ENERGY & METALLURGY
Regional Fuel Terminal
A pre-feasibility study on investment opportunities within the manufacturing and logistics cluster of the Musina site has been conducted. This study identified fuel export into the regional markets as one of the biggest cross-border multi-billion commercial activities. Fuel products are being moved through tanker trucks from the Kwa-Zulu Natal and Gauteng provinces into the region, via the Beitbridge Border Post. The tanker trucks contribute to the high traffic volumes and damage on the national roads. Similarly, the tanker trucks pose a high security risk due to the flammable nature of the fuel products.
MMSEZ seeks to establish a regional fuel terminal for the bulk storage of oil. petroleum, petrochemical and gas products. These products would be distributed to local and international (SADC) markets for consumption. The envisaged operations at the two MMSEZ sites will require a significant supply of fuel to ensure that production and logistics support are not interrupted. The uninterrupted fuel supply is necessary for both the operations of the MMSEZ and for a regional distribution. This is a greenfield project, and as such facility is currently not in place.
Opportunities
In order to support domestic as well as well as regional demand, a proposed fuel yard has been designed to accommodate 4 of 36.8m Ø x 21,3m (h) storage tanks and 2 of 26.2m x 21.3m (h) storage tanks. The tanks will be in a single bund to contain spills and the fuel will be pumped from the tanks to the road load gantry into the correct tanker. Additive tanks are located close to the loading gantry for the relevant stakeholder’s mixture for distribution. Allowance has been made for petrol (no additives), diesel, paraffin and LPG. The fuel for local distribution will be decanted from the train to the relevant storage tanks via a pipeline from the rail siding. The proposed design includes a bonded rail yard that will store laden fuel wagons that are bound for cross border transfer. This will be man- aged from the customs offices at the bonded yard, with applicable incentives that falls under customs and excise duties.
South Africa has significant fuel exports to Southern Africa (see figure below). In total, over $750m worth of fuel was exported to Southern Africa in 2020. The most significant customer is Botswana who imports approximately $450m per year in fuel. Of note is the fact that Zimbabwe imports all its fuel via road, rail and pipeline. Petroleum fuel constitutes $61.43 million of the fuel exports to Zimbabwe from South Africa, with $26 million constituting petroleum gases and other gaseous hydrocarbons. There is currently negligible amounts of hydrogen and other rare gases exported. There may be a potential for a hydrogen market.
In relation to the fuel study, the identification of the hydrogen hub in Mogalakwena in Limpopo Province, is of particular significance with 90% of its nearly 40kt of H2 demand driven by possible demand from mining trucks across the region’s mines. The flagship Limpopo Science and Technology will also provide demand for fuel cells to power its building stock.
The co-location of demand and supply gives synergies opportunities within the hub that will help initiate and scale up pilot projects. It is recommended that the Hydrogen Valley either consolidate domestic demand and create economies of scale before embarking on ambitious export projects or take an opportunistic stance such as leveraging international funds to develop export infrastructure.
The hydrogen hub will need to make provision for infrastructure requirements for electricity supply, water supply, pipeline infrastructure and storage. The provision of a hydrogen valley in the region is a very positive development and motivation to develop a fuel terminal and one that can house hydrogen.
Currently the South African gas market is contributing only 2.6 of the total energy mix. South Africa and neighbouring countries like Mozambique and Botswana have gas potential and the first step under the Integrated Resource Plan 2019, is to increase the gas contribution to the national energy mix from 2.6 to 15.7% by 2030
In terms of Transnet’s long-term planning framework, gas will form a core part of the Transnet business going forward. For the next 10 to 15 years, liquid fuels will be the focus followed by more uptake of gas. There are no planned pipelines near the MMSEZ (in the next 20 years), however there is a possibility of using Transnet Freight Rail services to transport the fuel to the region. The impact of the increased demand for gas in the future on the viability of a fuel terminal in the MMSEZ is uncertain. It is therefore recommended to start with the fuel terminal accommodating exclusively jet, petroleum, and diesel with the possibility to expand to store gas and/or hydrogen depending on market demand as well as the future state of infrastructure that could transport gas and hydrogen.
A financial model for MMSEZ has been developed and it plays an integral part in the financial planning, analysis and in assessing the commercial viability of this project. A consolidated effort aimed at ensuring parallel growth of the MMSEZ fuel terminal’s customer base and the sales volume.
The financial forecast indicates that MMSEZ will report an operating profit from the first year of operation going through to the last financial year of the project, in 2042/43 FY. By end of the first year of operation, revenue, EBITDA, and Net Profit are projected to report R178m. R150m and R74m, respectively. Revenue levels has been cautiously set to maintain an annual growth rate of 1% over the lifetime of the project. Over the same period, operating expenses are projected to grow at an annual rate 5.5%, which is 4.5% higher than the revenue growth forecast.
The South African and global fuel industry is highly regulated, and prices are determined by external factors hence the application of negligeable growth rate in the financial model. As depicted in the graph below, revenue will only climb by 8% between Year 1 and Year 10 reporting an annual revenue of R192m whilst the net profit clings on R88m over the same period. The profit figure of R88m represent a net profit margin of 43%, which certainly indicate that MMSEZ has a low-cost structure, and this should allow for the company to operate profitably.
The following incentives are applicable to conduct feasibility studies for the development of a regional fuel terminal as well as to facilitate in the construction of critical bulk infrastructure and future capex upgrade of the regional fuel terminal. In addition, tax incentives such accelerated depreciation of assets as well as customs and excise duties, etc. as part of the MMSEZ will be applicable.
CRITICAL INFRASTRUCTURE PROGRAMME (CIP)
The CIP financial incentive aims to leverage investment by supporting the infrastructure development of critical bulk infrastructure that is necessary for the optimal efficiency of the regional fuel terminal. Qualifying bulk infrastructure includes top structures, roads, fencing. telecommunication lines/optic fiber, bridges and water infrastructures such as shared reservoirs, dams and dam walls. The CIP incentive offering covers a cost-sharing financial grant of 10% to 30% of total qualifying infrastructural development costs listed above, capped at R50 000 000 based on an economic benefit criteria which includes the creation of jobs. In the case where the regional fuel terminal will be 100% owned by a State-owned industrial park such as MMSEZ, the incentive covers 100% of the total qualifying infrastructure developments listed above capped at R50 000 000 based on an economic benefit criteria which includes the creation of jobs
STRATEGIC INFRASTRUCTURE FEASIBILITY STUDIES
Feasibility studies conducted for the development of the regional fuel terminal qualify for a dtic feasibility study financial grant incentive equivalent to 80:20 (80% the dtic and 20% applicant) cost sharing towards strategic infrastructure feasibility studies inside SEZs capped at 5% of project value to a maximum of R50 000 000
- Strategic location for fuel export into the regional markets
- One of the biggest cross-border multi-billion commercial activities
- Proximity of the proposed hydrogen hub in Mogalakwena
- Co-location of demand and supply for hydrogen
- Increasing demand in the region (over $750m worth of fuel was exported to Southern Africa in 2020 and this will grow in the future)
South Africa has world class universities and technical training institutions within the vicinity of MMSEZ producing well trained and talented graduates. There is a young trainable labour pool in the provincial and local municipality areas. There is an established construction sector in Limpopo that could support the development of infrastructure, buildings and fuel storage facilities. Investment Potential BP Southern Africa. Chevron South Africa. Engen Petroleum, PetroSA, Sasol Oil, Shell South Africa and Total South Africa are the main players in the South African oil industry. They operate storage terminals and distribution facilities throughout the country. Until recently, there were very few non-refining wholesalers supplying petrol and diesel in South Africa. Today, there are a number that are registered with the Department of Energy (DOE).
There are approximately 4 600 service le Feasibility study. ed with a detail chnical studies along enting of storage. stations (forecourts – company owned and dealer owned) in South Africa. South Africa has significant fuel exports to Southern Africa. In total, over $750m worth of fuel was exported to Southern Africa in 2020. The most significant customer is Botswana who imports approximately $450m per year in fuel. Of note is the fact that Zimbabwe imports all its fuel via road, rail and pipeline. Petroleum fuel constitutes $61.43 million of the fuel exports to Zimbabwe from South Africa, with $26 million constituting petroleum gases and other gaseous hydrocarbons. There is currently negligible amounts of hydrogen and other rare gases exported. There may be a potential for a hydrogen market. Therefore, the potential market for fuel storage not only sits in South Africa but the broader SADC region.
The MMSEZ would be responsible for:
• The Pre-Feasibility be followed up by a Bankable Feasibility study. • The rail alignment needs to be further developed with a detail survey of the route options including the geotechnical studies along these corridors. Commence selling and testing the market for renting of storage. Memorandum of understanding (MOU) with Transnet to provide rail access via the existing main line. Complete the alignment of the internal railway line to the main line and register the servitude over the associated land. Bulk services servitudes to be confirmed. High level piping and instrumentation diagram (P&ID) for the development of the site. Rezoning of the land use.
- The Pre-Feasibility be followed up by a Bankable Feasibility study
- The rail alignment needs to be further developed with a detail survey of the route options including the geotechnical studies along these corridors.
- Commence selling and testing the market for renting of storage.
- Memorandum of understanding (MOU) with Transnet to provide rail access via the existing main line
- Complete the alignment of the internal railway line to the main line and register the servitude over the associated land.
- Bulk services servitudes to be confirmed.
- Bulk services servitudes to be confirmed.
- High level piping and instrumentation diagram (P&ID) for the development of the site.
- Rezoning of the land use.