PHUZUMOYA STRATEGIC OIL RESERVE FACILITY PROJECT: COSTS HIKE FROM E2.1BN TO E7BN

MBABANE – Nine years ago, the cost for the construction of the Strategic Oil Reserve Facility at Phuzumoya stood at E900 million.

In the financial year 2022/2023 and 2023/2024, the custodian of the facility, Eswatini National Petroleum Company (ENPC) had fixed the costs at E2.1 billion. From January 2024 to the present, the ENPC had not changed the budget for the facility until companies from Taiwan got involved in the project. This newspaper can reveal that CECI, a Taiwanese engineering company, has tabled the proposed costs of the construction of the Strategic Oil Reserve Facility, which the entity fixed at US$380 million, the equivalent of E7 billion in the current foreign exchange rate.  

That could be the most expensive project in the country, as the International Convention Centre and Five-Star Hotel (ICC&FISH) project commenced with a budget of E370 million. The Sikhuphe project has cost the taxpayer, so far, around E4.5 billion, excluding other related costs incurred when government, among other things, built link roads and payment of licensing fees for the airport. On the other hand, by March 31, 2023, the actual expenditure incurred by government in the construction of the ICC&FISH stood at E5.48 billion (E5 478 304 000).  

Strategic

The estimated total cost of the project, which began about a decade ago, is around E8 billion now. There are fears that if the Phuzumoya Strategic Oil Reserve Facility costs E7 billion at its inception, it means the future project costs may escalate to E15 billion. On December 26, 2023, it was reported that the Botswana Oil Limited (BOL), a national oil company, began the construction of a 60 million-litre storage facility at a total cost of E1.3 billion, the equivalent of USD$74.5 million.

On March 8, 2024, the Uganda National Oil Company (UNOC) announced that the first phase of the new fuel storage facility would cost over E2.5 billion. The new reserve facility in Buloba is designed to store up to 320 million litres of fuel. It is also building another 60 million-litre fuel storage facility in Kampala for E918 million.

The Burgan Cape Terminals (Pty) Ltd, South Africa, built the 118 million-litre fuel storage capacity in Cape Town at a cost of E1.2 billion.
It was built because of the shortage of oil refinery facilities in Cape Town, long haul distances and congested loading at existing facilities. It was launched on August 30, 2017. The facility was built by VTTI, which had shown interest in constructing the Phuzumoya fuel storage facility at a cost of E900 million.

Meanwhile, it has been established that the company to carry out the construction part of the Phuzumoya project is Overseas Investment & Development Corporation (OIDC), which signed a memorandum of understanding (MoU) with ENPC last year.

Resistance

Impeccable sources said the E7 billion budget proposal has received resistance from almost all government sectors, from Cabinet to the technocrat level, with some of them calling upon Parliament to stop the highly inflated project cost. Others are of the opinion that the proposed figure, E7 billion as it were, should rather be used to finance the upgrading of the 500km road network, a project that government will be undertaking in this current financial year.

According to the proposed costs submitted to government by the engineering company, the taxpayer will pay E1.4 billion (E1 400 240 000) for the management/procurement services and engineering. For field construction, the costs have been fixed at E1.932 billion (E1 932 000 000), while equipment and materials supply will require government to pay E2.162 billion.

Documents seen by this publication reveal a sum of E555 312 000, which the company requests government to set aside for construction management.
It has been established that the construction levy will cost E30 448 320. In fact, the total budget is US$330 434 800, the equivalent of E6 080 000 320. However, the total budget, inclusive of 15 per dent Value Added Tax (VAT) amounts to US$380 000 000, the equivalent of E7 billion.  There are optional budgets which CECI proposed, including additive tanks and pumps that can cost E92 million and rail siding at a cost of E58.88 million.

The inflated costs of the project, as proposed by the Taiwanese company, has influenced Lobamba Lomdzala MP Marwick Khumalo to file a question for the attention of the Minister of Natural Resources and Energy, Prince Lonkhokhela, who met CECI in his ministry’s boardroom last Monday.
According to the Notice Paper of the Eswatini House of Assembly, MP Khumalo will call upon the minister to first disclose the reasons for the expulsion of the Board of the ENPC. The Board was chaired by a well known local property mogul and engineer, Muziwandile Dlamini, popularly known as MA.       

Hijacked

In his question, MP Khumalo would want the prince to confirm if he was not dancing to the tune of a foreign country in Asia that has allegedly hijacked the project for its own economic benefit. According to the Notice Paper, the MP asked: “Could the minister of Natural Resources and Energy inform this honourable House about the reasons behind the expulsion of the Board of Eswatini National Petroleum Company (ENPC), two months before the end of their term, and further confirm if he is not dancing to the tune of a foreign country in Asia that has hijacked the project for its own economic benefit, in view of the fact that its proposal for the project is around E8 billion, whereas the ENPC had concluded that the project will cost in the region of E2.1 billion?”

He would also call upon the minister to explain to the House why he has chosen to allegedly violate the procurement laws of this country, including the Public Finance Management Act, as amended, by not putting the Fuel Strategic Oil Reserve project to tender. Investigations carried out by the news desk has also revealed that ENPC has obtained a loan of E1 billion in local currency to facilitate some phases of the project, with external funders also showing an interest in aiding the public enterprise.

It has been learnt that the ENPC and over 95 per cent of members of government, mainly those who sit in decision-making meetings, were convinced that they would build storages for the 80 million-litre fuel project at a cost of E2.1 billion. The custodian of Eswatini money, Neal Rijkenberg, the Minister of Finance, referred enquiries to the Ministry of Natural Resources and Energy. Nhlanhla Dlamini, the Chief Executive Officer of ENPC, also referred enquiries to the Ministry of Natural Resources and Energy.

Advised

After being advised by his principals, Sikelela Dlamini, the Communications Officer in the Ministry of Natural Resources and Energy, advised this newspaper to contact CECI as the said company ‘is better positioned to unpack the proposed budget’. Khoza also said this newspaper should advisably touch base with the ENPC as they were also better placed to respond to the commencement date of the project.  Pertaining to this project, ENPC said the ministry was better positioned to offer advice.  Under normal circumstances or as government procedure dictates, it is the project owner who address such matters with the media or the public, especially where budget matters are concerned.

In this case, the project owner is government through the ENPC. However, sources in government and ENPC said the issue was at ministerial level; hence, CECI representatives went to the Ministry of Natural Resources and Energy to brief the minister and senior officials on the progress of the project. Even then, CECI’s contacts were not shared with this newspaper and it was not possible to get hold of them last night. It must be emphasised though that this matter is now before Parliament, the legislative branch of government.

The Times SUNDAY reported in its previous edition that projects for CECI Engineers Consultants in the country included the King Mswati III (KMIII) International Airport, where it provided design and construction supervision services. The scope of work included inter-related civil and landscaping engineering works such as roads, drainage, parking, landscape, etc. It was understood that CECI was instrumental in the construction of the KMIII International Airport. 

Development

The KMIII International Airport, a three-storey structure, replaced the former Matsapha International Airport. His Majesty King Mswati III officially opened the airport in 2014. KMIII International Airport has the capacity of handling 300 000 passengers per year. CECI  also offered engineering expertise during the construction of the Royal Science and Technology Park (RSTP). It commenced the feasibility study and master planning services for the park development in 2008.

Research by the Times SUNDAY revealed that the company then carried out design services and supervised construction. The RSTP is divided into two divisions. These are the IT Park and the Biotechnology Park.  It manages about 317.17 hectares of land, for which 152 hectares is dedicated to industrial development land and 165.17 hectares shared between research and laboratories, administration centres and residential buildings.

Then in September 2023, Taiwan agreed to help Eswatini, its only African ally, by building the new oil tank in the country, according to a memorandum of understanding (MoU) inked between the two sides. Overseas Investment and Development Corporation (OIDC), a Taiwanese company focused on carrying out government overseas aid projects, was contracted to build the strategic oil facility.

Construct

Economics Minister Wang Mei-hua said Eswatini had hoped to construct an oil tank that could store at least 30 days of oil reserves. Outgoing President Tsai Ing-wen, who was on a four-day visit to Eswatini, lauded the agreement as a milestone for relations between the two countries. The outgoing president remarked that both countries had been in talks about the construction project for some time, adding that the planned facility would help to ensure the security of the country’s energy supply.

It is understood that since Eswatini imports most of its oil products from South Africa, it is, therefore, susceptible to volatile international crude oil prices, according to the country’s government website. As a result, government mandated its national oil company, ENPC to build and operate the oil reserve facilities as part of the effort to address the issue and better ensure energy security. The MoU was signed by OIDC General Manager Jeff Chung and ENPC CEO Nhlanhla Dlamini. His Majesty King Mswati III and President Tsai witnessed the signing of the MoU.

OIDC was established in 1995 by several State-run and private companies in Taiwan to undertake aid and infrastructure projects launched by the Government of the Republic of China (Taiwan) in its allied nations. It was not immediately clear if it had undertaken a fuel storage facility. It is said that the oil reserve facility will enable security of fuel supply and significantly contribute towards the socio-economic development of the country through infrastructural development and job creation.

On its website, the ENPC states that it is the country’s national oil company established by the Petroleum Act No.18 of 2020 and has been mandated by government to build and operate a Strategic Oil Reserve Facility at Phuzumoya.  The company says the facility will enable security of fuel supply and significantly contribute towards the socio-economic development of the country through infrastructural development and job creation.
In November 2023, ENPC invited companies for pre-qualification of contractors for the proposed construction of the Strategic Fuel Reserve Facility at Phuzumoya.

Disruptions

This was referred to as Tender No.10 of 2023/2024. According to the project background as relayed by the ENPC, the public entity is planning to construct a Strategic Oil Reserve Facility at Phuzumoya that will be central to the country’s goal of having security in energy supply and mitigate fuel supply disruptions. Currently, Eswatini sources petroleum products from the international markets through the Republic of South Africa and Mozambique.

Most of the products are distributed from the commercial storage facilities in Matsapha. The company said the stock was, however, generally limited to approximately two to three days storage, despite the Petroleum Act of 2020 mandating the Oil Companies to hold 14-days’ commercial stock.
As a result, the Government of Eswatini, through ENPC, intends to develop a Strategic Oil Storage Facility. The facility will hold up to 80 million litres of fuel stock, which is equivalent to 60 days’ consumption for the country. It will also offer blending for all its 95-ULP.

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