Major changes are on the cards at the Central Energy Fund (CEF) and the South African Nuclear Energy Corporation (Necsa). In both cases, the organisational overhauls are being driven by the need to address deep financial and operational distress and serious governance problems.

As has been widely reported, Necsa has become a serial loss maker and several governance and leadership problems have come to the fore in recent years. The State-owned company is poised to report another loss of over R330-million this financial year, a result dragged down by the Covid-19 pandemic.

The CEF, meanwhile, houses the deeply troubled PetroSA business, which has been barely operational following the spectacular failure of a drilling project to secure additional gas for its gas-to-liquids refinery in Mossel Bay. Despite this, and losses of some R20-billion since 2014, PetroSA’s headcount remains at the same level as what it was when the refinery was producing at a daily rate of 18 000 bbl – it’s currently producing at only a third of that rate.

The CEF also houses the Strategic Fuel Fund (SFF), which remains profitable, but which also illegally sold 10.3-million barrels of South Africa’s strategic fuel reserves in 2015 at a price well below the prevailing oil price.

The current idea is to merge PetroSA, the SFF and iGas into a so-called “integrated national petroleum company” and for this ‘Newco’ to be established within the coming six months. A consortium of external advisers has been selected to help with the implementation of the restructuring, for which a R65-million budget has been allocated.

At Necsa, meanwhile, the new board appointed in February has drafted a corporate and recovery plan and will formally initiate a year-long rationalisation of the enterprise in September. Already, the separate Necsa, Pelchem and NTP boards have been collapsed into a single Necsa board and it is envisaged that rationalisation will result in the creation of a single operating company, with streamlined governance, management and operating structures. Terms of reference for the appointment of an external independent service provider to manage the restructuring process have been approved and the appointment process is currently under way.

In both cases, restructuring is necessary and urgent. As with so many other State-owned companies, these two have lost their way.

Nevertheless, it is vital that the new-look entities are not only less corruption- and loss-prone, but also fit for the future.

Questions have to be asked, therefore, about whether setting up a ‘national petroleum company’ at a time when the petroleum majors are seeking to transition away from petroleum is sensible. Likewise, while the role of Necsa in manufacturing radioisotopes must surely be safeguarded, overemphasising the role of Necsa in South Africa’s energy system would send the wrong signal.

The end-state of both the CEF and Necsa is not yet clear and will, no doubt, be refined in the coming months. There are early indications, though, that some strategic errors are being made.