By Wendell Roelf
CAPE TOWN, Nov 20 (Reuters) – A South African High Court ruled on Friday that the 2015 sale of 10 million barrels of oil from the nation’s strategic reserves was invalid, after the government challenged the legality of the transaction that has been subject to allegations of irregularities.
The state-controlled Central Energy Fund (CEF), which runs the strategic reserve, welcomed the ruling after it raised the case, saying the former chief executive of CEF unit the Strategic Fuel Fund (SFF), Sibusiso Gamede, unlawfully concluded a series of deals.
Gamede could not immediately reached for comment on Friday and has not publicly commented on the matter previously.
The crude, consisting of 5 million barrels of Iraqi Basrah Light and another 5 million barrels of Nigerian Bonny Light, was sold in late 2015 and early 2016 for $281 million, or around $28 a barrel, a price analysts say was below the market value at the time.
“Even if SFF did not have to follow a process which was fair, equitable, transparent and competitive, the disposal awards were irrational,” the judgement said.
“We are vindicated by this high court ruling,” said Godfrey Moagi, chief executive officer of the SFF.
“If these unlawful transactions were left unchallenged, the country would have suffered huge financial losses given the repurchase price of the oil reserves at the prevailing market rates,” he said in a statement.
Multiple oil traders – including Vitol, Glencore and Taleveras Petroleum Trading – purchased the oil, which the CEF confirmed on Friday had never left South Africa due to internal government investigations and court challenges dating back to March 2018.
Moagi said all the traders have agreed that the sales were invalid and as part of the settlement, the SFF would refund all monies paid to it with interest. He did not say what the final amount would be.
However, the CEF and SFF said they were taking legal advice after the court ruled some traders, including Glencore, were entitled to what the CEF termed a “hedge loss award” worth hundreds of millions of dollars.
The court said that CEF and SFF should pay Glencore just over $106 million plus an extra interest payment, an amount the applicants and Glencore agreed is “just and equitable relief”.
Glencore declined to comment when contacted by Reuters.
Besides relief to other traders, such as Contango Trading SA, the court ordered that the applicants pay Vitol just over $86 million as restitution for the purchase price and storage fees, plus tens of millions more in interest and out of pocket expenses. (Reporting by Wendell Roelf; Editing by Edmund Blair, Kirsten Donovan)