PIC, IDC stand to lose more than R1bn in Sunrise Energy

Published Dec 12, 2022


Both the Public Investment Corporation (PIC) and the Industrial Development Corporation (IDC) have invested in the Sunrise Energy LPG project, located in Saldanha Bay.

This project was executed on the back of receiving a concession from the Transnet National Ports Authority. The project’s aim was to build the infrastructure needed by liquefied petroleum gas importers to supply LPG to the market.

The shareholding of Sunrise Energy is made up as follows:

– 1. Ilitha Group Holdings Proprietary(Ilitha): 9%.

– 2. IDC: 31%.

– 3. Mining, Oil and Gas Services (MOGS): 60%. The Mogs shareholding is made up as follows:

a. Royal Bafokeng Holdings (RBH): 51%.

b. PIC: 49%.

On Tuesday, an application from Ilitha was heard in the Western Cape High Court, in which Ilitha applied to place the Sunrise Energy Group into business rescue. The details in the application documents show the Sunrise Energy business has been making a loss from the time of its commissioning, in 2017, to date.

An affidavit by Barthlo Harmse, a director at Ilitha, indicates that the position Sunrise finds itself in was a result of control that RBH has at board level.

He states: “The board of the first respondent is controlled by RBH through MOGS and, in particular, by the first respondent’s non-executive chairperson, Albertinah Kekana (Kekana), who is also an executive director of RBH.

“Kekana wields almost unfettered power over the affairs of the first respondent and has asserted the entitlement to take charge of the substantial decision making of the first respondent, despite and in disregard of the roles and functions of the board of directors of the first respondent.”

Harmse further provides information on what has contributed to the financial distress.

“One of the principal reasons for its (Ilitha’s) current and worsening distressed financial position is the onerous LPG handling and throughput take-or-pay agreement (the Vita Gas agreement) that MOG’s representatives caused the first respondent to have concluded with an LPG aggregator known as Vita Gas Proprietary Limited (Vita Gas). MOGS procured the Vita Gas agreement despite warning and vociferous protestation by me and the applicant.”

Further into the document, Harmse states: “In addition, the current management structure, led by Kekana, has allowed, through poor management and reckless borrowing, the first respondent to fall into a position where its liabilities well exceed its assets, as appears from the latest audited annual financial statements for the period ended December 2020.”

Harmse further confirmed: “The total capital cost of the terminal was approximately R1.1 billion, which was funded via the shareholder loans, with the balance being funded by way of senior debt (being the load funding by the IDC and PIC, that is loans other than those provided by the applicant and MOGS (the senior debt), with the IDC providing a senior debt facility of R500 million and the balance of senior debt of R15m provided by the PIC.

“Further funding of R480m in shareholder loans provided by the applicant and MOGS. It should be noted that PIC is a shareholder in MOGS.”

Previous research by IOL indicated that a facility of similar size to the Sunrise Energy facility (5 500 metric tons) should have cost around R400m to construct.

The total liabilities as at October 2022 are recorded as being R1 452 380 902, with the total senior debt for the IDC and PIC at R926 939 561.

It would seem that despite Sunrise Energy enjoying a monopoly, the business is unable to generate any returns, or service the excessive debt obligations that have resulted in this application.

Kekana is a qualified chartered account, who held the position of chief financial officer at the PIC prior to taking up the role as MOGS chairperson.

The project development phase of the project appears not to have included any individuals skilled in the development of LPG terminals and import storage facilities. This is evident from the excessive construction expenditure and the weather prone infrastructure, which results in periodic supply issues.

This development now places key port infrastructure at risk as it is currently the only infrastructure available for LPG imports into the Western Cape.

While Sunrise Energy claims charging a higher tariff will help with business liquidity, the reality appears to be that higher tariffs will be passed on to consumers, already burdened with high energy costs, and are the result of over-engineering and reckless borrowing. It is also premised on the fact that Sunrise will enjoy a “contrived monopoly” in Saldanha.

Further, there are reports the facility is over-engineered and not fit for purpose.

The PIC and IDC are organs of the state, and are able to fund projects as a result of investing cash received from pensions funds such as the Government Employees Pension Fund and the Unemployment Insurance Fund, among others. The current situation at Sunrise Energy now places the large investments these funds have made at risk.

While the key theme in the court document is the claim that the Vita Gas contract is the reason it is unable to service its debt, experts indicate that even if the Vita gas contract were cancelled, the introduction of new aggregators would not generate sufficient revenue to cover the large-scale debt.

Further, Sunrise Energy last week told the Competition Tribunal that the Strategic Fuel Fund’s (SFF) takeover of gas importer and distributor Avedia would result in Sunrise having to close its doors.

As we navigate a period of constrained electricity supply, with communities turning to alternative energy sources such as LPG for their heating and cooking, the current situation at Sunrise Energy means the Western Cape and surrounding areas may potentially run out of gas as a result of weak project development and reckless management.