Earlier this week, newly appointed Energy Minister Mmamoloko Kubay admitted South Africa's oil reserves were sold off at a discounted price last year -– a transaction that went ahead without Treasury's approval.
The blame is being directed at Kubay's predecessor, Tina Joemat-Pettersson, who last year, when the scandal was exposed, claimed the department was rotating old oil rather than selling it.
For the first time, government has admitted that the deal was actually a sale and not rotation of stock, and Kubay has said those responsible for the "illegal" sale of South Africa's strategic fuel stockpile will be held to account.
According to economist Mike Schussler, this is how the sale of 10.3 million barrels of oil worth billions of rands will affect us.
- Oil is produced mainly in regions that are extremely volatile. Each country has a strategic oil reserve that is banked for crisis situations -- the international standard of which is 90 days. That means, if tragedy struck, a country could maintain its industry for the same period. The sale of South Africa's oil reserve may not affect us now, but if there was a crisis, we would be caught with our pants down.
- Fuel prices accommodate the purchase of oil for our reserves, meaning motorists historically would have paid higher prices for fuel to allow for the country's stockpile to grow. Although the effects have not been felt on our wallets as yet, we will have to build up those oil reserves again. Taxpayers will foot that bill.
- To replenish the reserves, government may decide to redirect finances from other key departments.
- The oil was sold at a discounted rate and at a time when oil prices were low. We will essentially have to buy that oil back over time at higher prices -– resulting in losses of billions of rands.
- A country's oil reserves also serve as a sense of security for international investors as well as local conglomerates, especially in the transport industry.