Khwezi Tiya – Head of Oil and Gas, Standard Bank South Africa
Khwezi Tiya, head of oil and gas for Standard Bank South Africa, highlights the key investment opportunities as companies look to diversify their energy portfolio and the potential of E&P to reshape the nation’s industry and overall economy. Furthermore, he defines the importance of imports for the future of South African energy and the level of expertise that separates Standard Bank from the competition.
Could you introduce yourself to our international audience, and what falls under your scope of operations?
“On another level, Standard Bank differentiates itself by investing in people that have a deep understanding of the entire value chain, while being pro-active in building partnerships with clients and moving with them along their journey.”
I head up the oil and gas sector for Standard Bank in South Africa, and this entails a number of key elements. Firstly, it involves how we manage the sector and manage our clients, ensuring we are able to cover their interests in terms of advisory, risk mitigation and management, any debts they need to issue, capital raising and cash management as well as any other specific aspects that may be faced in the bank sector within South Africa.
Secondly, we partner with our clients as the sector develops, especially in regard to dialogue on policy and regulations issues, as we are able to give different insights and perspectives and draw from our experience.
Thirdly, in South Africa we are contributing to the social economic transformation of the nation by partnering with emerging black owned companies, in concepts such as capital raising and knowledge transfer.
Over recent years, there have been many fluctuations in the market and companies have chosen to diversify their scope to split the risk. How was Standard Bank taken on this approach?
We do this in two ways. Firstly, we continually stay on top of what is going on at the global level and tap into this knowledge to predict the market trends and shifts. We then pass this information onto our clients. Secondly, we are facilitators for projects, so we support our clients in their operations.
A trend we have witnessed on a worldwide level, is that many players are paying attention to a broader spectrum of the oil and gas sector, as the energy dynamic is shifting. Coal has been the key element of South African energy for a long time, though we see that the market dynamics are slowly changing, and gas is becoming more relevant, especially LPG.
This movement towards gas investment is stimulated by technological advancements, such as better transportation methods. On top of that, we see that even though South Africa does not have legislation for cleaner fuels, there has been a lot of talk about refinery capacity and efficiency as well as cleaner fuels, and we want to be part of these possible future refinery upgrades.
Within midstream, there are opportunities due to the imports of products; therefore, infrastructure connected to logistics and storage is playing an increasingly larger role, such as we have witnessed in the Western Cape and Saldanha Bay.
All this movement is changing the landscape of international players here. Standard Bank will be always there to help them successfully enter and function in South Africa. All this, coupled with the moves for gas to power, indicates many doors are opening for investment now and in the near and long-term future.
The E&P potential of South Africa is a heavily discussed theme in the industry. What is preventing it from reaching its full potential?
The biggest thing that needs to happen is the finalization of the government’s act focused on upstream, the Mineral & Petroleum Resources Development Act (MPRDA), as currently it is causing uncertainty in the market. Nevertheless, finalizing the policy is more of a process issue, rather than a legislative one, and it has the potential to initiate a boom of E&P activity. This is the final piece of the puzzle as South Africa has all the other ingredients in place, such as an established legal process to settle disputes, etc. and this act is what is preventing the next steps.
From a finance point of view this also opens up other opportunities, and the next phase is how South African institutions, both private and public, can prepare themselves for the nation’s oil and gas shift and leverage their expertise. Additionally, we will see the benefit have a domino effect on the entire value chain, and we see potential in the growth of small to medium sized companies that are part of this E&P revolution.
What will be the impact, not just on the oil and gas sector, but the entire South African economy?
For a company, E&P is not a small decision, and can cost hundreds of millions of dollars, so firstly, companies must have some certainty before making this decision. From a South African point of view if this does happen, it creates a positive story, and is something the whole economy can feed off. If major investments, and discoveries, are made in oil and gas over the next ten years, the South African position shifts completely as the economy will be impacted by a completely new sector, and this will add momentum to other industries.
At times, Africa can have a sense of risk in the atmosphere, with government instability and corruption being concepts that have been part of the continent’s history. From your perspective, how do you deal with risk in your investments?
Oil and gas companies have experience working on the continent and we also have been involved in the financing of such projects. For example, we are the only commercial bank as part of ENI’s offshore Mozambique project. Players know how to make investments in ways that fits their operational philosophy.
The key, as a bank that is on the ground in these markets, is to partner with our clients and help them better understand the changing ecosystem of Africa. Standard Bank works in an ethical manner and integrity is central to our philosophy, and we cannot be part of corruption. We use ourselves as a prime example to show that, although corruption exists, this does not mean you must be part of it. We have successfully executed transactions, maintained our principles and continue to be trusted for these reasons.
On another note, having less information about any part of the world, creates seeds of doubt, and really, Africa is relatively unexplored and unknown to most people outside the continent. We appreciate this and provide the information that will change this mindset.
Does South Africa have the capabilities to support an import-based energy system?
South Africa is a net energy importer, and because of the growth of population and overall energy needs, imports are going to play an increasingly larger role. Many industry experts have been talking about the potential of upgrading refineries or constructing completely new sites, though this is not for us to decide. We believe there will be a mix of local products and imports, and we see storage as a large investment space in the future, and we are helping our clients to be a part of this.
Africa has been talked about as the final frontier for a lengthy period. What has prevented the continent from reaching its full potential in the oil and gas space?
I believe it has in many areas. If you look at the Gulf of Guinea for example, companies have been exploring the fields there for more than 30 years. To say, the final frontier is southern and eastern Africa makes sense, as naturally companies explore for the easier resource first, and the oil and gas resources in south and east Africa are generally deep and ultradeep offshore, with quite rough seas.
Another important factor determining success is information. For instance, many majors are looking towards to the south-east coast after the discovery of oil in the Falkland Islands. This is because information indicates that 200 million years ago, before the breakup of the Gondwana supercontinent, the Falklands were off the southern cape. Another case is Mozambique, where recent discoveries of gas have majors clambering to be part of the country’s ecosystem. This is why the next three years for South Africa is crucial for exploration, as all the data indicates potential for large discoveries, and with all this potential, Standard Bank has the ambition of being part of Africa’s development and growth.
A key element to investments is sustainability. How do you take this mindset to Standard Bank’s investments?
We prefer the term financing than investment. First and foremost, when providing finance, we follow the global principle that the investment will have a net benefit, and this is critical within the resource industry.
Secondly, like any business, it is critical you understand the environment you operate in, and once you have your philosophy and direction, you can then plan for sustainability from a financial and environmental perspective. Obviously, you apply the numbers also, but this overall understanding, across all sectors, is the key element for the long-term success of a project.
How does Standard Bank differentiate itself from the competition?
If you look at projects like offshore exploration, who does it alone? Nobody, as the scale is far too large. Therefore, in the oil and gas game it is not about the competition, but who are the best other investors / financiers to partner with.
On another level, Standard Bank differentiates itself by investing in people that have a deep understanding of the entire value chain, while being pro-active in building partnerships with clients and moving with them along their journey. We are involved in understanding public policy and how it will trigger investments, so we can determine the correct response for ourselves and our partners.
Equally, many of our companies are international, so we talk with them to deliver local knowledge on how to deal with the African environment, and we are constantly interreacting and learning at international conferences to have a global viewpoint and give others the African perspective.
What are your objectives over the next five years?
Most probably, you will find us discussing our financing into the first upstream projects in South Africa. Furthermore, we project there to be around four billion ZAR (0.32 billion USD) invested into storage within the next three to four years, so equally we will be in this space.
Additionally, we will be partnering with infrastructure projects associated with oil and gas, while collaborating with partners on how to optimize refinery assets and helping possible newcomers enter the South African refinery landscape. Also, we will participate in preparing companies for gas to power projects and establishing mid-size companies in this field.
We believe South Africa is in a very exciting place, not just from a political standpoint, but we see great need for investments. The country is still living off investments made 50 years ago, and the time is now to renew this, especially with the increased urbanization and population and the shift in greater energy requirements. With all these changes, Standard Bank will be the leading oil and bank that connects Africa to the world.