. Worryingly, PetroSA's booming fuel trading business has also ushered in an era of extreme secrecy. And despite being a major public entity PetroSA refuses to publish its annual report or disclose the names of the companies that supplied it with diesel and profited from these contracts. The details that leak out – like the Nako deal – show why. A mad strategy It's hard to understand just how bad the Nako deal was without understanding what should have happened had this been a normal transaction. To start with, PetroSA should never have ordered R1.3 billion worth of diesel if it knew it didn't have space in its storage tanks in Mossel Bay. However, buoyed by the load shedding crisis – the money it stood to make from Eskom – PetroSA had adopted a 'supply-led' strategy of ordering tankers of diesel without necessarily having a buyer, storage or funding lined up. Vusi Xaba, PetroSA's then head of trading, recently told us that 'there was a task to bring in 3.5 billion litres per annum. So as trading your job is to bring in minimum five vessels a month… It was the corporate strategy of PetroSA, to remain afloat.' This gamble, however, also meant that PetroSA was caught out when load shedding dramatically dipped. In October 2023, with multiple oil tankers queued up in Mossel Bay, PetroSA told journalists that the tankers were being used as temporary storage to ensure diesel was available for Eskom's Open Cycle Gas Turbine. This is, to put it bluntly, a mad strategy. Firstly, PetroSA has storage tanks in Mossel Bay and Eskom has additional storage tanks at the Gourikwa power station, so the supply of diesel can be managed without the need for queuing ships. Secondly, when an oil tanker has to wait to discharge, the clock starts running on demurrage fees, which for an oil tanker are typically $35 000 (R650 000) a day. Between 2023 and 2024, PetroSA's demurrage bill skyrocketed from R34 million to R389 million – an elevenfold increase thanks to the supply-led strategy. Eskom was quite clear that it does not pay these demurrage fees, adding that it had never asked PetroSA to keep tankers waiting as a way to avoid load shedding. Instead, these costs hit PetroSA's bottom line: its 2024 financials, which it refuses to make public, show that even as PetroSA sold more fuel at a bigger profit, its ballooning demurrage bill wiped out any gains. In 2024, rather than making more money, PetroSA's operating losses actually increased from R1.5 billion to R1.7 billion. The strategy – approved by PetroSA's all-powerful chair Nkuleleko Poya and implemented by Xaba's team – was so nonsensical that there was widespread speculation someone was getting kickbacks for every tanker ordered, although no evidence has emerged to support this claim. Poya didn't respond to calls or emails, but Xaba told us that he was aware of these rumours and underwent a polygraph test in a bid to disprove them. The ambitious diesel-buying strategy was partly about ensuring security of supply for the country, he said, but added that 'from time to time, we as trading pushed back'. When Xolile Sizani was appointed as the new CEO of PetroSA in April 2024, he committed to curb the 'excessive demurrage costs' by implementing a more rational diesel-buying strategy, according to the annual report. By this point, however, two more cargoes of diesel had already slipped through. A traffic jam in Mossel Bay By April 2024, load shedding was in remission. Unperturbed, PetroSA's trading team had placed an order with Swiss commodities trader Gunvor for 100 million litres of diesel. Shipping records show that there were already three vessels in Mossel Bay waiting to discharge: Daytona, carrying 50 million litres of unleaded petrol, had arrived on 1 March; Sti Aqua and Nord Victorious, each carrying 50 million litres of diesel, had arrived in mid-April. PetroSA had managed to postpone two more cargoes of diesel that had been scheduled to arrive in April, but Gunvor refused, saying that its fuel had already been loaded. When Gunvor's two vessels arrived in May – Jag Pushpa from the Mangalore refinery in India and Centennial Matsuyama from the Fujairah refinery in the UAE – they joined the growing queue of oil tankers. With no demand from Eskom and no way of offloading the diesel in Mossel Bay, PetroSA's trading team began looking around for another buyer. South Africa is a net importer of diesel so any of the major fuel suppliers – Total, Engen, Shell – would be potential buyers. Instead, they settled on a company that seemed to have an inside track at PetroSA. Enter Nako Nako Energy is virtually unknown outside of PetroSA. Established in 2022, the company's founder, Nkosinathi Ngwenya, comes from the mining industry, while its CEO Nqobani Mkhwanazi has a background in finance. In just two years, however, Nako had become a favoured partner of PetroSA. In January 2023 it was one of the bidders for the gas-to-liquids refinery in Mossel Bay. It lost out to Russia's Gazprombank but instead secured a three-year contract to supply unleaded petrol. 'Nako is one of the very few independent black-owned traders that have consistently delivered in this space, while others have exited or failed,' Mkhwanazi told us. Internal records list at least five cargoes – together worth R3.5 billion – bought from or sold to PetroSA in the space of a year. As we shall see in part 2 of our Dirty Fuels investigation, however, these have not been without catastrophic fallout for PetroSA. No contract, no guarantees When PetroSA agreed to sell the two cargoes of diesel, it did so on the understanding that Nako would provide guarantees. This is standard in any fuel transaction and normally the guarantees would need to be in place before the vessel even puts to sea. According to the memo concocted by PetroSA's trading team, the guarantees Nako provided came from two boutique asset management companies in Cape Town: Taquanta Asset Management and Khumo Capital. Asset management companies are not normally in the business of providing guarantees for billion-rand cargoes of diesel, and almost immediately there were issues: 'PetroSA's finance department reviewed these guarantees and consulted with Debtsure, which advised against granting credit based on these guarantees,' the trading team wrote. When we put this to Taquanta's chief investment officer, Raphael Nkomo, he baulked. Nkomo told us that his firm was interested in funding the Nako transaction when it was presented to him by Ngwenya, the Nako founder and shareholder. On 17 June 2024, he issued a provisional payment undertaking – not a guarantee – for R500 million. Within days, however, he had retracted the offer because Nako had been unable to produce a valid contract with PetroSA. 'We needed a valid contract,' Nkomo explained. 'Three days later, no contract was produced. We pleaded with them for a contract so we could take it to the credit committee. On 20 June we issued a retraction to that letter.' Nkomo provided us with letters and emails from PetroSA to show that Taquanta had retracted the offer. Mkhwanazi reiterated this, saying that 'it is important to place on record that PetroSA never declined or rejected Taquanta's payment undertaking'. Still, we asked Nkomo why he had retracted his letter so quickly, waiting just three days to pull the plug. He told us: 'I did not see any material whatsoever that could allow me to put pensioners' money at risk … I asked once, twice, three times – when it isn't forthcoming I retract.' The letter had seemingly served its purpose though: a day after it was received, the Jag Pushpa set sail for Nako's storage tanks in Durban. By the time it arrived, the letter had been withdrawn. According to the memo, a second guarantee had supposedly come from 'Khumo', which is likely a reference to Khumo Capital, where Mkhwanazi works as the managing partner of the unlisted property fund (in addition to her position as CEO of Nako Energy). However, Khumo's lead of governance, Glenville Retief, told us: 'We do not provide, and have never provided, guarantees for any clients. Khumo does not have, and has never had, a business relationship with Nako Energy … or PetroSA.' Mkhwanazi told us that, ultimately: 'No guarantees were provided for these cargoes by any financial institution.' Guarantees, she explained, require a valid contract. 'To our knowledge, no such agreement exists'. A R106-million discount Regardless of when or why the funders withdrew, when the Jag Pushpa arrived in Durban on 21 June Nako had no contract and no guarantees in place that would allow it to take possession of 50 million litres of PetroSA's fuel. It's worth pausing for a moment to remember that these are assets owned by the state. It's a bit like deciding to sell Orlando Stadium without a tender and being asked to hand it over with no contract and no guarantee you'll be paid. PetroSA had already decided to keep the second cargo – from the Centennial Matsuyama – and sell it locally, leaving just the Jag Pushpa and its R650 million cargo on the table. However, with no evidence that Nako could pay for the fuel, PetroSA was well within its rights to cancel the deal and look for a serious buyer. Instead, PetroSA agreed to give Nako further discounts. 'Due to evolving market conditions, Nako Energy requested amendments including a revised pricing structure, adjusted payment terms, and immediate cargo discharge to secure the berthing slot,' the PetroSA trading team wrote in the August memo. It's unclear what price Nako had originally offered to pay, but now Nako told PetroSA it wanted to pay less: 'Nako reverted with a request for an increased discount of [R2.10/litre], this was at the back of engagements and negotiations with their customers.' With just over 50 million litres of diesel on board, Nako was asking for a R106-million discount. A R19-million loss At this point, PetroSA claims that it 'scanned the market to check if there were any other interested parties'. Again, any of the major oil companies would have been potential buyers. Instead, PetroSA picked another unknown company. Skyeline Oil & Gas had only been registered for a month, so it's unclear how PetroSA found Skyeline, but the company confirmed that it had entered into negotiations with PetroSA to buy the R650-million cargo of diesel. 'The discussion fell through due to lack of alignment on the price,' the trading team wrote. PetroSA then went back to Nako and agreed to sell the diesel at a R1.90/litre discount from the wholesale price. Mkhwanazi told us that the R1.90/litre (R96 million) discount was market-related. Major oil companies, she told us, were offering discounts of up to R1.80/litre at the time. '[A]n extra 10 cents is a good incentive. By no means is it preferential,' she added. PetroSA – whose entire profit margin had already been eaten up by demurrage and falling fuel prices – would take a hit of 40c/litre and ultimately make a loss of R19 million, according to the memo. Mkhwanazi, however, maintains that the alternative was worse: 'You … reference a R19-million loss on the cargo without considering the extent of losses PetroSA might have faced had Nako not stepped in to assist with the offload … PetroSA would have been left in an even more precarious position given the declining domestic fuel price, lack of committed offtake, no storage capacity, and an environment of reduced demand due to load shedding—all of which would have necessitated a distressed sale,' she said. When the trading team asked senior executives to sign off on the sale a month later, they made a similar argument: 'Remaining in Mossel Bay would have resulted in a total demurrage of R64.8 milion. Therefore, the sales results in cost containment/avoidance to the value of R39.5 million for the company,' they wrote. This, of course, is a false dilemma, but if the trading team approached any other credible buyers to take the Jag Pushpa 's cargo, they didn't mention it in the memo. Taxes, penalties, irregular credit By July, the Jag Pushpa was ready to discharge but Nako still wasn't ready with its funding, so PetroSA begrudgingly agreed to act as the official importer. This meant that PetroSA would be liable for another R306 million in duties owed to SARS. According to an internal PetroSA document, Nako promised it would settle the duties by 12 July. When Nako failed to pay, SARS hit PetroSA with another R30 million in penalties. 'Nako Energy was put on notice for all penalties and interest payable to SARS resulting from late payment,' the trading team wrote in the August 2024 memo. (We asked Nako a series of follow-up questions on the money owed to SARS, but they declined to say anything more.) The risk was that 50 million litres of PetroSA's diesel was now sitting in Nako's storage tanks in Durban. Nako still hadn't paid for the fuel or delivered a guarantee, so PetroSA kept a holding certificate over the fuel, meaning it couldn't be sold without 'the green light from PetroSA'. In August, then-CEO Xolile Sizani and CFO Nombulelo Tyandela were asked to 'approve credit to the value of R933.4 million to Nako with no credible guarantee'. The memo is ambiguous about whether this meant that Nako was now free to take the fuel or whether PetroSA still expected a guarantee before the holding certificate would be lifted. PetroSA declined to comment and Sizani, who is on suspension, could not be reached for comment, but a source within PetroSA told us that the idea was that the holding certificate would only be lifted once Nako had delivered a guarantee. The trading team had been keeping up the pretence that a guarantee was still coming. In the August 2024 memo, they told executives that Nako was working on 'a contingency plan in case the guarantees from Taquanta and Khumo were not approved'. Yet as far as we have been able to establish, there were never any guarantees from Taquanta or Khumo and the provisional funding that Taquanta had offered had long since evaporated. 'The suggestion that Nako received preferential or irregular credit requires context,' Mkhwanazi, Nako's CEO, told us. 'PetroSA approached Nako to urgently assist in offloading diesel cargoes under significant time pressure … Nako stepped in at PetroSA's request.' Nako doesn't pay Nako had been given 60 days to pay the R933 million to PetroSA, 'which will allow Nako to make collections from their clients', the trading team wrote. When Nako paid, PetroSA would in turn pay Gunvor, the Swiss commodities giant who had provided the diesel in the first place. Sixty days later though, Nako still hadn't come up with the almost R1 billion. Instead, records show that Nako began paying PetroSA in R20 million/week instalments. It's unclear whether PetroSA had, by this point, lifted the holding certificate and allowed Nako to take the fuel on credit. A source within PetroSA alleges that the holding certificate was quietly lifted in September, while Ngwenya told us that Nako had instead arranged to pay for the fuel in cash in tranches. Either way, this was a bad deal for PetroSA: at R20 million a week, it would take Nako almost a year to pay for the fuel. 'The terms and structure of those instalments formed part of evolving commercial arrangements, which remain the subject of ongoing discussions,' Mkhwanazi told us. She also insists that her company ultimately made very little money off the Jag Pushpa deal, and that any discounts it received were swallowed up by the falling fuel price or passed on to its clients. In December 2024, Nako made one last payment of R1.7 million and then stopped paying altogether. Internal records show that in April this year, Nako still owed PetroSA R825 million. No one from Nako would explain why they stopped paying. All they would say was that PetroSA owed money to Nako as well and that this gave Nako the opportunity to negotiate. 'It is important to note that PetroSA currently owes Nako a substantial sum. This is not consistent with the narrative of one-sided benefit,' Mkhwanazi told us in April. 'Both parties are presently engaged in detailed discussions in order to reconcile trades, which is an industry norm.' Holding the state to ransom Again, it's important to go back to what should have happened. If this had been a normal trade and Nako had provided a guarantee, PetroSA would have called up the guarantee as soon as Nako missed the 5 September deadline. With no guarantee in place, however, Nako could hold PetroSA to ransom, insisting that the diesel now be used to settle unpaid debts on another dubious contract. And with no signed contract Mkhwanazi is even casting doubt on whether a deal exists at all. Sure, Nako took the diesel and sold it, but where is the proof, she asked, of what Nako agreed to pay: '[N]o purchase and sale agreement existed between the parties prior to Nako offloading the cargo, regardless of PetroSA's assertions. This is precisely why PetroSA has since entered into negotiations with Nako to reach an amicable resolution.' Last week, in response to a list of 59 follow-up questions, Ngwenya told us that Nako had reached an undisclosed settlement with PetroSA: 'With regard to Nako and PetroSA our accounts have been settled and due to confidentiality I cannot respond of comment on them.' He added: 'Whatever issues we had have been resolved amicably. And all amounts settled.' Dirty fuels '[I]f you want to expose the business of PetroSA you are basically killing it.' That was Minerals and Petroleum Minister Gwede Mantashe's take when we asked him, at an October 2023 press conference, why PetroSA refused to disclose the details of its diesel trading business. 'PetroSA is trading with fuel and that is a highly contested space in the market. Nobody in that market will publish their suppliers and their [customers] – nobody. Now you want PetroSA to do that I am saying it's a formula to close it down,' he said. · AmaBhungane's advocacy coordinator Caroline James explains why we're taking our fight to the Information Regulator in order to finally answer the question: who really profited when the lights went out in South Africa? On 26 March 2024, load shedding came to an abrupt halt, which was great news for the country and terrible news for PetroSA. 'Eskom was a big blow for PetroSA,' Vusi Xaba, then head of trading, conceded when we spoke to him recently. Anticipating another bad winter, PetroSA had scheduled 200 million litres of diesel to arrive in April 2024. However, between May (when the Jag Pusha arrived) and July (when it discharged), Eskom's two open-cycle gas turbines had produced 260 GWh of electricity, down from 1 165 GWh a year earlier. With the tide going out, PetroSA was left scrambling. The Nako deal – concluded under PetroSA's veil of secrecy with no contract and no guarantees – had resulted in a R19-million loss to PetroSA according to the internal memo, while Nako had walked away with a R96 million discount. What our investigation suggests, however, is that the bigger prize for Nako was leverage. For months, PetroSA had been sitting on a cargo of problematic fuel provided by Nako that PetroSA couldn't sell. Nako wanted R648 million. And now it had a way to get it. That's in part 2 of our Dirty Fuels investigation.
