Integrated - National Government...CEF GROUP PROFILE 16 The Historical Evolution of CEF 16...

Annual Report 2014/15Annual Report 2014/15Annual Report 2014/15Integrated

CEF (SOC) Ltd is involved in the search for appropriate energy solutions to meet the energy needs of South Africa, the Southern African Development Community and the sub-Saharan African region, including oil, gas, electrical power, solar energy, low-smoke fuels, biomass, wind and renewable energy sources.

CEF also manages the operation and development of the oil and gas assets and operations of the South African government.

CEF SOC Ltd | Integrated Annual Report 2014/15 01

GENERAL INFORMATION

Nature of business and principal activities. The financing and promotion of the acquisition of, research into and exploitation of energy related products and technology.

Directors: Dr S Mthembi-Mahanyele Mr R Jawoodeen Mr R Boqo Mr G Bezuidenhout Mr T Maqubela Mr T Sethosa (Alternate)

Registered Office: 152 Ann Crescent Block C, Upper Grayston Office Park Strathavon Sandton 2199

Business Address: 152 Ann Crescent Block C, Upper Grayston Office Park Strathavon Sandton 2199

Postal Address: PO Box 786141 Sandton 2146

Bankers: ABSA Bank Limited Sandton Branch

Auditors: Auditor General of South Africa

Company Secretary: Mr Abdul Haffejee

Company Registration Number: 1976/001441/30

Country of Incorporation and Domicile – South Africa

CEF SOC Ltd | Integrated Annual Report 2014/1502

GENERALGENERAL INFORMATION

CONTENTS

YEAR IN REVIEW 08

INTRODUCTION 12 About this Report 12Integrated Reporting Framework 12Report Scope and Boundaries 12Assurance 13Determining Materiality 13Application of Integrated Reporting 13Approval of the Report 13

CEF GROUP PROFILE 16The Historical Evolution of CEF 16Legislative and Planning Frameworks 18Composition of the CEF Group 19Group Products and Services 20Group Organisation Structure 21The CEF Group Business Model and Integrated Value Chain 22

THE EXECUTIVE MANAGEMENT REPORT 26Vision, Mission and Values of CEF Group 26The CEF Strategic Intent 27Strategic Risk Profile 29The Executive Report 31The Stakeholder Engagement Report 34

STRATEGIC REVIEW 40Group Chairperson’s Report 40Enabling Group Sustainability through Strategic Initiatives 44Group Strategic Challenges 46Key Group Projects Highlights 46

OPERATING PERFORMANCE 50Group CEO’s Report 50Performance against Objectives 54

FINANCIAL REVIEW 58Group CFO’s Report 58

OPERATIONS REVIEW 64PetroSA 64SFF 66AEMFC 68PASA 70iGAS 72Energy Projects Division 74

SUSTAINABILITY OF THE BUSINESS 78SHEQ 78Financial Sustainability 79Human Capital Management 79 - Group Remuneration 80Group Transformation 82

FINANCIAL STATEMENTS 92Directors’ Report 92


CONTENTSCONTENTSCONTENTS

KEY ABBREVIATIONS

AEMFC African Exploration Mining and Finance Corporation SOC Limited

BBBEE Broad Based Black Economic Empowerment

BBL Barrel (equal 159 litres)

BEE Black Economic Empowerment

CCE Cape Cleaner Energy Solutions SOC Limited

CCS Carbon Capture and Storage

CDC Coega Development Corporation

CDM Clean Development Mechanism

CEF CEF SOC Limited

CEF Act Central Energy Fund (Act no 38 of 1977) as amended

CEO Chief Executive Officer

CER Carbon Emission Reduction

CFL Compact Fluorescent Lighting

CIGS Copper Idium Gallium (di)Selenide

DEAT Department of Environmental Affairs and Tourism

DMR Department of Mineral Resources

DST Department of Science and Technology

DWP Darling Wind Power

DoE Department of Energy

EIA Environmental Impact Assessment

EPD Energy Projects Division

EUETS European Emission Trading Scheme

EXCO Executive Committee

GAAP Generally Accepted Accounting Practice

GEF Global Environment Facility

GTL Gas to Liquids

IDZ Industrial Development Zone

IFRS International Financial Reporting Standards

IEP Integrated Energy Plan

iGas The South African Gas Development Company SOC Limited

IP Illuminating Paraffin

IPE International Petroleum Exchange

IPP Independent Power Producers

IRP Integrated Resource Plan

JST Johanna Solar Technology

King III King III Report on Corporate Governance

LNG Liquid Natural Gas

LSF Low Smoke Fuels

LTFT Low Temperature Fischer Tropsch


KEY ABBREVIATIONSABBREVIATIONS

MOI Memorandum of Incorporation

MPRDA Mineral and Petroleum Resources Development Act, 2002 (Act 28 0f 2002)

MW Mega Watt

NERSA National Energy Regulator of South Africa

NMBM Nelson Mandela Bay Metro

NPA National Ports Authority

NYMEX New York Mercantile Exchange

OPC Oil Pollution Control South Africa NPC

PAMC Project Appraisal and Monitoring Committee

PAMDC Pan African Mineral Development Company Proprietary Limited

PASA South African Agency for Promotion of Petroleum Exploration and Exploitation SOC Limited

PAT Project Appraisal Team

PDD Project Design Document

PFMA Public Finance Management Act (Act No 1 of 1999) as amended

PPC Parliamentary Portfolio Committee

PPE Property, Plant and Equipment

PV Photovoltaic

PetroSA The Petroleum Oil and Gas Corporation of South Africa SOC Limited

REEEP Renewable Energy and Energy Efficiency Partnerships

RENAC Renewable Energy Academy

ROMPCO Republic of Mozambique Pipeline Company Proprietary Limited

SAMSA South African Maritime Safety Authority

SANEDI South African National Energy Development Institution

SAPIA South African Petroleum Industry Association

SARS South African Revenue Services

SASDA South African Supplier Development Agency NPC

SDA Swiss Development Agency

SFF Strategic Fuel Fund Association NPC

SLA Service Level Agreement

SWH Solar Water Heaters

SIMEX Singapore Water Heaters

SOS SOS Children Village

ToR Terms of Reference

TSFT Thin Film Solar Technology

TNPA Transnet National Ports Authority

TTT Technical Task Team

UNDP United Nations Development Programme

UOP Units of Production

UTT Upstream Training Trust

VAT Value Added Tax

VLCC Very Large Crude Carrier


SECTION

1


YEAR IN REVIEW

2014/15


YEAR IN REVIEWYEAR IN REVIEWYEAR IN REVIEWYEAR IN REVIEW

YEAR IN REVIEW

R18,5 billion7,3%

R4,4 billionR10 billion

Group Turnover

Cash generated from operations

Cash BalanceR4,4 billion

Cash generated from operations

Operating Margin

2014/15

HIGHLIGHTS LOW-LIGHTS

• CEF Gas strategy approved by the Board which will positively impact SA’s Energy Mix in future

• The Group operating costs maintained below CPI• Safety record maintained with no fatalities reported• Group HR policies harmonised to ensure group

standardisation and effective strategic alignment across the Group

• Gas Loop Line from Mozambique completed with gas flows commencing December 2014

• Increased dividends accrued from iGAS• Increased revenues for crude oil storage due to the

contago market • Project Genesis successfully implemented to

strengthen the centre for a more effective CEF Group oversight and alignment

• Difficult trading performance due to low global oil prices and tough economic environment

• The Group posted a net loss of R14 billion (R1.4 billion in 2013/14) for the financial year ended 31 March 2015. The net loss includes impairments at both PetroSA GTL facility and Ghana Investment of R14.4 billion (R3.4 billion in 2013/14). Excluding the impairment a net loss of R0.2 billion was recorded compared to net profit in the prior year of R1.9 billion

Financial Snapshot


YEAR YEAR IN REVIEWIN REVIEW


SECTION

2


INTRODUCTION


About this ReportThe CEF Group has pleasure in presenting its Integrated Report for the 2014/15 financial year. In the report the board and management endeavour to validate the Group’s resolve to stabilise and grow the business thus creating sustainable value for shareholders in the short-, medium- and long-term. The Integrated Annual Report aims to provide stakeholders with a concise, material, and transparent assessment of the Group’s performance, strategy, governance structures and business prospects. It addresses the opportunities and risks, as well as resources and relationships that materially impact the ability of the organisation to create value over time.

The report is the second prepared in this format and covers the integrated performance of the Group and its subsidiaries for the period 1 April 2014 to 31 March 2015. In addition, covers material events which occurred after this date up to Board approval on 28 July 2015. The group operates primarily in South Africa where the majority of turnover and profit is generated, with significant investments outside the country. Through strategic investments and partnerships we have operations located in Ghana and Mozambique.

Integrated Reporting FrameworkThis report is in line with the guidelines of the Integrated Reporting Framework issued by the Integrated Reporting Committee in December 2013 which provides guidelines for integrated reporting to be consistently applied globally. As a responsible implementation agent of the state, the CEF Group has adopted several of the principles contained in the past year. The Framework introduces the concept of reporting in terms of the six forms of capital of value creation which are catalogued as the financial, manufactured, intellectual, human, and social and relationship, and natural capitals. Reference and reporting on these throughout the report will be made in demonstrating the relevance to the achievement of the overall Group strategy. Management has also used the guidelines of the following documents as part of this report:

• King Code of Governance for South Africa; • Global Reporting Initiative Sustainability Reporting Guidelines;• The Companies Act No. 71 of 2008; • The Public Finance and Management Act No.1 of 1999; and • International Financial Reporting Standards (IFRS).

Report Scope and BoundariesThe CEF Group Integrated Report is aimed at shareholders and other strategic partners locally and abroad. This is in line the Framework recommendation of objectively engaging with providers of various providers of the six forms of capital although other stakeholder interface methods are used regularly to engage with stakeholders at different levels.

AssuranceThe Board is responsible for ensuring the integrity of this report and the content has been reviewed by the directors and management. However it has not been externally assured. It contains annual financial statements as well as performance information (financial and non-financial) both of which have been audited by the Auditor-General of South Africa as well as the Group’s Internal Audit Department.

The Board believes that it addresses all material issues and presents the Group’s integrated performance and its impacts fairly. The report is independently reviewed each year to ensure we continue to meet the reporting and disclosure needs of local and offshore strategic partners. The Board approved approved the report on 28 July 2015.

INTRODUCTION


INTRODUCTIONINTRODUCTIONINTRODUCTION

Determining MaterialityThis report provides a balanced and pragmatic assessment of the Group‘s strategy, performance and prospects in relation to material financial, economic, social, environmental and governance issues. Materiality has been applied in determining the content and disclosure in this report. Materiality is determined by the board based on matters that substantively affect the group’s ability to create value over time and are likely to have a material impact on the current and projected revenue and profitability of the Group.

The material focus areas were determined based on matters that are critical in relation to achieving the Group’s strategic objectives and the sustainability of its business model, namely:

• The CEF Group’s shareholder compact;• The Group Corporate Plan;• Matters covered in reports submitted to the Executive Committee and Board for discussion or approval;• Key risks identified in the Group’s risk management process;• Parliamentary questions received;• The content of engagements with Government and the Parliamentary and Select Committees;• Feedback obtained from CEF Group’s key stakeholders during the course of the year; and• Media coverage during the year.

Application of Integrated ReportingThe CEF Group directors and management substantiate the group has materially reported in accordance with the IIRC’s Integrated Reporting Framework in the 2014/15 Integrated Report.

Approval of the ReportThe CEF Board confirms the report fairly represents the integrated performance of the CEF Group. The Board Audit and Risk Committee, which has oversight responsibility for integrated reporting, recommended the report for approval by the Board. The Board approved the 2014/15 Integrated Report on 28 July 2015.

Dr S Mahanyele Mr S MthethwaGroup Chairperson Acting Group CEO


SECTION

3


CEF GROUP PROFILE


CEF GROUP PROFILECEF GROUP PROFILECEF GROUP PROFILECEF GROUP PROFILECEF GROUP PROFILE

CEF GROUP PROFILE

CEF SOC Ltd is a Schedule 2 State Owned national energy utility entity with a focus on oil, gas, coal and renewable and clean energy options reporting to the Department of Energy (DoE) as its primary shareholder. The organisation operates in South Africa with strategic partnerships in Ghana and Mozambique. The company derives its mandate primarily from the Central Energy Fund Act No. 38 of 1977.

The Act mandates the CEF Group to contribute to the national security of energy supply through commercial operations and projects, as well as investing in developmental projects, all the while operating in a highly competitive and capital intensive environment with the need to be a profitable entity through its subsidiaries and associates. The dual mandate of Commercial and Developmental obligations requires a tight balancing act between the two imperatives given the strategic nature of the national assets that the Group holds its obligations as defined in the National Development Plan (NDP). The CEF Group thus has to contribute towards the triple challenges of Poverty Alleviation, Promoting Equality and Creating Jobs as well as supporting the economic growth efforts of the Shareholder.

In terms of its mandate, the CEF Group should profitably manage defined energy interests on behalf of the South African Government and be commercially viable and sustainable. Most of the activities are in the fossil fuel arena as a result of significant historical investments made by the organisation over the last six decades. Initially established in the 1950s the

1950

s

1960

s

1970

s

• Political situation leads the SA Government to invest in securing crude oil

• Investment in Sasol 1• Monef (1954) and SAPREF (1956)

built in Durban

• Levies on liquid fuels managed by SEF/SFF

• Investment in Island View and Milnerton facilities

• Calref built in Milnerton (1960)• Investment in turning Ogies coal mines

into crude oil containers plus filling over a long period

• Soekor embarked on drilling programme

The Historical Evolution of CEF

• Petroleum Products Act and CEF Act• Natref built Iranian resources in Sasolburg (1974)• CEF used as vehicle to invest in Sasol III following

1974 and 1979 oil crises• Gas found offshore• Continue filling Ogies• Construction of Saldanha facility


CEF GROUPCEF GROUP PROFILE

CEF Group has evolved into an international business that operates across the globe through its subsidiaries as indicated in the diagram above. With a view for Group sustainability and commercial viability, the group strategic focus takes a long-term approach to all business activities as contained in the Group Vision 2025 aimed at creating a high performance Group of companies that is commercially viable. This means concentrating on developing various viable projects and operations that are capable of providing competitive returns throughout business cycles.

Over time, the company has expanded its activities to include the management of investments with a special focus on renewable and cleaner alternative energy sources. This is part of the broader strategic intent and directed by the Shareholder to diversify South Africa’s energy mix. This will in the long-term, result in improved security of supply and enhanced social and environmental benefits. In order to achieve its mandate over time, the CEF Group therefore, expanded its focus to include liquid fuels and gas as well as supporting the deployment of new energy technologies in the country.

1980

s

1990

s

2000

s

2010

s

• Fill Saldanha• Decision to build Mossgas GTL• Island View terminal sold• Some tanks at Milnerton

(refinery side) sold to Caltex

• iGas takes up 25% share in Rompco• 2003 high level business strategy starts

move from oil and gas to renewables through EDC (now CED)

• Profileration of small subsidiaries (CEF Carbon, CCE, ETA, SASDA, etc.)

• Liquid Fuels Master Plan guides PetroSA strategic thinking

• AEMFC created

• Change in renewable energy operating environment - write-off of some projects

• Reduction in number of subsidiaries

• AEMFC opens Vlakfontein mine• CEF governance structures

stregthened• Project Genesis to design holding

company structures

• Mossgas commissioned• Sasol loan repaid• Start of sell-off of Ogies oil• Publication of White Paper on Energy Policy

(1998)• Decision to create PASA and PetroSA from

Mossgas and soekor• Sasol decides to build Mozambique gas

pipeline• Decision to create iGas (1999/2000)


Legislative and Planning Frameworks

As a strategic entity that has an important role to play in the energy security of supply, and a strategic partner to government, it is important to note that the Group is guided by a number of legislative and planning frameworks that govern the way in which CEF conducts its business. These legislative frameworks drive the organisational strategic thrust and define the parameters for operational effectiveness. In addition to the Legislative Framework, Government has also developed a number of Plans that provide strategic direction for the CEF Group as indicated in the table below.

Key Acts Energy Sector Planning

• Public Finance Management Act, 1999 and Regulations

• Companies Act, 2008• Petroleum Products Act,1977 • Petroleum Pipelines Act, 2003• Gas Act, 2001• Electricity Act, 1987• CEF Act, 38 of 1977• Mineral and Petroleum Resources Development

Act, 2008 • Mineral and Petroleum Resources Development

Amendment Bill, 2013• National Energy Act, 2008

• Integrated Resource Plan for Energy, 2010 • Energy Security Master Plan, 2007 • Draft Strategic Stocks Petroleum Policy and

Draft Strategic Stocks Implementation Plan• Integrated Energy Plan • Liquid Fuels Master Plan• Draft Gas Utilisation Master Plan • Regulations regarding the Mandatory Blending

of Biofuels with Petrol and Diesel, 2012

CEF GROUP PROFILE



Composition of the CEF Group

The CEF Group comprises five key subsidiaries and two associate companies. Each of the subsidiaries within the Group operates within a specific arena and with a specific mandate. The CEF Group operates right across the Energy Sector Value Chain. The subsidiaries are wholly-owned by CEF SOC Ltd and it holds minority interests in two small renewable energy ventures (Associates) - an arena in which CEF SOC continually seeks opportunities for additional investment options. In addition to this the CEF Group manages two funds – the Equalisation Fund and the Mine Health and Safety Fund.

Renewable energy activities of the holding company are managed through the Energy Projects Division (previously the Clean Energy Division). These include the identification of new joint venture brownfields investments in renewable and clean energy projects, and the management of existing joint ventures with other parties (Biotherm and Ener-G Joburg). In its effort to ensure sustainability, CEF SOC continually seeks opportunities for additional investment options.

Wholly-owned subsidiaries operating in the fossil fuel space are:

• PetroSA – which is the largest subsidiary in the Group and operates in a complex and highly technical industry which is capital intensive and characterised by long lead times. PetroSA operates a gas-to-liquids refinery that uses indigenous gas as feedstock. It is also a partner in a producing oil field in Ghana.

• Strategic Fuel Fund (SFF) – which manages strategic crude oil infrastructure, strategic crude oil stocks, and provides oil pollution control services in Saldanha Bay.

• iGas – which is a shareholder in the Mozambique-to-South Africa gas pipeline and is involved in the development of other gas delivery projects.

• AEMFC – which mines coal in Mpumalanga for supply to Eskom and is concluding feasibility studies on expanding its operations.

• PASA – which is the national petroleum and gas promotion and licensing agency.

Central Energy Fund SOC Limited (CEF) also administers the Equalisation Fund on behalf of the Department of Energy and the Mine Health and Safety Fund on behalf of the Department of Mineral Resources.


CEF Group Products and Services

The CEF Group Operations provide the following products and services across its value chain:

• Gas – Exploration of gas for commercial sale purposes (PetroSA).

• GTL Technology – GTL is a unique technology refinery process that converts natural gas or other gaseous hydrocarbons into longer-chain hydrocarbons such as gasoline or diesel fuel.

• Coal – Coal is abundant, relatively inexpensive, and safe and easy to transport. The CEF Group is actively involved in the mining of high grade quality coal for delivery to Eskom power stations for power generation purposes (AEMFC).

• Data storage – South Africa’s natural resources data storage and dissemination for a fee to prospecting agencies (PASA).

• Renewables – Active participation and investments into solar, wind, and other replenishable and/or cleaner sources of energy for long term sustainability. Wind, solar, and biomass are three emerging renewable sources of energy (Projects Energy Division).

• Gas Infrastructure – Future gas infrastructure and current strategic partnership with ROMPCO which gives the Group access to a pipeline of natural gas from Mozambique. Plans are afoot to further explore downstream gas marketing opportunities as well as cementing our presence in Mozambique (iGas).

• Crude Storage – Due to the importance of oil in the South Africa’s energy mix, the South Africa’s strong external dependence for supply of petroleum products and the geopolitical uncertainty in many producer regions, it is vital to guarantee consumers continuous access to petroleum products. The Group provides storage of strategic fuel stocks for the country to mitigate against possible future challenges (SFF).

CEF GROUP PROFILE



Group Organisational Structure

Based on its Strategy and Mandate, the Organisation is currently structured as depicted in the diagram below:

Minister of Energy

CEF (Incl. EPD)

CentralEnergyFund

Associates SubsidiariesFunds

managed

Methcap(19%)

PetroSA Group

of companiesSFF (s21) Equalisation

Fund

Energ G Joburg(29%)

iGas PASA

ETA Energy AEMFC

CCE

ROMPCO (25%)

DormantCompanies of the

Group

SANERI

Cotec Patrade

Cotec Development

Klippoortje

Mahnes Area

OPC

Carbon Stream Africa

Carbon SA

Mine Health and Safety Fund


The CEF Group Business Model and Integrated Value Chain

In order to fulfil its mandate, the CEF Group operates along the full value chain from upstream to downstream as well as in the various mandated areas which enable it to support the development of the optimal energy generation sources so as to contribute towards the development of the optimal energy mix for the Country and Southern Africa through its subsidiaries. Most of the Group’s activities are in the fossil fuel arena however, in recent times, the Group has diversified its interests into Clean Energy projects in order to drive the Government’s agenda of reducing reliance on Petroleum and Coal as well as balancing the energy mix of the country ensuring security of supply through diversity of energy sources.

The matrix below shows the segments of the value chain for different fuels in which the CEF Group is active.

CEF GROUP PROFILE

Fuel Regulation Exploration Production StorageBeneficiation/

Generation Transmission Distribution

(Pipe-packing) (Pipe lines and LNG gas)

in partnership with private sector

in partnership with private sector

Coal

Oil

Gas

Wind power

Solar




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4


THE EXECUTIVE MANAGEMENT REPORT


THE EXECUTIVE THE EXECUTIVE THE EXECUTIVE THE EXECUTIVE

Vision, Mission and Values of CEF GroupThe CEF Group is committed to creating a culture of high performance throughout the group that creates an exciting working experience and opportunities for our people to grow and add value to our business. The CEF Group values are integrated into everything we do and guide the business decisions that we make daily. The CEF Group has in the reporting period relooked at its vision and mission as well as values in order to better drive the strategic agenda of the Group.

The Vision of the CEF Group

To be a leader in the financing, development and implementation of sustainable energy projects in Africa.

The Mission of the CEF Group

To grow the energy sector to be a catalyst for economic growth and poverty alleviation through security of supply, and access to acceptable and affordable energy in Africa.

The Values of the CEF Group

In all the dealings with persons and entities and in its business relationships, the CEF Group is guided by the following values:

The CEF Group commits to conduct all its activities in an environmentally and financially responsible

manner with zero harm to the environment and stakeholders.

The CEF Group commits to conduct all its dealings in an ethical and honest manner against the highest corporate governance standards.

The CEF Group commits to uphold principles of efficiency, effectiveness and sound financial management.

The CEF Group commits to treat all its stakeholders in a fair and transparent manner, while embracing the principles of “Ubuntu”.

The CEF Group commits to communicate with all its stakeholders in an open, fair and timely manner. All conflicts will be resolved using the best conflict resolution methods within the relevant legal and statutory parameters.

Communication

Sustainability

Integrity

Professionalism

Respect



MANAGEMENT REPORTMANAGEMENT REPORTTHE EXECUTIVE THE EXECUTIVE THE EXECUTIVE MANAGEMENT REPORT

The CEF Strategic IntentWith the advent of the 2008 global economic downturn, the CEF Group was faced with a number of strategic challenges that made it difficult for the group to effectively deliver on its mandate. In response to these challenges and dynamics, the CEF Group held a number of strategy workshops that have helped to shape the strategic focus of the CEF Group and concentrated on laying the foundation for a more efficient and effective organisation.

This gave rise to the Group Vision 2025 Strategy which outlines the short-, medium- and long-term strategic objectives in response to the external and internal forces and implementing strategies to meet the country’s energy efficiency programme, renewable energy, gas development, and ways to complement the country’s energy mix to remain relevant in a highly complex energy sector.

It is thus that the Group’s strategic focus and operational plans in the reporting period prioritised the following objectives as part of the overall mandate of ensuring security of supply:

• Ensure that Governance and SHEQ responsibilities underpin all CEF activities;• Build and maintain appropriate human capital and effective structures, systems and processes;• Ensure that CEF and its subsidiaries are aligned around co-operative group oversight and co-ordinated planning

thus harnessing of synergies and sharing of resources and improved commercial viability;• Deliver on the CEF mandate and ensure the long-term national security of supply in a sustainable manner in

accordance with the NDP;• Focus on maximising domestic supplies of oil and gas, including both offshore and onshore unconventional

resources which lead to increased resilience and security for South Africa’s energy needs when compared with imports; and

• Be the catalyst for many shareholder initiatives that sustain and promote the growth of the South African economy.

The refined Group objectives gave rise to the Group Strategic Roadmap which encapsulated how the various strategic objectives would be achieved over a medium- to long-term period. The roadmap has three phases: Stabilise, Grow and Lead.

Immediate and short-term strategic objectives for defending the core that include cost containment, restructuring, better oversight and optimisation initiatives across the Group

Medium-term strategic objectives that include growing the core and diversifying Group investments to ensure financial sustainability of CEF and its relevance

The long-term objective is for CEF to be a market leader and provide (thought) leadership on security of energy supply on behalf of, and to, the DoE

Stabilise

Grow

Lead


The CEF Strategic Intent (continued)The past financial year has mainly focused on defining the vision and seeking buy-in from the various stakeholders as part of the Stabilise Phase. During the current financial year, the Group will be occupied with the further implementation of the strategy which will be reviewed annually, and where appropriate, revised, to ensure that it continues to be relevant in driving the commercial and developmental agenda of the CEF Group.

Stabilise Phase Strategic Priorities

The following key strategic priorities were identified as areas of focus over a period of three years of the “stabilise” phase of the strategic Roadmap:

• Stabilise the business (Initiatives across the Group at Operational and Strategic level);• Conserve cash in the short-term through a deep cost-cutting exercise;• Develop and begin implementing a long-term solution for Mossel Bay;• Creation of effective governance structures for effective decision making;• Group alignment and core capabilities to drive the CEF Strategy;• Addressing core PetroSA sustainability challenges;• Implement a robust long-term funding plan for projects across the Group;• Project Genesis to build capabilities and an efficient structure to be able to support the Shareholder in support of

the NDP and other national imperatives;• Grow the business in line with commercial viability objectives (prudent investment approach); and• Strengthen monitoring and evaluation and drive business performance.

It is envisaged that the successful implementation of the Stabilise Phase will put the Group in pole position for sustainable growth in the following phase.




Strategic Risk Profile aligned to the CEF GroupThe CEF Group endeavours at all times to manage both its Strategic and Operational Risks. In order to achieve this, the Group contiguously identifies risks and puts frameworks, policies and processes in place to mitigate and manage the various risks. In moving towards strengthening Group Risk Management, the CEF Board approved a new Group Risk Management Policy on Risk and Control Framework (C-06) in February 2014. As part of the process to identify risks, a Group Risk Forum has been created and the Group Risk workshop is used as an important mechanism for collectively managing risk across the Group. The CEF Group is in the process of centralising risk management process across the group in order to enhance the overall risk management.

To this end, a resource at PetroSA was tasked with managing a group-wide consolidated Risk Management Process through the CURA system during the year under review and reported quarterly to to the CEF BARC and CEF Board.

Key risks facing the Group relate to issues of financial sustainability and security of supply. While there are numerous initiatives at play to manage these issues there remains significant residual risk. Sustainability and security of supply are inextricably linked, and one cannot be achieved without the other. Furthermore, the mitigating strategies for each are also interdependent.

Central to both is the requirement for significant short- to medium-term funding which will need to be derived from a range of sources, both internal and external. Executive management will need to engage meaningfully with stakeholders in the near future term in order to build a shared understanding of Group plans and requirements.

The Group Strategic Roadmap (Vision 2025) has a number of interventions in the “Stabilise Phase” that will address most of the significant risks. Some of the actions during the Stabilise Phase include a turnaround plan for PetroSA, cost optimisation across the group, securing coal supply contracts, and developing a funding plan for major projects amongst others.

• Summary of Risk Themes and Mitigation Strategies:

Risk Theme Risk Mitigation Strategies Risk Commentary

Inability of the Group to retain financial sustainability

• Group Funding Strategy• Streamline of CEF Organisation• Enhance PAMC model to include

standardisation of project hurdle rates and other measures

• Increase revenue generation• Cost optimisation (incl. HC and

discretionary spend) • Complete pre-feasibility on Asset

Development Project • Use Ikhwezi production history to

predict remaining life of field for feedstock to the refinery

• Heavy condensate project to be implemented

• Complete LNG Feed study

• Exposure is extreme due to the high velocity of the risk, requiring urgent executive attention, which is further exacerbated by reduced volume expectations from Project Ikhwezi and delays in executing production gap initiatives (Asset Development Projects)

• An action plan is required to address those business activities that currently deliver negative margins and erode business value across the Group

• Targets for cost reduction are in place, and a ‘Turnaround Plan’ designed to deliver significant savings within PetroSA is underway


• Fraud Prevention

The CEF Group of companies has a fraud prevention plan policy (O-04) which outlines in detail fraud prevention initiatives, governance structures outlining the responsibilities for fraud and corruption risk management. The policy contains the following statement of attitude towards fraud: “The CEF Group will not tolerate corrupt or fraudulent activities, whether internal or external to the group of companies, and will vigorously pursue and prosecute any parties, by all legal means available, which engage in such practices or attempt to do so”.

During the year under review the CEF Group Fraud Line has been active reporting on average three calls a month. Following whistle blowing reports, rigorous investigations were conducted and no fraud incidents were picked up through the system. It would seem from this that the system is working well as a deterrent for fraud and maladministration in the CEF Group.

Risk Theme Risk Mitigation Strategies Risk Commentary

Inability of the Group to fulfill its Security of Supply Mandate

• Complete feasibility study for Gas to Power in Mossel Bay

• Co-ordinate a group position on engagement with Eskom and key SOEs

• Align group co-ordination with respect to its role within Operation Phakisa

• Implement unconventional resources (incl. Shale Gas) stakeholder engagement plan

• Make the case to DMR that state participation goes to CEF/PetroSA

• Successfully execute the outsourcing strategy for the Extended Continental Shelf Claim

• Develop logistics base infrastructure• Establish a green fund• Strong partnerships with other equity

investors• Appoint EPCM for T Project

• Residual exposure is high due the challenge in delivering the wide range of capital intensive initiatives designed to deliver long-term value

• Constraints placed on delivering security of supply by limited availability of funds are significant

• The Mossel Bay refinery continues to be challenged with implementation of a medium- to long-term solution that would ensure its sustainability

• The LNG project is now not seen as a firm sustainability solution for Mossel Bay GTLR at this stage

• AEMFC has secured coal supply agreements for secondary off-takers, however, funding for key projects remains a concern as it has a knock on effect on approval of new projects as funding for these initiatives is limited




The Executive Report• CEF Holding Company Operating Model:

The CEF Executive Management Committee (EXCO), having been mandated by the Board to ensure a more strategically effective and efficient Holding Company, had to review the structure, the leadership and the resources required to ensure the delivery of the Group strategy as required by the Board. The Board had directed EXCO to ensure that CEF SOC was run as a holding company and complied with all mandates thereof.

Go

vern

ance

Suppliers

Vendors

Subsidiary Management

Energy Projects

Corporate Strategy

Finance (including

Treasury, Procurement)

HR(Including Corporate

Affairs)

IT

Facilities

Shareholder

Subsidiaries

Government

Stakeholder Management

Risk andCompliance Legal

Internal Audit

Group Secretarial

Pursuant to the Board directive, the CEF Group has in the past financial year been occupied with reviewing and strengthening its structures starting with the holding company. The holding company was restructured through Project Genesis and an extensive skills requirements analysis was conducted to identify what the Group needed at the holding level to enable it to drive the strategic direction of the Group.

Go

vernance

CEF Core Functions

Business of Today

Business of Tomorrow

Enablers


The Holding Company Operating Model has defined key functional areas, key enablers and key governance areas to ensure operational performance effectiveness. As indicated in the diagram on previous page, compliance and control are key in the operating model. It is contended that this business operating model will enable the holding company to more effectively provide strategic direction to the Group.

The resultant holding company structure is depicted on the following page and is being populated. The new structure was approved in the reporting period and became effective as of July 2015.

CEF Holding Company Operating Model

Subsidiary ManagementManagement of relationships, liaison, board representation, etc. with all CEF subsidiaries on a strategic and operational level. Provide oversight and direction. Monitors strategy execution and suggests improvement.

Corporate Strategy

Corporate and subsidiary strategy and annual planning. Key interactions with subsidiaries on providing strategic guidance in relation to strategy and planning. Facilitate two-way conversations to ensure subsidiary alignment with group strategy.

Energy ProjectsProjects in this area include alternative, new and clean energy projects. Incubation space for new subsidiaries relating to alternative, new or clean energy.

Corporate Affairs External stakeholder management and corporate communication.

Risk and Compliance

Risk management including strategic, reputational, legal and regulatory risk management. Provide frameworks for operational risk management.

Project Assurance and Delivery

Ensuring large project management is undertaken effectively across CEF Group. Deliver value for money from the significant investment in energy projects (also oversee effective M&E function).


The Executive Report (continued)



CEF CEOPA to the

CEO

Strategy & Subsidiary

ManagementEnergy

ProjectsHuman

ResourcesGroup

Finance

Energy Advisory Manager

Planning & Performance

Renewable Energy

Policy & New Markets

Alternative Energy

Business Partner

Organisational Design

Corporate Affairs

Corporate Finance

Procurement & Facilities

IT

Risk & Compliance

Legal

Internal Audit

Group Secretariat

Stakeholder Advisory

• Monitoring, Evaluation and Strategy

• Group Performance• Project Assurance• Research Initiatives and

energy advisory• Strategic interface

management and planning

• Policy Initiatives• Renewable energy• New technologies• Renewable market

intelligence

• Strategic Human Capital management

• Future energy skills planning and best practise

• Strategic internal and external communications

• Business performance and Group investments

• Project Investments

• Compliance• Governance• Strategic

Interface management

1 2 3 4 5

The new Holding Company Structure

Office of the CEO


The following table represents some of the critical engagements that took place during the reporting period:

Stakeholder Purpose of Engagement(s) Outcome of Engagement(s)

Department of Energy

As per the requirements of Section 54 of the PFMA, CEF sought approval to invest funds in fulfilling its mandate of contributing to diversifying the energy mix.

CEF received approvals for investing as a shareholder in the landfill gas to power and CSP projects.

Portfolio Committee on Energy

Quarterly updates to the committee on the status of the Group operations.

The committee provided oversight over Group operations.

Biofuels Implementation Committee

CEF supporting the DoE as the Secretariat of this Committee.

CEF effectively managed the engagements between the DoE, oil industry, energy regulator, funding community, project developers for the much anticipated finalisation of the Biofuels Regulatory Framework. The Biofuels Regulatory Framework has now been submitted to Cabinet for approval.

Renewable Energy Project Developers

CEF engaging with RE project developers as a strategic partner in RE projects.

CEF has a good understanding of the state of the renewable energy industry in South Africa. CEF participated as a shareholder in some of the RE projects. CEF identifying the waste-to-tyre industry as a potential industry for liquid fuels production from waste beatification with potential employment opportunities for the youth.


The Stakeholder Engagement ReportThe CEF Group of Companies takes engagement with its key stakeholders very seriously and continuously maintains open communication channels. The communication happens intra and extra group either as a collective or individual companies. Major stakeholder engagements during the reporting period have happened between the shareholder and the CEF Holding Company, the Portfolio Committee and SOEs in the energy sector. Key amongst the issues raised were the sustainability of the Group, the performance of the Group as well as the strategic response to the energy challenges facing the country.

Further to this, the Group engaged internally to strengthen the governance and interaction amongst the subsidiaries and the holding Company to ensure harmony and collaboration through new co-ordination structures such as the CEO and other forums.

Engagements with other strategic partners-communities; learning institutions; customers; employees; unions and suppliers continued to be important as CEF endeavoured to conduct its business sustainably.



Ekurhuleni Metropolitan Municipality (EMM) and Nelson Mandela Bay Municipality (NMBM)

CEF partnered with the two municipalities to implement the Solar Water Heater (SWH) pilot project. CEF funded the installation of 258 SWHs and the two municipalities agreed to support CEF by using their billing system to collect the installments from the SWH pilot project participants. Reconciliations of payments, and customer query resolutions with the municipalities continuously take place.

CEF SWH business plan targets exceeded. Benefits of the installation of SWHs demonstrated with satisfied customers reporting significant reduction in electricity usage.

CEF Subsidiaries

To identify possible areas of collaboration on projects.

Identified areas of collaboration on the T-project (beatification of the torbanite coal to be mined by AEMFC to produce liquid fuels).CEF developed a “OneCEF” approach to the gas-to-power initiative of the DoE.

Employees

Various employee engagement activities to get employee buy-in into the strategic issues relating to organisational strategy, structure, salary negotiations, induction and other operational matters.

A number of agreements were reached in terms of the restructuring, for example CEF SOC; changes in policy and conditions of employment to drive One Billion Plus initiative at PetroSA; and modest salary increases given the challenging financial situation of the Group.

Media

Extensive engagements with the media to respond to queries regarding reports in relation to happenings in the PetroSA Board appointments and other activities.

The CEF Board was able to transparently respond in terms of the roles of the various stakeholders involved in the process of appointing Subsidiary Boards. The Board was also responsive in dealing with the controversy surrounding the appointment of the former Chairperson of the PetroSA Board.

Communities

Various engagements were undertaken by the subsidiaries of CEF with the communities surrounding their operations regarding community upliftment needs and projects.

The CEF Group continued to invest in the communities in the areas of health, education, enterprise development as well as preservation of the environment.


The Group Executive Structure

D du ToitInterim Chief Financial OfficerB Com; B Com (Hons)

Area of Expertise:Executive General & Finance Management; Project Management; Global Sales & Marketing Management; Strategy Formulation; Analysis & Execution; Turnaround Consulting; Business Restructuring

T KhanyileChief Audit ExecutiveB.Com; CIA

Area of Expertise:Internal Audit; Risk Management & Governance

SK MthethwaInterim CEO and Chief Financial OfficerB.Com; B.Compt (Hons); H Dip Acc CTA; CA (SA)

Area of Expertise:Executive Finance Management; Project Finance; Treasury; Credit Risk Management; Tax; Planning & Strategy

The Group Executive structure was populated as follows as of the 31 March 2015:

21 3


The Group Executive StructureThe Group Executive structure was populated as follows as of the 31 March 2015:

1

The Group Executive StructureThe Group Executive structure was populated as follows as of the 31 March 2015:The Group Executive structure was populated as follows as of the 31 March 2015:

PC MasanganeGM: Energy Projects DivisionOfficerPhD (Chemistry); MBA; BSc

Area of Expertise:Renewable Energy Project Development, Structuring and Financing

CJ CooperEnergy AdvisorB.Sc; BSc (Hons) (Energy); D.Phil (Energy Studies)

Area of Expertise:Holistic Energy Sector Assessment & Energy Efficiency

A HaffajeeCompany SecretaryB Proc; ACIS; Admitted; Attorney

Area of Expertise:Corporate Governance; Legal; Contracts

S ChabaInterim GM: Corporate ServicesSEP; HDPM; BA (Economics & Industrial Psychology); Diploma in Diagnostic Radiography

Area of Expertise:Human Resources Management; Organisational Design & Development; Change Management, Business Strategy & Management

4 5 6 7


54 6

SECTION

5


STRATEGIC REVIEW


STRATEGIC REVIEWSTRATEGIC REVIEWSTRATEGIC REVIEWSTRATEGIC REVIEWSTRATEGIC REVIEW

Group Chairperson’s ReportIt is my pleasure to present the Minister of Energy with the CEF Group’s Integrated Annual Report for the year ended 31 March 2015.

Energy is the lifeblood of any economy and activity. The provision of acceptable, accessible, affordable and appropriate energy is critical for the wellbeing of the country. Without energy, the economy will wither and die.

The financial year just ended has again been one of great global uncertainty. While there are some signs that the global economy is stabilising there are others that show the probability of more volatility in the next few years. Global debt has increased coupled with low growth which will require countries and companies to manage cash flows far more effectively. The economic circumstances have largely remained troubled within Europe, and especially Greece, enduring stagnant or even negative prospects. China too has seen a decline in economic growth towards the end of the reporting period.

STRATEGIC REVIEW


STRATEGIC REVIEWSTRATEGIC REVIEWSTRATEGIC REVIEW

The CEF Group of companies has, in this reporting period, operated within a volatile global context and has been impacted the greatest by the rapid decline in the price of crude oil. This has had both positive and negative impacts on different subsidiaries within the Group.

The Group CEO reports elsewhere in detail on the operational and financial performance of the Group. I however need to outline the most important highlights and challenges faced by the CEF Group over the last year, namely:

• The restructuring exercise (Project Genesis) begun in the previous year is now approaching completion at the holding company and will be extended to the remainder of the Group in the future. This will allow for a more effective and efficient operating structure, and allow the Group to contribute to the national energy security of supply mandate.

• The completion of the first loop line of the gas pipeline from Mozambique was completed during the year and gas flowed shortly before the end of December. This is the ROMPCO pipeline in which CEF through iGas has a 25% shareholding. There are plans to build additional loop lines to permit the flow of additional gas firstly to Maputo and then on to South Africa.

• The external factor that has had the most significant impact on the Group has been the decline in the price of crude oil. This decrease from over $100 to around $60 at year-end has had a significant impact on the profitability of PetroSA and thus to the entire Group. It is important to note though that SFF has benefited from the oil market conditions. The global oil market is in contango with respect to trading. This has increased the global demand for storage and SFF has benefited from an increased demand for ullage.

• The CEF Group developed Vision 2025 which outlines the short-, medium- and long-term strategic roadmap for the Group. This will upon implementation guide the organisation through the “Stabilise”, “Grow”, and “Lead Strategy” phases, which it is hoped will ensure commercial sustainability for the CEF Group. The Board and Management believe that this Vision will enable CEF to focus on strategic priorities which will help it to deliver on its mandate.

• The failure of Project Ikhwezi to deliver the anticipated gas reserves has placed concern over the ability of PetroSA to maintain economic production from the Mossel Bay facility. The reserve constraints and the low oil price have contributed to the impairment of the value of the asset.

• African Exploration did not achieve the targeted coal sales due to lower than expected off-take by Eskom. A long-term contract has been negotiated and sales should improve in future years.

• The Petroleum Agency continues to provide regulatory oversight to the oil and gas industry although uncertainty over final regulations and the low oil price have reduced interest in South Africa. The Agency has made excellent progress with the Extended Continental Shelf claim at the UN.

Finally, I would like to thank the Directors of the holding company, as well as the subsidiaries, for their commitment during this exceptionally difficult financial year.

In addition, I would like to thank management and staff for their support and dedication in ensuring that we run an effective institution.

Our appreciation is also extended to the Minister, the Director-General, and the Department of Energy, as well as the Parliamentary Portfolio Committee on Energy, and the National Council of Provinces Select Committee on Economic and Business Development for their continued support which has played a vital role in helping us to achieve our objectives.

Dr S Mthembi-MahanyeleGroup Chairperson


STRATEGIC REVIEW

Board of DirectorsS Mthembi-Mahanyele

BA (Education), MSc Public Policy and Management, PHD (Honorary)

Dr Mthembi-Mahanyele is the Chairperson of the CEF board, Chairperson of the BBBEE Council, member of the Ma-AFRICA board and Edwin Construction.

MR Jawoodeen

BA, BA (Hons)

Mr Jawoodeen has been working in the Liquid Fuels space for the past 20 years as Research Manager for the Institute for Petroleum Strategy and Research (IPSR). As part of the IPSR Mr Jawoodeen has led extensive research projects into the domestic liquid fuels industry. He also served on the Moerane Commission of Enquiry into Fuel Shortages during 2005 and 2006. Previously Mr Jawoodeen served as a non-executive director on the SFF Board and Chaired the SFF Board Audit Committee. He now serves as a non-executive director of the CEF Board and Chairs the Project Assessment and Management Committee of CEF and is a member of the Human Resources Committee.

G Bezuidenhout

Representing the DoE on the CEF Board, Mr Bezuidenhoudt is responsible for International Relations, IGR and Stakeholder Management in the Department of Energy.



T Sethosa

BCom (Acc), CIS, MBL

Mr Sethosa is a Regional Petroleum Controller in the Department of Energy for North West Province, a member of the Social and Ethics Committee and the Board Audit and Risk Committee of CEF.

R Boqo

B Com, B Compt Hons, ACMA, CA(SA)

Chairperson of CEF Group Audit and Risk Committee and a Board Member. He also serves on the investment Committee of Identity Fund Managers (Pty) Ltd. He is the Chairperson of the Board of Mmabana Arts, Sports and Culture Foundation and also serves on the Board of the IMFO.

T Maqubela

BSc (Hons), MAP

Currently DDG for Petroleum Regulation at the Department of Energy. Has spent 21 Years in the Energy Sector having started his career at Koeberg Nuclear Power Station. He led the drafting team for the Nuclear Energy Policy of South Africa and is currently Chairperson of the Council for the Non-Proliferation of Weapons of Mass Destruction.


Enabling Group Sustainability through Strategic InitiativesAs the energy sector transforms in response to myriad global economic challenges spurred on by requirements for growth and energy demands, so too must the CEF Group of Companies transform and evolve and remain relevant whilst ensuring the security of energy supply and continue to support the broader Government growth initiatives.

Realising the catastrophic long-term economic, political, environmental and social impacts visited upon the Group by global and internal strategic challenges and restrictive forces, the CEF Group has embarked on a number of strategic initiatives to improve business performance. These are to enable the effective delivery of the CEF Mandate and Group strategy in a sustainable manner that ensures long-term commercial viability through a process of change known as Project Genesis.

Using the Framework for Strategy delivery, CEF implemented Project Genesis which is about restructuring the business and building a high performance organisation through the effective organisational structures, streamlined processes and controls, skills and core capabilities for strategy execution and solid governance structures. This change is a comprehensive and structured approach for transitioning individuals, groups and the business from the current state to a future state with intended business benefits. At the heart of this restructuring process is the strengthening of the monitoring and evaluation mechanism for improved business performance and ultimately Group accountability.

As indicated in the diagram below, the Framework entails the following strategic focus areas:

• Group Strategy Delivery: Execution of the Group Strategy as articulated in Vision 2025 becomes critical and overarching “One Big Thing” that we must do as a group to ensure long-term sustainability and commercial viability. This means that all Group capitals are focused on executing on the strategy.

• Leadership: It is through the Group Leadership and Management teams that the strategy will be owned and cascaded down to the respective level for execution. It is the leadership component that will be accountable for overall business performance.

• People: Our people are at the core of all our business operations and through our Strategic Human Capital Management programmes we will be able to achieve the best results from our people and ensure that we create a learning and growing business environment that fosters a culture of high performance. It is about creating a skills base for the business of today and tomorrow. This is also coupled with fair and equitable remuneration for

our people.

• Measurements: Performance management at all levels will be vital as a link between Leadership and People as a mechanism for monitoring and evaluating business progress and delivery on projects. This will be achieved through integrated systems that provide real time business performance information.

• Processes: Processes, procedures and controls drive a seamless business operation and the organisation continues to invest in technological capabilities that will ensure that the CEF Group is able to operate much more effectively and make business decisions that are sound.

• Stakeholders: These are key pillars to our long-term sustainability and success. By engaging stakeholders both internal and external through our interface framework, we are able to align with the expectations of our vast stakeholders for the benefit of delivering on the CEF Mandate and strategy.

STRATEGIC REVIEW



The diagram below depicts the model and the focus areas for effective strategy delivery through rapid deployment across the group:

Ultimately CEF will have a High Performance Group of Companies where the culture is shaped to achieve the Group Strategic objectives and goals; where effective structures enable strategy execution and a workforce that is adaptive, skilled and capable to meet the demands of the business of today and tomorrow; and where the business leadership provides the required strategic direction and support. Our people will become our competitive advantage. Complementing all of these changes will be the governance structures that promote effective decision making and feedback.

With PetroSA being one of the biggest and major contributors to the Group’s fortunes, it is expected that a lot of the focus and attention of the Group would go towards this organisation as it goes through some serious strategic challenges in order to manage the overall Group sustainability. As part of the cost containment effort and improving operational efficiencies and business performance, PetroSA embarked on a business optimisation exercise known as the Billion Plus Project during the period under review. This project was a great success and yielded significant savings but sadly the current slump in global oil prices reversed most of these gains.

As a result, the fortunes of the Group as a whole have been negatively affected. In order to deal with the challenges, a holistic strategic approach has been sought by both the CEF and PetroSA Boards to find long term sustainable solutions for PetroSA. A joint project was thus launched by the two Boards called Project Apollo which will focus on improving efficiency, effectiveness and performance right across the PetroSA Value Chain.

• Clear milestones• Regular reviews• Resources planning• Clear delegated authority• Quick turnaround times• Transparency

• Role and skills match• Fair remuneration• Continuous improvement• Training• Clear roles/responsibilities• Clear job descriptions• Effective systems• SHCM systems

• Consistent communication• Strategic reporting

• Strategic interface management• Dashboard reporting

• Sustainable reporting

• Corporate COMMS• SHCM systems

• Reporting• Interface management

• Oversight management

The Main Big ThingThe Purpose of CEF Group and long-term Strategic View

Vision 2025 Strategy

Leadership

HighPerformance

CultureEngagementAlignment

Measurements

People

Processes

Framework for Strategic Delivery

Stakeholders


STRATEGIC REVIEW

For PetroSA to remain commercially viable it will require drastic structural changes which will have an impact on its current operating model making the organisation more resilient in a complex oil and gas sector where seamless project execution is vital.

It is intended that this intervention will result in a business turnaround that will maintain CEF on its Vision 2025 Strategic Roadmap to long-term sustainability.

As the Group of companies moves through the various stages of its Strategic Road Map of Stabilise, Grow and Lead, strategic interventions and projects will continue to be implemented to keep the CEF Group on its transformation trajectory towards, high performance, resilience, adaptability and relevance as it delivers on its mandate

Group Strategic ChallengesAs indicated earlier, the Group’s mandate is to contribute to national security of energy supply through commercial operations as well as developmental projects which seek to alleviate energy poverty and support the development of new technologies. Below is a list of the major challenges facing the CEF Group:

• The key immediate challenge for the Group as can be deduced from the performance report above is to find alternatives to the long-term feedstock supply for the Mossel Bay refinery. The less than expected gas flow volumes from Ikhwezi have posed a serious challenge to the CEF Group which it needs to deal with urgently.

• The uncertainties related to the hiving off the AEMFC to the Department of Mineral Resources and PASA continue to plague the Group. The restructuring will affect the integrated business operating model and value optimisation as to whether CEF remains commercially viable and sustainable or not with regards to mining assets.

• The Group is also expected to support the Department of Energy as it implements projects to respond to the precarious position of the electricity supply industry in the country. While these projects are now critical, the regulatory framework has not yet been finalised.

• The dwindling price of Crude Oil has had a negative impact on the CEF Group. This has affected the core of the Group’s business as it directly impacted PetroSA.

• The current electricity energy crisis in the country imposes challenges to the CEF Group as it endeavours to define its role and relevance in the energy mix challenge. It is an ideal time for CEF to find a niche role in the Gas to Liquid value chain through iGas for example.

• The purchase of the Project Irene assets was terminated due to funding challenges.

• In order to survive going forward, CEF has to continue funding projects and yet the cash reserves have been gradually depleted whilst the funding requirements have increased for the Group. For example, renewable energy projects, gas projects and AEMFC’s expansion project all need funding whereas the PetroSA challenge dictates cash preservation effort.

• The weakening of the local currency over the year has impacted on the Rand costs associated with a number of projects and activities paid for in other currencies.

• Scarcity of talent and the restructuring processes with the inherent impacts that tend to affect the motivation levels of employees and cause skills flight will affect the human capital and the bench strength of CEF.

Key Group Projects HighlightsIn pursuance of delivering on its mandate, the CEF Board has focused on providing strategic direction and oversight on the strategic projects highlighted on the following page.



AEMFC • T Project • Klipportjie

• An underground coal mine with thermal coal and torbanite resources based in the area of Kinross, Mpumalanga Province.

• An open cast coal mine based in Ogies, Mpumalanga Province (previously oil bunkers storing crude oil).

• The bulk of the required technical work has been completed including optimising the feasibility study in the 2014/2015 financial year. The project is at capital raising stage which will be conducted in the forthcoming year.

• Klipportjie mining studies for its unique crude oil storing past were concluded in the 2014/2015 financial year. Capital raising for commissioning the project will be conducted in the forthcoming year.

Security of energy supply for the country through the supply of coal to Eskom for electricity generation.

PASA Extended Continental Shelf Claim project

PASA submitted a claim to extend the South African continental shelf by NM for both the mainland and island.

A number of meetings were held with the United Nations sub-commission to defend the claim. Preliminary findings by sub-commission:• SA has passed the test of

appurtenance and• SA has the right to claim

beyond 200NM for both mainland and Island submissions

The defence will carry on over the next 2-3 years.

To promote onshore and offshore exploration for and production of petroleum products through the evaluation of petroleum resources and the preparation of an inventory to attract upstream investment.

Energy Projects Division

Landfill gas to electricity

The extraction of landfill gas from the City of Johannesburg landfill sites to generate 18MW of electricity.

All project agreements (power purchase agreement with Eskom, construction agreements) were finalised during the financial year. The project will now go into construction phase.

Security of energy supply for the country through the renewable electricity generation.

Subsidiary Project Description StatusLink to Group

Strategy

PetroSA Project Ikhwezi A five-well drilling programme to supply feedstock to the gas-to-liquids refinery at Mossel Bay.

The Since 31 December 2014, Project Ikhwezi started supplying gas to the refinery. Four of the five wells have been drilled with less than expected gas volumes. This has put the sustainability of the refinery under threat with currently available feedstock only able to sustain commercial production until 2016/2017.

Security of energy supply for the country through liquid fuels production from indigenous feedstock.


SECTION

6


OPERATING PERFORMANCE


OPERATING PERFORMANCEOPERATING PERFORMANCEOPERATING PERFORMANCEOPERATING PERFORMANCEOPERATING PERFORMANCEOPERATING PERFORMANCE


Group CEO’s ReportDear Stakeholders

I am pleased to present this annual report to our stakeholders, outlining a broad overview of what the CEF Group does, its performance against set targets, key achievements for the year, governance and the consolidated annual financial statements.

This report should be read in conjunction with the detailed annual financial statements presented on pages 91 to 210. The primary mandate of the CEF Group is to develop energy solutions to meet the needs of South Africa, the Southern African Development Community and the sub-Shaharan region – including oil, gas, electrical power, low-smoke fuels, biomass and renewable energy sources.

The Group also manages the operation and development of the oil and gas assets of the South African government. We are committed to playing a major role in growing the energy sector to be a catalyst for economic growth and poverty alleviation through security of supply and access to affordable energy.


OPERATING PERFORMANCEOPERATING PERFORMANCEOPERATING PERFORMANCE

Financial Performance

Amid the tough economic circumstances in which our Group operates, we generated positive cash flows from operations i.e. R4,4 billion and closed the year with a cash balance of R10 billion. The group turnover declined by 14% compared to the previous financial year, we are also reporting an operating loss of R14,8 billion compared to R1.4 billion in 2013/14. The main reasons for the poor operating results are the significant decline in the oil price of over 50% from June 2014, lacklustre global economic recovery, late delivery of Project Ikhwezi and reduced coal sales to Eskom.

The Group results were also negatively impacted by the total impairment of R14,4 billion, this relates to both the GTL and PetroSA Ghana investment. In 2011 PetroSA Board approved Project Ikhwezi, a five-well drilling campaign at a cost of US$1, 3 billion. As at year end US$1, 2 billion had been spent on project, three wells had been completed and gas is flowing from these wells. At approval the project was expected to deliver 208 bcf of commercial reserves and extend the life of the GTL to 2020. At year end only 25 bcf of commercial reserves were expected thus shortening the commercial life of the GTL to 2017. It is clear that the project did not meet its objectives hence the large impairment in the current year, the project was suspended in May 2015. The decline in oil price also contributed about 20% to the impairment of the GTL. A review of the carrying values of PetroSA Ghana assets i.e. Jubilee and ten development assets in light of the current oil price resulted in the impairment.

The reduced off-take from Eskom has resulted in a modest growth in coal sales by AEFMC, the company has capacity to produce and sell 1,6 million tonnes but only managed to sell 780 000 tonnes. The significant drop in the oil price created a contango market which benefited SFF oil storage rental business in the second half of the year, it was for this reason that the company’s turnover increased to R198 million (R92 million in 2013/14). iGas’ major investment in Rompco continued to perform exceptionally well resulting in an 11% increase in dividends i.e. R127 million compared to R115 million in 2013/14.

Strategic Operational Performance

We consider ourselves an environmentally conscious business and continue to be very vigilant in respect of minimising the impact of our operations on our surroundings. In this regard, I remain confident and wish to take this opportunity applaud the teams involved, as there were no oil spills in the year under review and fewer reportable environmental incidents than in previous periods. It is also particularly pleasing to report that there were no fatalities in our operations in the year under review.

An assessment of the Group’s carbon footprint and the reduction options available has been completed as part of our broader efforts to be a business that is even more planet-friendly. As business managers, we make every endeavour to create a safe, secure and productive work environment for our people. In this respect, we are committed to zero harm in all our activities.

I am pleased to report that in line with government policy we continue through SFF to keep adequate crude oil reserves i.e. 10 million barrels. During the year we also developed a comprehensive gas strategy for the Group which was approved by the Board; this lays a foundation for increased participation in the sector. We also managed to develop a diversified project pipeline which will assist us in achieving our mandate going forward, the funding for these projects will be a priority in the coming financial year.

We experienced some challenges with investment in clean energy projects due to the delay in some of the procurement processes by the department of energy, clean energy is still very much part of our long term strategy and will continue to pursue investments in this sector especially now given favourable regulatory environment.

Governance and the Group Structures

As part of the Group Strategic Roadmap i.e. Vision 2025 the Group has embarked on a programme to review all our key governance structures, with the intention to align them. This, together with the reduced number of subsidiaries, will result in a higher and more efficient collaboration and synergy between the Group companies and the holding company. This detailed work will be concluded in the 2015/16 financial year.


Into the Future

We have adopted Vision 2025 Group Strategic Roadmap; this is made up of key phases i.e. Stabilise, Grow and Lead. The stabilise phase aims to stabilise the whole group especially from a sustainability perspective. Some of the key interventions during the stabilise phase include the following:

• PetroSA Turnaround Project which is called Project Apollo, the main aim of the project is to stabilise the financial and operating environment of the company. The project will also determine the long term options on the current challenges e.g. feedstock and funding plan for major projects;

• Continue with cost optimisation across the Group, already savings over R1 billion have been identified at PetroSA;• Gas to Power project which will divert the tail gas to Eskom’s Gourikwa Power Station;• Condensate Project which seeks to address the current feedstock challenges by converting the GTL refinery to full

condensate processing;• Secure a long-term contract with Eskom for the coal supply;• Tank refurbishment at Milnerton and Saldanha which will enable SFF to increase storage of crude oil in line with government

policy. Excess capacity will continue to be rented to international oil traders thus enabling SFF to generate income;• Developing a funding plan for all projects identified and agreed to by the Board during the 2014/15 financial year; and• Project Genesis which aims to bring the right skills at the holding company so that it can provide oversight and other value

adding activities to the Group. This project is substantially complete and CEF should from now on take the appropriate leadership in the group.

The Grow Phase which comes into effect once Stabilise Phase is done involves the implementation of projects that will enable the Group to execute the mandate given by the Department of Energy and also ensure long-term financial sustainability. The Lead Phase will seek to achieve the long-term objective of CEF i.e. to be a market leader and provide (thought) leadership on security of energy supply on behalf of and to the DoE. Investments/operational income from the refinery, gas infrastructure and renewable energy projects should be dependable and predictable by this time.




Appreciation

I express my utmost gratitude to the Executive Management within the Group and all employees for their overwhelming commitment to the implementation of our objectives during the challenging financial year under review. This is a testimony of the enthusiasm and willingness to embrace the values of the CEF Group. I am proud to lead and be associated with an institution whose employees have collectively shown notable resilience, selflessness and drive to make a difference despite the difficult operating environment within our diverse industries.

I thank the CEF Group Board of Directors for their support in ensuring that we remain committed to delivering on our mandate as promised to our shareholders. My gratitude also goes to our shareholder, represented by the Minister of the Department of Energy, for the guidance during these challenging times. I would like to recognise the Portfolio Committee on Energy for the appreciation of and continued interest in the role and activities of the CEF Group of Companies.

Mr S MthethwaInterim Group CEO



Performance against Objectives

Objective

Indicator Target Status Comments

Contribute to Security of Energy Supply

Number of investments in the clean energy sector

Two significant investments made by CED in the Clean Energy Sector by 31 March 2015 (“significant” is where CEFs investment exceeds R50m).

No investments were done by the due date. Results for CSP Round 3.5 were disappointing as the Ilanga 2 project was not successful.

Not achieved

Strategic crude oil stock volumes, grade and quality

Strategic crude held by SFF to meet predetermined quality, quantity and grade targets.

Strategic stock is within the prescribed targets.

Achieved

Coal sales by AE1.2 million tonnes of coal are sold during the year ending on 31 March 2015.

Cumulative sales are below target due to reduced Eskom off-take.

Not achieved

Mossel Bay refinery volumes

The Mossel Bay refinery production target is 7.2047Mbbls for the year ending 31 March 2015.

Production did not meet the target due to the delay in commissioning FO.

Not achieved

Implementation of the Share Purchase Agreement by PetroSA

The downstream acquisition share purchase agreement is implemented by PetroSA by 31 March 2015.

The acquisition was cancelled due to PetroSA being unable to raise the required funds.

Not achieved

Develop a Comprehensive Funding Plan

Funding planA comprehensive funding plan for capital projects is developed and documented by 31 March 2015.

Some of the subsidiaries developed funding plans but the Group could not develop the required consolidated plan due to uncertainty surrounding sustainability.

Not achieved

A diversified, prioritised project pipeline

A project pipeline is developed before 31 March 2015 and is tabled at PAMC. Clear criteria for qualification are developed and documented as part of the activity.

The most recent updated project pipeline was submitted to the PAMC meeting (board members only) of 24 February 2015.

Achieved



Objective

Indicator Target Status Comments

Develop a High Performance Organisation

Filled Senior Management positions

At least 80% of senior management positions are filled across the Group by 31 March 2015.

While significant progress has been made towards this target board decisions to freeze some positions has meant that the target has not been fully achieved.

Partially achieved

Harmonised HR Policies

All HR Policies across the Group are harmonised by 31 March 2015.

The HR Forum and the CEF HR subcommittee have reviewed the harmonised policies.

Achieved

Standardised Individual Performance Management System

The Individual Performance Management System is standardised across the Group by 31 March 2015.

The process for this objective was delayed and the system will only be standardised during the new financial year.

Not achieved

Development of a gas strategy for the Group

CEF Group Gas strategy

A CEF Group Gas strategy document with an action plan is produced and reviewed by Board before 31 March 2015.

The gas strategy document was reviewed and approved by the Board on 26 February 2015.

Achieved

Improve Safety, Health and Environmental Compliance

Number of fatalities due to operations in the CEF Group

Zero. No fatalities have been recorded in the Group.

Achieved

Disabling Injury Frequency Rate

Less than 0.4 per 200 000 hours worked.

Disabling injuries are less than the accepted upper target, although there were a number of incidents in the last quarter that raised the DIFR.

Achieved

Number of reportable environmental incidents

Less than 17 across the Group during the year ending on 31 March 2015.

A total of seven environmental incidents have been reported for the entire financial year. Three of these were during quarter four.

Achieved


SECTION

7


FINANCIAL REVIEW


FINANCIAL REVIEWFINANCIAL REVIEWFINANCIAL REVIEWFINANCIAL REVIEWFINANCIAL REVIEW

Group CFO’s ReportThe CEF Group delivered a less than satisfactory set of financial results during the period under review. The highly volatile macro-economic environment, significant decline in the oil price, Project Ikhwezi delivering less gas than originally anticipated and lower coal sales to Eskom contributed significantly to the financial performance.

Our biggest subsidiary, PetroSA, was affected by the continued lack of adequate feedstock for the GTL refinery. This was made worse by the poor delivery of Project Ikhwezi, and the commercial gas reserves were significantly lower than what anticipated when the project was approved in 2011. In addition to the shortage of gas, PetroSA was also impacted by a substantial decline of the oil price. The challenges of feedstock and well as low oil price environment are expected to continue in the coming financial year.

Low oil prices had a positive effect on the demand for oil storage and this benefited SFF, this is evidenced by a large increase in rental revenue. AEFMC faced tough market conditions, and the demand for coal from Eskom reduced during the year mainly due to increased breakdowns at Kendal Power station. AEFMC has however now secured long-term contract with Eskom which will supply coal to both Kendal and Kusile Power Stations.

The reality of sustainability challenges over the medium-term and the global market volatility which is expected to continue during the year ahead has caused the Group to embark on a concerted effort to improve the performance of all entities. Project Genesis, a project to streamline the CEF head office structure, and to ensure capabilities to work towards a high performance business, is almost complete whilst a turnaround plan for PetroSA is also being developed.

FINANCIAL REVIEW


FINANCIAL REVIEWFINANCIAL REVIEWFINANCIAL REVIEW


The Group posted a net loss of R14 billion (R1,4 billion in 2013/14) for the year ended 31 March 2015. The net loss includes impairments at both PetroSA GTL facility and Ghana Investment of R14,4 billion (R3,4 billion in 2013/14). Excluding the impairment, a net loss of R0,2 billion was recorded compared to net profit in the prior year of R1,9 billion.

In 2011 PetroSA Board approved Project Ikhwezi, a five-well drilling campaign at a cost of US$1,3 billion. As at year end US$1,2 billion had been spent on project, three wells had been completed and gas is flowing from these wells. At approval the project was expected to deliver 208 bcf of commercial reserves and extend the life of the GTL to 2020. At year end only 25 bcf of commercial reserves were expected thus shortening the commercial life of the GTL to 2017. It is clear that the project did not meet its objectives hence the large impairment in the current year, the project was suspended in May 2015. The decline in oil price also contributed about 20% to the impairment of the GTL. A review of the carrying values of PetroSA Ghana assets i.e. Jubilee and ten development assets in light of the current oil price resulted in the impairment.

Our key financial indicators are as follows:

From a positive perspective, the fact that the Group was still able to generate cash from operations of R4,4 billion (up 36% from previous year) during the year given the losses provides comfort that the potential of a financial turnaround is possible. Unfortunately, in our quest to find gas for our GTL facility more cash was spent on investing activities than generated by our operations.

2015R’000

%change

2014R’000

Revenue 18 515 161 -14.1% 21 553 172

Gross profit 1 353 865 -53.2% 2 892 996

Gross profit margin % 7.3% -45.5% 13.4%

Fixed asset impairments 14 449 739 325.7% 3 394 563

Operating expenses 1 895 676 12.2% 2 159 995

Operating profit/(Loss) -14 751 188 919.1% -1 447 536

Operating profit/(Loss) exc Imp -301 449 -115.5% 1 947 027

Operating profit margin % -79.7% 1086.3% -6.7%

Net profit after tax -14 274 433 882.5% -1 452 867

Net profit margin % -77.1% 1043.7% -6.7%

Net interest received/(Paid) -580 061 546.4% -89 743

Return on equity % -94.5% 1795.3% -5.0%

Liquidity Ratio 3.56 6.7% 3.34

Cash received from operations 4 440 350 36.4% 2 892 089

Capital expenditure 5 973 286 -12.8% 5 296 985

Free cash flow -1 848 157 -19.2% -2 287 518

Cash balances 10 077 251 -8.0% 10 953 250


Subsidiary Operational Performance

The following summary provides a clear indication of how the Group’s subsidiaries performed during the year under review:

It is clear from the segmental report what substantial role PetroSA plays in the financial results of the Group. Furthermore it is also clear that across the Group our subsidiaries operational performance was poor compared to the previous year.

Our regulatory/non-profit cluster includes two entities that provide vital function on behalf of the state and citizens of the country, namely:

• SFF ensures security of energy supply in case of a crisis by keeping between 18 and 20 days of crude oil stock should issues arise globally that the country cannot import their necessary fuel requirements; and

• PASA a license regulator managing licenses for exploration on behalf of the State.

These two entities are not profit driven. They are predominantly earning income from interest on substantial cash holdings. SFF with additional warehousing available is currently renting space to commodity traders in order to assist in funding their operations. Commodity traders generally require more storage space for oil when prices are low as is currently the case. Some technical issues prohibit SFF to maximise the storage potential and these will be addressed in the short-term. Within our commercial cluster PetroSA’s poor performance is of concern to the Group. Although global oil prices that is not in the subsidiaries hands played a substantial part in the current poor performance (R14.5 billion loss), the execution of projects, flexibility in adjusting to the environment and the shortage of feedstock to its single biggest financial contributor will have to be addressed as a matter of urgency in the coming year.

• iGas, an investment holding company specialising in gas infrastructure, delivered the highest profit to the Group with a net profit after tax of R118 million (R98 million in 2013/14). The latest independent valuation of iGas investment into Rompco is R2.3 billion, dividend income is steady and there is minimal risks going forward.

• AEMFC the state the mining company delivered poor results, from a net profit of R86 million in 2013 and R33 million in 2014, net profit has reduced with a further R20 million in 2015 to R13 million. As indicated earlier the low sales to Eskom are the major contributor to this performance.

FINANCIAL REVIEW

Segmental summary

TurnoverR’000

Net profit/(Loss) after taxR’000

2014 2015 2014 2015

18 263 13 266 CEF Head Office 24 933 67 241

18 263 13 266 CEF SOC 24 933 67 241

126 775 22 389 Regulatory Cluster -6 585 -36 935

34 632 28 745 PASA -27 357 -39 988

92 143 198 644 SFF 20 772 3 053

21 429 745 18 284 199 Commercial Cluster -1 540 619 -14 394 373

21 199 294 18 048 631 Petro SA -1 663 297 -14 573 783

iGas 97 715 117 781

230 073 235 359 African Exploration 33 472 13 481

378 209 Other -8 509 48 148

-21 611 -9 693 Inter-company Transactions 69 404 89 634

21 553 172 18 515 161 -1 452 867 -14 274 433


FINANCIAL REVIEWFINANCIAL REVIEWFINANCIAL REVIEW

The Group financial position and cash generation

The Group’s net assets have decreased from R29 billion in 2013/14 to R15 billion in 2014/15 as a result of the losses in the current financial year; two thirds of net assets represent cash balances. Although solvency for the Group still remains acceptable, the losses incurred by PetroSA is reaching a point where solvency would be a concern should losses continue going forward. Liquidity at 3.56/1 is still above the general norm of 2/1.

Capital expenditure of R5.9 billion exceeded a positive generation of cash flow from operations by R1.8 billion. In the last four years during most of the capital expenditure was on the Ikhwezi project which did not produce the anticipated results. Cash balances have reduced from R13 billion in 2012/13 to R10 billion in the year under review.

Group’s financial prospects

The next 12 months will be critical in ensuring that the Group reaches potential for sustainability beyond. The key drivers that from a financial perspective of the CEF Group are as follows:

• Brent Crude Oil pricing: Almost all over selling prices are directly linked to oil prices. As the Group cannot impact the global commodity market, our businesses need to be flexible in order to maintain sustainability throughout low oil prices periods;

• Gas feedstock: The production of synthetic fuels through our GTL facility in Mossel Bay is dependent on gas in order to manufacture fuel. With sales off-take predominantly fixed, a shortage of feedstock results in buying finished product therefore substituting a high margin product with a low margin product; and

• Projects/Investments: Execution of projects, selection of projects and the type of projects do have a serious short-term and long-term financial effects.

The Group expects the tough global environment to continue in the short-term. Given the fact that the Group does not have control over the macro environment it is absolutely critical to evaluate what the Group needs to do to ensure sustainability over the short-term and once sustainability is reached, to grow the Group into a financially feasible operation.

The following is our focus in the next financial year in order to get the business sustainable:

• Immediate turnaround project to be implemented at PetroSA looking at all the facets of the business;• Immediate preservation of cash with capital expenditure and other investments delayed. Focus across the Group

to shift to cash generation;• Improvement of operational efficiencies across the board;• Remodel our project selection, evaluation and execution;• Evaluation of current business model inclusive of shareholder structures, type of businesses, governance structures

and entity structuring in line with future strategies, a high performance business and to global standards; and• Development and implementation of a winning culture.

Finally I would like to thank the business for all the effort during the past year. We do realise we have an enormous year ahead of us but I am confident that we have the right people and attitude to get past the hill. Lastly I would like to leave you with the following comment:

“Wisdom is meaningless without courage” - Reuel Khoza

Mr D du ToitInterim Chief Financial Officer


SECTION

8


OPERATIONS REVIEW


OPERATIONS REVIEWOPERATIONS REVIEWOPERATIONS REVIEWOPERATIONS REVIEWOPERATIONS REVIEW

Our BusinessThe core business activities of PetroSA include: exploration and production of oil and natural gas; participation in, and acquisition of local and international upstream petroleum ventures; production of synthetic fuels from offshore gas at its Mossel Bay refinery; development of domestic refining and liquid fuels logistical infrastructure; and marketing and trading in oil and petrochemicals.

Outside South Africa PetroSA has exploration acreage in Equatorial Guinea and Namibia, and a shareholding in the oil producing Jubilee field in Ghana. Further expansion of this activity is under investigation subject to the availability of funding. The company is in the process of scaling down the Equatorial Guinea operation.


An impairment on fixed assets of R12,2 billion and a similar impairment at the Ghana operations of R2,2 billion resulted in a loss of R14.5 billion for the financial year. More disappointing however is the fact that an operational loss of approximately R1 billion before impairments was incurred. High fixed overhead costs and an unfavourable mix variance between manufactured fuel and purchased fuel was the main reasons behind the operating loss.

The large loss has resulted in net assets declining to R4.8 billion compared to total assets of R21 billion.

OPERATIONS REVIEWOPERATIONS REVIEWOPERATIONS REVIEW

2015R’000

%change

2014R’000

Revenue 18 048 631 -14.9% 21 199 294

Gross profit 1 043 263 -61.0% 2 674 699


Operating expenses 4 012 366 -20.2% 5 070 809

PPE impairment 14 449 739 328% 3 394 563

Operating profit -14 551 366 1075.1% -1 238 361


Net profit after tax -14 573 783 776.2% -1 663 297

Net profit margin -80.7% 929.2 -7.8%

Net interest received/(Paid) 896 819 145.8% -364 807

Return on equity % -352.3% 3812.4% -9.0%

Liquidity Ratio 2.31 -4.5% 2.42

Cash received from operations 3 470 966 59.9% 2 170 891

Capital Expenditure 5 782 255 9.5% 5 281 435

Free Cash Flow -320 854 -84.1% 2 021 488

Cash balances 4 094 787 -20.2% 5 132 248

Ms N Nokwe-MacamoPresident and CEOPetroSA



Although a loss of R14.5 billion was incurred, some positive news is that PetroSA was still able to generate cash from operations to the value of R3.5 billion. An amount of R5.8 billion was spent on capital expenditure resulting in a negative free cash flow of R321 million. Cash balance ended up on R4 billion.

Although solvency and liquidity still remains adequate, the shorter lifespan of the GTL facility as a result of gas feedstock shortage could substantially change the solvency and liquidity of the Group.

The current year is still expected to be a tough year for PetroSA with both the global commodity market and the shortage of gas feedstock playing a major role.

Strategic ChallengesThe company relies on a single source of income, i.e. the GTL refinery. Dwindling cash and feedstock reserves coupled with high overheads and low oil prices have put the company in an extremely precarious position. Radical and urgent interventions are required to ensure survival of PetroSA, and this is being actioned.

Key Focus initiativesIn response to this, a schedule of initiatives that require immediate focus in the short-to-medium term has been developed as the guiding framework. A study on options for the refinery is nearing completion. These include an option for supplying gas to the Gourikwa power station thus assisting Eskom with its fuel challenges. Alternate feedstock options including increased light condensate and later heavy condensate are being evaluated. A strategic intervention team has been formed to stabilise the PetroSA business environment and return business into normality in terms of acceptable levels of operational delivery, financial health and administration. This will require establishing the true position of the company from a strategic operational and financial perspective and assessing the option available to the company for crisis management and stabilisation. A determination of the business’s ability to survive in the short term would thus be made. Other initiatives include:

• Review of the TSL Business model;• Block 9 and 11a options;• Gas to Power activities; and• Cost optimisation.


Our BusinessSFF’s mandate is to manage strategic crude oil on behalf of the South African Government. The key operating activities of SFF are located at Saldanha, Milnerton and Ogies.

The SFF Saldanha storage facility provides infrastructure for crude oil storage linked by pipeline to the Saldanha Bay harbour. The primary function of the storage facility is the cost-effective and safe receipt, storage and distribution of strategic and commercial crude oil stocks. This facility has a capacity to store about 45 million barrels of crude oil. Strategic crude oil stock is currently 10.3 million barrels.

The Milnerton tank farm has the capacity to store 7.7 million barrels of crude oil which is currently not utilised. A plan has been developed to make this tank farm commercially viable and position SFF for this opportunity as there is now a renewed interest in renting ullage from oil speculators and traders possibly boosting SFF’s revenue streams. This will require the refurbishing its Milnerton tanks that are above ground and well sized (each has a 200kbbl capacity).

All operational activities related to crude oil storage at Ogies have ceased except the activity the pumping water from the empty containers to prevent pollution of the natural water table. SFF has oil pollution control facilities which minimise any environmental risks during loading and unloading of oil tankers. SFF will lead the process of encouraging South Africa to adopt the Oil Pollution Preparedness, Response and Co-operation Convention and demonstrate that SFF Oil Pollution Services is capable of being the National Response Unit.

2015R’000

%change

2014R’000

Revenue 198 644 115.6% 92 143

Gross profit 198 644 115.6% 92 143

Gross profit margin % 100.0% 0.0% 100.00%

Operating expenses 297 895 77.7% 167 600

Operating profit -87 814 -20.4% -72 956

Operating profit margin % -44.2% -44.2% -79.2%

Net profit after tax 3 053 85.3% 20 772

Net profit margin % 1.5% -93.2% 22.5%

Net interest received/(Paid) 90 867 -3.1% 93 728

Return on equity % 0.0% -85.4% 0.3%


Cash received from operations -18 542 -75.5% -75 574

Capital Expenditure -12 836 1692.7% 71

Free Cash Flow 67 -101.2% 5 621

Cash balances 1 881 963 3.3% 1 822 518

OPERATIONS REVIEWOPERATIONS REVIEWOPERATIONS REVIEWOPERATIONS REVIEWOPERATIONS REVIEW

Amb. B GilaCEOSFF



Financial PerformanceSFF’s results are disappointing taking into account the high demand for storage that is visible in the 115% increase in revenue to R198 million during the year under review. A net profit of R3m (2014: R21million) was achieved during the year.

An operating loss of R88 million was achieved as operating expenses increased with 77% to R298 million from R168 million during the previous year.

The business is subsidised with interest received (R91 million) in order to break even. The interest comes off a cash balance of R1.9 billion. A concern however is with spiralling costs and the need to spend capital investment on maintenance and infrastructure that the cash on hand will be depleted over time.

Strategic Challenges• Declining cash reserves;• High operational and capital expenditure cost structure;• Milnerton terminal can only transfer crude oil to the Chevron refinery and this limits the terminal’s value proposition

to third parties;• Competitive storage facility landscape;• Limitations from the company being a Section 21 company not a (SOC) Ltd entity;• Timely response to the new Strategic stock policy; and• Recovery of the R1.5bn NMPP line fill from industry/market.

Key Focus initiatives• Address the disproportionate imbalance between operating costs and revenue;• New Multiple Product Pipeline Storage Facility-facility is intended to be built that can be connected to the

existing pipeline; and• Review of the operating business model and implementation of growth strategies in line with business model review

for sustainability are some of the key initiatives planned.

Going forward• SFF will play major role with regards to the Strategic Stock Policy and the current energy crisis gripping the

country; and• SFF is intending to build a strategic stock facility that will carry refined product and that will diversify the stock

holding and also will gain more proximity to market to shorten response time in cases of emergency.

2015R’000

%change

2014R’000

Revenue 198 644 115.6% 92 143

Gross profit 198 644 115.6% 92 143







Net interest received/(Paid) 90 867 -3.1% 93 728



Cash received from operations -18 542 -75.5% -75 574

Capital Expenditure -12 836 1692.7% 71

Free Cash Flow 67 -101.2% 5 621

Cash balances 1 881 963 3.3% 1 822 518


Our BusinessAEMFC is mandated to acquire and hold all exploration and mineral rights in respect of all energy related and other minerals on behalf of the State and engage in the mining thereof. This has allowed the necessary consolidation of all mining and mineral rights and interests within the CEF Group into one company (AEMFC) thus enabling the optimal and effective exploitation of such mining and mineral rights.

The company is also directed to support Eskom and PetroSA by ensuring that there is secure supply of feedstock for sustainable power generation and development of indigenous fuels e.g. Coal to Liquids (CTL). AEMFC shall, whenever deemed expedient and as far as practicable, collaborate with other strategic partners in executing its business mandate.

A recent directive from the South African cabinet directed CEF to hive-off AEMFC to the Department of Mineral Resources. This means that AEMFC will cease to be a CEF Subsidiary. The AEMFC Hive Off report was approved by the CEF Board on 28 January 2014. Modalities of the Hive Off seek to ensure that CEF recovers both its loan and equity in AEMFC without putting AEMFC in a situation where it is unable to meet its obligations as they fall due.

African exploration has, as a result of not being able to grow the business due to various reason, being stagnant the past three years from a revenue perspective. Unfortunately costs have increased substantially as a result of inflationary increases and due to institutional capacity added from a resource perspective. Net profit is down from R33 million to R13.4 million. Although AEMFC is looking at potential projects in order to grow not many of these assets are financially feasible and funders at this stage in time is reluctant to fund smaller operations.

The balance sheet is healthy with returns of 21% on equity and a liquidity of 2.17/1. Cash balances are on R72 million, down from R92 million as a result of exploration projects carried out during the period.


Mr S MadondoCEOAEMFC



Strategic Challenges• Funding of large projects in a sustainable manner;• Pending Hiving Off decision (Financial impact to AEMFC and how DMR can fund such projects); and• Eskom has reduced its off-take from AEMFC.

Key Focus initiatives• Next steps regarding the hive-off and transition process (Modalities);• Vlakfontein Extension;• T-project;• Klippoortjie coal mine; and• Strategic partnership with Eskom in light of current energy crisis.

2015R’000

%change

2014R’000

Revenue 235 359 2.3% 230 073

Gross profit 78 577 -10.2% 87 525



Operating profit 16 899 -62.3% 44 821

Operating profit margin % 7.2% -63.1% 19.5%

Net profit after tax 13 481 -59.7% 33.472


Net interest received/(Paid) -7 217 -262.3% 4 448

Return on equity % 21.0% -68.2% 66.0%


Cash received from operations 25.699 -59.7% 63 845

Capital Expenditure 3 982 -57.4% 9 337

Free Cash Flow -20 411 -262.2% 12 586

Cash balances 71 622 -22.2% 92 054


Our BusinessThe Petroleum Agency SA is a regulatory body that manages the Continental Shelf Claim Project on behalf of the country. As the current designated agency, the Petroleum Agency’s responsibilities are:

• to promote onshore and offshore exploration for and production of petroleum; • receive applications for reconnaissance permits, technical co-operation permits,

exploration rights and production rights in the prescribed manner, evaluate such applications and make recommendations to the Minister of Mineral Resources;

• monitor and report regularly to the Minister in respect of compliance with such permits or rights; receive, maintain, store interpret, evaluate, add value to, disseminate or deal in all geological or geophysical information relating to petroleum; and

• Advise the Minister of Mineral Resources on any matter or information relating to the exploration and production of petroleum beneficial to the State.

Highlights during the year under review• Successful tabling of the Extended Continental Shelf Claim Project at the UN sub

committee;• A successful marketing drive locally and internationally strengthening the company’s

identity;• First deep water offshore (3500m) drilling approved during the year; and• 37 Applications for licenses handled during the year.

As PASA has a regulatory mandate from government it is not profit driven. The results for the year was satisfactory and in line with what was planned. Although some revenue is generated through consultation, the entity is subsidising itself with cash available. This cash would still last approximately two years.


Ms L MekweActing CEOPASA



Strategic Challenges• Future Agency funding as funding for the Petroleum Agency for this financial year will be from retained earnings; and• The Agency has sufficient cash reserves to maintain operations until 2017. After this there will be no reserve funds.

The implication is that the DMR will need to make provision for funding PASA activities.

Key Focus initiatives• Transitioning the entity to DMR as per MRPDA law; and• Finalisation of the Extended Continental Shelf Claim project.

2015R’000

%change

2014R’000

Revenue 28 745 -17.0% 34 632

Gross profit 28 745 -17.0% 34 632



Operating profit -59 398 117.1% -27 357


Net profit after tax -39 988 46.2% -27 357

Net profit margin % -139.1% 76.1% -79.0%

Net interest received/(Paid) 19 7.8% 18

Return on equity % -13.3% 94.9% -6.8%


Cash received from operations -50 371 3780.7% -1 298

Capital Expenditure -2 397 234.3% -717

Free Cash Flow 241 382.0% 50

Cash balances 300 383 -10.2% 334 425


Our BusinessiGas is mandated by the Minister of Energy to act as the official State agency for the development of the hydrocarbon gas industry in Southern Africa in line with the overarching Mandate of CEF of ensuring security of energy supply. iGas is specifically empowered to:

• Own, invest in, construct and/or operate hydrocarbon gas transmission pipelines and hydrocarbon gas storage facilities;

• Enter into joint ventures for gas transmission pipelines and related projects; and• Conduct research into and finance or participate in projects with a view to the

diversification of energy usage to include hydrocarbon gas.

iGas is a 25% shareholder in Rompco (Pty) Limited, which owns the 865km gas transmission pipeline from the Pande/Temane gas fields in Mozambique to Secunda in South Africa, as well as the 128km Loop Line 1 in Mozambique.

To meet the South African growing energy needs and contribute to economic growth, iGas has over the years been involved in planning for a variety of gas transmission pipelines and LNG regasification terminals in strategic location across the country. iGas has also reviewed other infrastructural options of gas transportation within a country.

Highlights during the year under reviewRompco through Loop Line 1 has increased the capacity of the pipeline to supply more gas to Mozambique. The majority of the extra gas transported, through Loop Line 1, supplies Ressano Garcia (Mozambique) for use in power generation plants and the remainder of the gas goes to Maputo.

A further highlight has been the completion of the plans to construct a second Loop Line in Mozambique. The gas transmitted through this new Loop Line will be to supply South African markets in 2017.

Government’s commitment and strategy to include gas as part of the future energy mix, including a future requirement for supplying 3126MW of power generation from gas, has paved the way for the introduction of more gas into the economy of South Africa. iGas, with its experience and technical skills, will play a substantial role to assist the country with the necessary infrastructural development.

Financial PerformanceiGas’ consistent dividend growth over the last five years has been maintained, with the year under review showing a 10,9 % dividend growth. Evident of our investment in Rompco is the fact that our net assets more than doubled over the last three years.

With dividend growth stable and generating adequate cash flows, iGas is ready to invest substantially into gas infrastructure, as dictated by its mandate.


Dr M De PontesCOOiGas



Strategic challenges Although iGas is in a good financial position, there do however remain intrinsic strategic challenges as a result of many external and internal factors in the energy sector which are:

• The ability to attract gas to the South African market whilst keeping the cost of gas competitive;• Development of equitable funding structures to enable the construction and commercial operation of gas

infrastructure, including gas transmission pipelines; and• Planning for the future development of Shale gas in South Africa amid a depressed global Shale Gas industry.

Key InitiativesTo address the myriad strategic challenges, iGas has embarked on a number key initiatives support the delivery of the broader objectives of the CEF Mandate.

• Continue expansions of the Rompco gas transmission pipeline to allow more gas to be delivered to industrial development areas of Mozambique and South Africa;

• Work with Government to enable gas to supply power projects;• Plan transmission pipelines to enable faster penetration of gas into the country with a view to further future

expansions of the gas network;• Under an initiative in Project Phakisa, iGas is leading the effort to plan gas transmission pipeline servitudes

within the major coastal Industrial Development Zones and between the major industrial areas of the large coastal cities of South Africa. This activity is aimed to encourage exploration of off-shores gas deposits. Immediately start the initiative to bring more gas to South Africa;

• The CEF Group has all the required skills to be involved in Liquefied Natural Gas import, and regasification terminals, supporting Government to solve the current electricity shortages and simultaneously opening up the South African market to gas. These various initiatives will also reduce the reliance on diesel by Eskom for their generators, with the move to natural gas; and

• Lead the implementation of the CEF Group Gas Strategy during 2015/16.

2015R’000

%change

2014R’000

Dividend Received 127 500 10.9% 115 000





Net profit margin % 92.4% 8.7% 85.0%

Net interest received/(Paid) 6237 591.5% -1269


Liquidity Ratio 10.89 281.5% 2.86

Cash received from operations -12 461 7.5% -13 469

Capital Expenditure - 100.0% 19

Free Cash Flow 121 276 20.3% 100 779

Cash balances 199 265 1.1% 197 156


Energy Projects Division (Operating within CEF SOC)The Energy Division was mandated in 2003 by the then Minister of Minerals and Energy. The Ministerial directive set out the mandate of the Division to:

• Initially catalyse the renewable energy sector;• Develop and invest in renewable energy projects that will use primary energy sources such as solar, wind, biomass,

biogas and hydro;• Develop and invest in clean and alternative liquid fuels such as biofuels;• Be actively involved in renewable energy technology development and related manufacturing; and• Provide modern, safe and sustainable energy solutions to the less developed areas and low-income households in

South Africa.

In its formative years, the Division catalysed the Renewable Energy (RE) industry by developing small RE projects such as the 5MW Darling Wind Farm. The renewable energy sector is now well developed with many players in the market. This thus allows the Clean Energy Division to focus on large scale Renewable Energy (RE) investments that can contribute to returning the CEF Group to financial sustainability.

Key highlightsIn 2014/15 financial year, the focus for the Division has been to streamline its operations so that it can play a meaningful role in the South African energy industry by divesting from unprofitable small projects and investing in large scale commercially viable projects.

The division has freed up approximately R100 million which would otherwise have been required for further investment by:

Reviving the projects rights of CCE, the 7.5W biomass to electricity project and selling same to a consortium that submitted a bid under the Small Projects Renewable Energy Independent Power Producer Procurement Programme. CCE was successful in its bid and once in operation will supply 10% of the George Local Municipality electricity demand.

Divesting from Thin Film Solar Technologies (Pty) Ltd (TFST) because the company has failed to reach the critical milestones. TFST is a special purpose vehicle which was created to establish a manufacturing facility for photovoltaic panels, using a South African developed thin film solar technology. CEF is looking at other opportunities for renewable energy technology manufacturing.

Divesting from Darling Wind Farm, a special purpose vehicle which was created to build and operate a 5.2MW wind power generation plant, which has been in operation since 2008 to serve as a national demonstration plant. CEF invested R17 million for 49% shareholding. Since there was no regulatory framework for renewable electricity at the time, Darling Wind Farm negotiated a power purchase agreement (PPA) with the City of Cape Town for the wind farm. The tariff in the PPA cannot sustain the wind farm and the company has been provisionally liquidated.

OPERATIONS REVIEW

PC MasanganeGM: Energy Projects Division


In 2006 CEF invested R1.4 million to acquire a 19% shareholding in Methcap. Methcap is waste-to-energy project, which uses waste gas from the PetroSA refinery to generate electricity. The project is currently operational and it declared its first dividend of R760,000 in 2014/15 financial year to CEF. Even though Methcap continues to operate profitably, the risk of feedstock supply to the PetroSA refinery will impact the going concern of Methcap.

Projects under developmentCEF owns 29% of ENER G Systems Joburg (Pty) Ltd-Ener G is a special purpose vehicle which has been created to develop, finance, construct, operate and maintain a 17MW landfill gas to electricity project at five landfill sites within the City of Johannesburg, and has received Preferred Bidders status for Round three of the REIPPPP. The project is expected to reach financial close in July 2015 and the construction will commence in August 2015.

The Ener G project is expected to start contributing electricity to the national grid in March 2017.

Growth opportunitiesThe energy sector in South Africa is on a build phase as supply continues to struggle to meet demand both in electricity and transport fuel. Transport fuel imports continue to increase impacting negatively on the country’s balance of payments. Electricity shortages cannot be met by imports as the whole SADC region experiences electricity shortages. This build phase presents a number of opportunities for the CEF Group in particular:

• The planned procurement of 6300MW of renewable energy;• The gas to power programme which will see the procurement of 3200MW; and• The anticipated biofuels programme to produce 460 million litres of biofuels.

The above programmes present a growth opportunity for CEF to build a bedrock for commercial investments that can return the Group to financial sustainability so that it is best positioned to fulfil its developmental mandate. CEF has set aside an amount of R1 billion to invest in the above sectors.


SECTION

9


SUSTAINABILITY OF THE BUSINESS


SUSTAINABILITY OF SUSTAINABILITY OF SUSTAINABILITY OF SUSTAINABILITY OF SUSTAINABILITY OF

SHEQThere has been a global trend towards more comprehensive reporting of metrics that provide a measure of sustainability of organisations. The Global Reporting Initiative (GRI) has developed a set of metrics to assist corporations in selecting appropriate metrics for measuring and reporting on sustainability issues. The guidelines issued by GRI suggest metrics divided into six high level categories. The Group is investigating and identifying the most appropriate metrics from the set tabled by the GRI and will work towards the inclusion of these in future reports. For the current report the focus is on two categories, these being Environment and Social.

The specific metrics used are included in the objectives for the year and include employee health and safety and environmental incidents.

For the year under review we can report that there were no fatalities due to our operations, the disabling injury frequency rate was below the maximum target and environmental incidents were less than half the target for the year. With regards to governance the largest subsidiary approved a revised SHEQ policy and this will be used as a guideline for other subsidiaries with specific adjustments for different operating environments. CEF is committed to ensuring the safety and health of employees and is particularly vigilant about the impact of our operations on the environment. These items are embedded in both organisational objectives and operating practices. They form an important part of the organisation’s sustainability initiatives.

Key metrics for the Safety and Health parameters relate to the work environment and are measured by the number of fatalities and disabling injuries.

It is the objective not to have any employee fatalities during business operations. The operating environment is one that is potentially very hazardous and every precaution is taken to minimise and eliminate unsafe working conditions. We can report that no staff members or contract workers were involved in fatal accidents during the year under review.

The disabling injury rate was also better than the benchmark for the industry.

PetroSA and SFF operate within the petrochemicals sector while African Exploration is in the mining sector. These sectors in general have different disabling injury frequency rate parameters. Those for petrochemicals are lower than those for mining, and this lower rate is used as the target for the Group. This reinforces the seriousness with which employee safety is managed within the Group.

On the environmental side there were two areas on which the Group placed emphasis.

The first was the limit to reportable environmental incidents. By its very nature the industry is susceptible to environmental incidents. These typically would be spills or releases of petroleum products or gas. The number of incidents during the year under review was less than the target, and these were all minor incidents.

The second environmental aspect is the carbon footprint of Group operations. This is an impact that unfortunately cannot be easily mitigated against. This is due to the nature of the operations.

More than 99% of carbon emissions are directly related to PetroSA with 94% from the GTL facility at Mossel Bay. PetroSA has already identified interventions that will reduce emissions and has targets for reductions. These will require process changes and will require capital expenditure. Reductions will therefore only be realised over a few years.

Interventions in other subsidiaries are limited and will provide very small reductions in relation to those possible from PetroSA. Most reductions will be from rationalising air travel under Scope 3 emissions.

Should mining operations increase at AEMFC then an increase in especially Scope 1 emissions can be expected from this subsidiary.

The renewable energy projects under the management of the holding company offer an opportunity to offset some of the emissions. A carbon footprint benchmark exercise was conducted for the 2013 financial year and reported on during the reporting year. PetroSA has reviewed the calculation methodology used to calculate emissions from the flare and the footprint was adjusted. The carbon footprint for PetroSA for the last three years of available emissions is tabulated on the next page.



THE BUSINESSSUSTAINABILITY OF SUSTAINABILITY OF SUSTAINABILITY OF

In terms of certification, the SFF Saldanha facility has OSHAS 18001, ISO 9001 and 1SO 14001 certification, while Milnerton has ISO 14001 certification. PetroSA has ISO 9001 certification.

Significant work has been done on environmental processes and full ISO 14001 certification will be pursued once the PetroSA SHEQ management team is completely satisfied with the work they have done.

Financial year Carbon footprint: Mt CO2e

2011/2012 3.36

2012/2013 3.40

2013/2014 3.28

Financial Sustainability The Group expects the tough global environment to continue in the short-term. Given the fact that the Group does not have control over the macro environment it is absolutely critical to evaluate what the Group needs to do to ensure sustainability over the short term and once sustainability is reached, to grow the Group into a financially feasible operation. The strategic interventions discussed above namely Project Apollo and Genesis are aimed at countering the negative environmental impacts. It is also intended that the continued implementation of Vision 2025 will also steer the Group to improved business performance and sustainability.

Human Capital Management

Human Capital Management Strategy

CEF SOC has developed a Human Capital Management strategy which defined talent management, leadership development, development of a high performance culture as well as employee value proposition as critical priorities. This put the attraction, development, motivation and retention of people as key to the success of the CEF Group. To this end a strategy to harmonise and standardise HR policies was embarked upon in the reporting period. In addition, the Group proposed a OneCEF programme in order to enable the Group to manage its Talent as one cohort. These programmes are due for rigorous implementation in the current financial year as we enter the global war for talent arena.

Scarcity of Talent

The energy sector is characterised by a need for very specialised skills and experience. Following the a Skills Audit conducted in the 2013/14 financial year, the Group acknowledged that there was a challenge in respect of required specialised skills at the Holding Company level. Hence the implementation of Project Genesis during the year under review which focused on restructuring and the attraction and recruitment of highly skilled and experienced staff to assist CEF SOC to provide effective strategic direction support to the Group in matters of human capital for business sustainability. There is an urgent need to recruit and develop appropriate skills in order to manage a sustainable and effective organisation.

Skills Retention

The retention of staff with scarce skills has been a challenge for the Group, as it is for many other organisations requiring highly trained and experienced individuals. The key objectives of the Group skills retention plan include:

• The Implementation of the Group-wide Talent Management Framework which provides parameters for identifying critical skills, potential and succession in order to hold onto the right skills for the Group;

• Creating an Employee Value Proposition that will attract and retain skills within the Group; • Investing in development and rewarding employees both in the short and long term; and• Transforming the environment by creating a culture of high performance in CEF that will attract and retain employees

within the Group.


Group Remuneration Report

In the year under review, The CEF Group reviewed all HR policies with a view to harmonise them in order to support the strategic alignment and coordination of the Group. Key to this was the development of the CEF Total Remuneration and Reward Policy, Strategy and Philosophy.

The purpose of the Remuneration Philosophy and strategy is to ensure that the manner, in which the CEF Group and its subsidiaries (CEF) remunerate and reward employees, reflects the dynamics of the market and context in which the entities operate. The approach to remuneration and reward will play a critical role in attracting and retaining high performing individuals and thereby supporting CEF’s commitment to the achievement of its strategic objectives, which can only be achieved through a highly motivated workforce.

CEF’s remuneration policy has been designed to:• Motivate an employee to improve performance;• Encourage higher levels of skills development in an employee; and• Contribute towards the organisation achieving its targeted mission and objectives as well as retention of

scarce resources.

To achieve the above the company’s policy is based on the following principles:

• Competitive Pay Levels: CEF is committed to paying packages that are competitive relative to the labour market.• Pay for Performance: Remuneration practices will reward key employees for the contribution they make to the

entity.• Internal Equity: Remuneration differentiation between employees fulfilling roles of equal value will be based on

criteria that are fair and objective and will conform to all existing legislation.• Cost Management: CEF will manage the total cost of employment for all employees.• Benefit Flexibility: CEF will offer a selection of benefits, which are at least in line with best local practices but, bearing

in mind that they are a responsible corporate citizen.• The remuneration is non-discriminatory.

“Remuneration” at CEF is defined as the total package of financial benefits paid to every employee on a monthly or annual basis. This comprises a “Total Cost of Employment” package and excludes other varying financial benefits such as overtime, cell phone, shift and standby allowances and a performance bonus, which is paid in terms of the conditions stipulated in the Company’s Performance Management system.

The table below provides a summary of how CEF will utilise monetary rewards to attract, retain and motivate employees.

This means that CEF will:• Utilise mainly High Guaranteed pay to attract employees; • provide fair bonuses to motivate; and • Long-term incentives to retain its employees.

Reward componentImpact on individual

Attract Retain Motivate

Guaranteed Remuneration High Medium Low

Short Term Incentive Plan “STIP” (Bonus) Medium Medium High

Long Term Incentive Plan (LTIP) Medium High High




All cash remuneration packages are reviewed on an annual basis as follows:

Market Related

Updated market information is obtained from external surveys conducted on an annual basis reflecting the typical cash remuneration payable in the RSA market for various positions. These figures are based on typical job descriptions and job gradings for specific functions. The current job grading system is the Peromnes system.

The measure used in the determination of market related salary is the Consumer Price Index (CPI) for April of each and every year. Staff filling scarce skills positions may be awarded an additional increase above CPI.

Salary bandsA band of 20% below and 20% above the market midpoint is applied and management exercise discretion within such parameters.

Senior and specialist posts, which do not have easily identified equivalent positions in the external survey, are independently reviewed by external consultants on an annual basis, also using the Peromnes system.

In order to ensure that all positions within the Company can be properly compared to equivalent positions in the Remuneration Survey, all positions within the Company are evaluated in terms of the Job Evaluation Policy, M-26, when:

• Positions are established;• When significant changes are made to the content or responsibilities of a position; and• If none of the previous conditions occur, at least every three years.

Performance Assessments

Performance of all employees is assessed in alignment with the Company’s Performance Management Policy M-05 and the results of such reviews used on an annual basis to determine a performance bonus payment in line with the performance management system.

Board Decisions

The Board considers on an annual basis the following with regards to the Remuneration Policy:

• The quantum of increase to be given to employees; and• Approval of the payment or non-payment of annual incentives.

Pertinent Facts Relating to the 2014/15 Remuneration at CEF The company implemented a salary adjustment which was linked to inflation resulting in an average increase of 5.5%. Where salary increases are negotiated in various bargaining fora, increases were higher. Performance bonuses were paid out based on the performance.

Remuneration to Non-Executive Directors The remuneration of non-executive directors is determined by the Minister of Energy with the concurrence of the Minister of Finance as per the Central energy Fund Act No. 38 of 1977. The remuneration of the Directors and the Group Executives for the year under review is disclosed in Note 36 of the annual financial statements:


Group Transformation

B-BBEE Status

The Group supports the principles and objectives of Broad-Based Black Economic Empowerment (B-BBEE) contained in the Department of Trade and Investment (dti) Codes of Good Practice on B-BBEE. Based on the previous BBBEE codes, the various subsidiaries have been accredited at the following levels. An exemption has been granted for PetroSA whilst an application for AEMFC has been submitted to the dti. This is done to assist the CEF Group to operate in the commercial market without hindrance as an SOE.

Employment Equity (EE)

Management is committed to ensuring that the Group’s employee profile is representative of the communities it serves.

The Group’s employment equity plan focuses on increasing the representation of designated groups, mainly in the senior management and professionally qualified areas. Strategies have been developed to achieve internal employment equity targets, including the implementation of a comprehensive learning and development plan, in-service training, granting bursaries, job profiling and performance assessments. Key to the Group Employment Equity Plan is the improvement of the EE profile with regards to gender, youth and disability. During the period under review, the Group has largely been able to meet its EE targets as set out in the Corporate Plan. The full achievement has been hampered by the moratorium on filling of positions in some areas.

The employment equity profile of the CEF Group workforce in South Africa at 31 March 2015 is contained in the following table:

Entity B-BBEE LEVEL

CEF SOC Level 2

PetroSA Level 3

PASA Level 7

AEMFC Level 5

SFF Not applicable as SFF does not comply with any of the other components of transformation which are a prerequisite for BEE compliance

EntityBlack Staff White Staff

TotalMale Female

Number % Number % Number % Number %

CEF SOC 83 84% 16 16% 99 32 32% 51 52%

PetroSA 1 253 77% 376 23% 1 629 1125 69% 504 31%

PASA 76 93% 6 7% 82 37 45% 45 55%

AEMFC 93 97% 3 3% 96 34 35% 62 65%

SFF 115 82% 26 18% 141 111 79% 30 21%

Total 1 620 79% 427 21% 2 047 1339 65% 692 34%




Management Control

The EE Profile in terms of the Management Control as defined in the Act is as follows:

Entity

Male

Top ManagementCEO

Senior ManagementEXCO

African Coloured Indian White African Coloured Indian White

CEF SOC 1 0 0 0 2 0 1 3

PetroSA 0 0 0 0 3 0 1 3

PASA 0 0 0 0 2 0 0 3

AEMFC 1 0 0 0 4 0 0 0

SFF 1 0 0 0 3 0 0 0

Entity

Female

Top ManagementCEO

Senior ManagementEXCO

African Coloured Indian White African Coloured Indian White

CEF SOC 0 0 0 0 2 0 0 0

PetroSA 1 0 0 0 4 0 0 0

PASA 2 0 0 0 3 1 0 2

AEMFC 0 0 0 0 2 0 0 0

SFF 0 0 0 0 0 0 0 0


Group Transformation (continued)

Employment Equity at the Top and Senior Management levels by subsidiary

CEF SOC

25% of senior Management are women and there is a fair racial distribution at this level. In populating the new structure, CEF has endeavoured to recruit women into these levels to a great extent. There is a concerted effort to fill all remaining vacancies with women. Progress was further achieved with the appointment of an African woman in the position GM: Corporate Services position starting on 1 May 2015. This will further improve on the employment equity of Senior Management in the 2015/16 financial year.

PetroSA

Stretch targets of 33% and 2.5% were set for the 2014/15 financial year after the company had met its obligations in the prior year.

However, during the course of the year, the company implemented the Billion Plus optimisation initiative and consequently there were limited opportunities to appoint people. The moratorium on recruitment resulted in PetroSA not meeting its stretch targets of 33% employment in the workforce for women and 2.5% for people living with disabilities.

PASA and AEMFC

There is employment equity in the category of Senior Management for both the organisations.

SFF The employment activities during the reporting period regarding the Senior Management category of SFF did not meet the targets set for Gender Equity and future activities will focus on this.

Skills and Human Resources Development

An extensive range of training courses are offered to all employees to enhance performance and skills. Several of these courses are aimed at developing scarce skills relevant to the energy sector. A breakdown of the total amount spent on skills development across the Group is as follows:

EntityTotal spent on

Skills Development

Dates

% of Payroll spent on

Skills Development

Beneficiaries of Skills Development Training

Male Female

CEF SOC R1 940 509.10 01 Apr 2013 - 31 Mar 20141.77% 1 626 722

PetroSA R23 321 167.00 01 Jan 2014 - 31 Dec 2014

PASA R4 079 897.00 01 Apr 2014 - 31 Mar 2015 1% 63 25

AEMFC R450 491.53 01 Apr 2013 - 31 Dec 2013 23.35 110 18

SFF R1 045 000.00 01 Apr 2013 - 31 Dec 2013 23.35 110 18




Socio-Economic Development

The Group is committed to continue investment in community initiatives benefiting charitable organisations in the fields of education, welfare and health. In the past financial year, the group spending on socio-economic development projects in communities surrounding the respective group companies as well as where the need was identified were as follows:

Entity Total Spend

CEF SOC R1.7 million

PetroSA R348 million

PASA R1 484 473.00

AEMFC R298 330.00

SFF N/A


Socio-Economic Development (continued)

Breakdown of Socio-Economic Programmes across the Group:

Entity Learnerships/Internships/Bursaries Sponsorships and Corporate Social Investment

CEF SOC

Four interns in the two year cycle. The four interns resigned from CEF before they could complete their two year training cycle. Due to the restructuring process, no further Interns were taken into the organisation.

Adopt-A-School Initiative:- Magongolo Jnr Primary in KZN: R400 000 for the

construction of a computer lab.- Ndlunkulu Junior Secondary school, Eastern Cape: R700 000 for the construction of six classrooms and a

kitchen- Ntwanano Jnr Primary in Tzaneen: R400 000 for the

construction of latrines. The school were utilising pit latrines which was a hazard to the kids

Nelson Mandela Day Initiative:CEF sponsored R50 000 as well as two solar water geysers to Leamogetswe Orphanage in Atteridgeville as part of the Nelson Mandela Day. The money was spent to buy groceries, paints as well as warm clothes for the kids at the orphanage.

Cape Town Press Club:R50 000 for the sponsorship for the hosting of one of the club’s Annual Stakeholder Sessions in return for full branding rights to CEF.

DoE’s Learner Focus Week:CEF sponsored R100 000 towards the initiative which is aimed towards putting together a five-day conference for learners from previously disadvantaged areas who are doing Maths and Science. CEF is one of the stakeholders that has been taking part in the initiative since its inception in 2009.

Cell C Take A Girl Child To Work:CEF hosted 35 girl learners from two schools in previously-disadvantaged areas. The girls were then sponsored with school bags and maths sets.





PetroSA

At the end of the 2014/2015 financial year, the PetroSA Bursary Programme supported 31 full-time tertiary students. The intake comprises mainly HDI students studying towards qualifications in Engineering, Geosciences, Accounting and Economics.

Graduate in Training (GIT) Programme:Following the completion of studies, bursary recipients are appointed on two-year fixed-term contracts within PetroSA. For the 2014/15 financial year, the PetroSA Graduate-in-training programme consisted of 61 graduates placed in various divisions within the Company.

There are five students from the Cape Peninsula University of Technology Disability Unit who are currently placed on the Graduate-in-Training programme.

* See below a table stipulating different categories of Learners

and Apprentices

Technogirls Programme:The Technogirl initiative is a Government and PetroSA supported programme in collaboration with UNICEF, aimed at encouraging girl learners to study science, technology, engineering and mathematics (STEM) subjects at both secondary and tertiary level.

In 2012 15 Grade 10 girls were enrolled on the programme. The girls have now graduated from the training programme and in January 2015, 10 received PetroSA bursaries to commence their tertiary education. A further 12 Grade 10 girls joined the programme in 2014.

Sheltering for the Homeless:As part of its FA Production Right License, PetroSA contributed R3 million towards the establishment of the Shelter-for-Homeless in Mossel Bay, Western Cape. The project was a joint partnership between the Mossel Bay municipality, which contributed R1.5 million, and The Haven NGO, which also contributed R1.5 million. The scope of work entailed purchasing and refurbishing the Rose and Crown hotel into a shelter-for-homeless facility. Nelson Mandela Day Initiative:PetroSA supported the Mandela 94+ Schools Initiative headed by the National Department of Basic Education through funding the construction of a hall at Boitshoko Primary School in Galeshewe, Kimberley, 2014. The school hall is 650sqm and was constructed to ensure it also accommodated people living with disabilities. The school hall was built at a cost of R4,6 million and can host approximately 700 learners.

Ablution facilities gives dignity to the young:PetroSA achieved a milestone when newly constructed ablution facilities were handed to two centres of learning, Garden Route and Isalathiso Primary Schools on 2 December 2014. This work was undertaken in fulfilment of the South Coast Gas (SCG) production right. Marnol Construction, a Level 3 B-BBEE company, based in Mossel Bay and hiring local labour, was awarded the contract to install ablution facilities at the schools.

Building a reliable health system:PetroSA donated R1 million towards the Carte Blanche Making-A-Difference Trust towards the upgrading of the paediatric theatre suites at community hospitals. The Frere Hospital paediatric theatre was a direct beneficiary of the PetroSA donation and now boasts state-of-the-art surgical units that can accommodate up to eight patients a day and a total of 1 200 children a year.

Environment and Sustainable Development: PetroSA was the national co-sponsor of the WESSA Eco-Schools programme, which is aimed at environmental education. Projects involve food gardens, healthy living, saving electricity, water recycling and conservation, community and heritage. In turn, teachers use these projects to strengthen and improve the quality of their lessons.



PASA

7 interns in a 3 year cycle.

Trustees approved an amount of R350 000 to fund a Geological excursion at University of Fort.

R50 000 was donated to SERI to support five COSAT learners who are currently in Grade 10.

AEMFC

Donated three laptops for Imbalenhle Primary School to enhance culture of learning.

Purchased and donated 52 blankets to Emalahleni and Middleburg communities during winter to strengthen the relationship with the community that will be relocated and taking care of them during the cold season.

Provided donation to the Rotary Greatest Train Race which takes place between Emalahleni and Middelburg.

Local Economic Development Programme – Created job creation initiatives.

SFF

SFF participates in programs for uplifting the communities in operates in. Whenever possible, recruitment prioritises incumbents from the community through advertising for jobs only in local newspapers. The SFF Corporate Social Investment programme aimed at empowering the communities of Ogies and Saldanha is being developed and will be rolled out in the next financial year.

PetroSA Learners and Apprentices as at 31 March 2015

Trade No.Coloured Black White Indian

Male Female Male Female Male Female Male Female

Boilermakers 13 4 1 3 4 1 0 0 0

Electrical 42 9 7 12 11 3 0 0 0

Fitting 67 16 8 23 13 6 0 1 0

Rigging 31 6 3 11 7 4 0 0 0

Turners 9 2 1 3 1 2 0 0 0

Welders 31 12 1 11 6 1 0 0 0

Instrumentation 25 7 2 6 7 3 0 0 0

TOTAL 218 56 23 69 49 20 0 1 0





SECTION

10


CEF SOC Limited

(Registration number 197/001441/30)

Annual reportfor the year ended 31 March 2015

These Annual Financial Statements were prepared under thesupervision of Mr S Mthwethwa CA (SA), Group Chief Financial Officer

FINANCIAL STATEMENTSFINANCIAL FINANCIAL FINANCIAL FINANCIAL


The directors have pleasure in submitting their report on the annual financial statements of CEF SOC Limited and the Group for the year ended 31 March 2015.

Review of financial results and activitiesThe consolidated annual financial statements have been prepared in accordance with IFRS and the requirements of the PFMA. The accounting policies have been applied consistently compared to the prior year.

The Group recorded a net loss after tax for the year ended 31 March 2015 of R14,3 billion. This represented an increase of R12,8 billion from the net loss after tax of the prior year of R1,5 billion. If the impairment is excluded, a net loss of R1,2 billion was recorded compared to a net profit in the prior year of R1,9 billion.

Group revenue decreased by 14% from R21,6 billion in the prior year to R18,5 billion for the year ended 31 March 2015. The Group cash flows from operating activities increased from R2,9 billion in the prior year to R4,4 billion for the year ended 31 March 2015.

Share capitalThere have been no changes to the authorised or issued share capital during the year under review.

Insurance and risk managementThe Group follows a policy of reviewing the risks relating to assets and possible liabilities arising from business transactions with its insurers on an annual basis. Wherever possible assets are automatically included. There is also a continuous asset risk control programme, which is carried out in conjunction with the Group’s insurance brokers. All risks are considered to be adequately covered, except for political risks, in the case of which as much cover as is reasonably available has been arranged.

DirectorateThe directors of the holding company during the year and to the date of this report are as follows:

DIRECTORS’ REPORT

Directors Designate Changes

Dr S Mthembi-Mahanyele (Chair) Non-executive

Mr G Bezuidenhout Non-executive Appointed 03 November 2014

Mr R Boqo Non-executive

Mr R Jawoodeen Non-executive

Mr S Gamede Non-executive Resigned 31 May 2014

Ms B Mabuza Non-executive Term expired 31 January 2015

Mr T Maqubela Non-executive Appointed 03 November 2014

Mr S Mncwango Executive Resigned 31 December 2014

Ms X Mtwa Non-executive Resigned 03 November 2014

Mr L Mulaudzi Non-executive Resigned 03 November 2014

Mr T Sethosa (Alternate) Non-executive


DIRECTORS’ REPORTDIRECTORS’ REPORTDIRECTORS’ REPORT

Director SP B B B SP SP B B SP SP B B B

Dr S Mthembi-Mahanyele Y Y Y Y Y Y Y Y Y Y Y Y Y

Mr G Bezuidenhout N/A N/A N/A N/A N/A N/A N/A N Y Y Y Y N

Mr R Boqo Y Y Y N N N Y Y Y N N N Y

Mr R Jawoodeen Y Y N Y Y Y Y Y Y Y Y Y Y

Mr S Gamede N N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A

Ms B Mabuza Y Y Y Y Y Y Y Y Y N Y Y N/A

Mr S Mncwango Y Y Y Y Y N Y N N N N N/A N/A

Mr T Maqubela N/A N/A N/A N/A N/A N/A N/A Y Y Y Y Y Y

Ms X Mtwa N N N N N N N N/A N/A N/A N/A N/A N/A

Mr L Mulaudzi Y N Y Y N N N N/A N/A N/A N/A N/A N/A

Mr T Sethosa (Alternate) Y Y Y N Y Y Y Y Y N Y N Y

03/0

4/20

14

29/0

4/20

14

28/0

5/20

14

28/0

7/20

14

23/0

9/20

14

07/1

0/20

14

28/1

0/20

14

03/1

1/20

14

14/1

1/20

14

27/1

1/20

14

11/1

2/20

14

28/0

1/20

15

26/0

2/20

15

B - Board SP - Special meetingY - Attended meeting N - Did not attend meetingN/A - Not a member at date of meeting NB. Ms Mtwa was on a study sabbatical during 2014. Meetings were attended by an alternate director. The challenges faced by the energy sector, the restructuring of CEF and the need for a revised strategy are reasons for the special board meetings.

The committees consist of the following members:

Name Appointed Resigned

Mr R Boqo Non-executive Chairperson 01 June 2012

Ms B Mabuza Non-executive 31 January 2012 31 January 2015

Mr D Hlatshwayo Non-executive 01 March 2011

Mr T Sethosa Non-executive 22 January 2015

Mr L Mulaudzi Non-executive 01 September 2012 03 November 2014

Mr R Boqo Y N Y Y Y Y

Mr D Hlatshwayo Y Y Y Y N Y

Ms B Mabuza Y N Y Y Y N/A

Mr T Sethosa N/A N/A N/A N/A Y Y

Mr L Mulaudzi N Y N N N/A N/A

23/0

4/20

14

21/0

5/20

14

23/0

7/20

14

27/1

0/20

14

22/0

1/20

15

20/0

2/20

15


DIRECTORS’ REPORT (CONTINUED)

Directorate (continued)The Board audit and risk committee meets at least twice per annum. The Chief Audit Executive of the Internal Audit Function, the external auditors and such members of management as are deemed necessary also attend these meetings. The Board audit and risk committee is responsible for the internal controls and risk management of the company delegated by the board of directors. In order to meet their requirements they review the findings of both internal and external auditors. In addition they review important accounting issues, materials pending litigation if applicable, company insurance, risk management and disclosure requirements in the Annual Financial Statements.

The responsibilities of the sub-committee of the Board of Directors are set out in the report of the Board Audit and Risk committee which forms part of the Annual Financial Statements.

BOARD HUMAN RESOURCE COMMITTEE

The Board Human Resource Committee consists of the following members:


Mr R Jawoodeen Non-executive 28 July 2011

Mr S Mncwango Non-executive 01 January 2013

Ms B Mabuza Non-executive 28 July 2011 31 January 2015

Dr S Mthembi-Mahanyele Non-executive Chairman 28 July 2011

Mr R Jawoodeen Y Y Y Y

Dr S Mthembi-Mahanyele Y Y Y Y

Ms B Mabuza Y Y Y Y

22/0

4/20

14

24/0

6/20

14

04/0

9/20

14

21/0

1/20

15

The Board of Directors has delegated its function of ensuring that employees are fairly rewarded in accordance with their contributions to the company’s performance to this Board Human Resources Committee.

SOCIAL AND ETHICS COMMITTEE

The committee consist of the following members:


Ms B Mabuza Non-executive 31 January 2012 31 January 2015

Mr T Sethosa Non-executive 01 September 2013

Mr S Mncwango Executive 01 January 2013 31 December 2014

Attendance at meetings:

Ms B Mabuza Y Y

Mr S Mncwango Y N/A

Mr T Sethosa (Alternate) N/A Y

22/0

9/20

15

21/0

1/20

15


DIRECTORS’ REPORT DIRECTORS’ REPORT DIRECTORS’ REPORT

GOVERNANCE AND NOMINATIONS COMMITTEE

This committee consists of the following members:


Ms B Mabuza Non-executive 01 February 2012 31 January 2015

Mr T Maqubela Non-executive 03 November 2014

Mr X Mtwa Non-executive 01 November 2012 03 November 2014

Mr T Sethosa Non-executive 01 September 2013

Dr S Mthembi-Mahanyele Non-executive Chairman 01 February 2012

Dr S Mthembi-Mahanyele Y Y

Ms B Mabuza Y Y

Mr T Sethosa (Alternate) N Y

Mr T Maqubela N/A N/A

Ms X Mtwa N N

25/0

4/20

14

29/0

8/20

14

Directors’ interests in contractsDuring the financial year, no contracts were entered into which directors or officers of the Group had an interest and which significantly affected the business of the Group.

Subsidiaries and associatesThere were no significant acquisitions or divestitures during the year ended 31 March 2015.

Events after the reporting periodThe directors are not aware of any material event which occurred after the reporting date and up to the date of this report.

Going concernThe directors believe that the Group has adequate financial resources to continue in operation for the foreseeable future and accordingly the consolidated annual financial statements have been prepared on a going concern basis. The directors have satisfied themselves that the Group is in a sound financial position and that it has access to sufficient borrowing facilities to meet its foreseeable cash requirements. The directors are not aware of any new material changes that may adversely impact the Group. In spite of diminished reserves at PetroSA there is no intention to cease trading. There are long-term sustainability plans under development for the GTL plant and related offshore assets. The purchased product trading and PetroSA Ghana activities are unaffected and continue to expand. The directors are also not aware of any material non-compliance with statutory or regulatory requirements or of any pending changes to legislation which may affect the Group.

Litigation statementThe Group becomes involved from time to time in various claims and lawsuits incidental to the ordinary course of business. The Group is not currently involved in any such claims or lawsuits, which individually or in the aggregate, are expected to have a material adverse effect on the business or its assets.


AuditorsAuditor-General of South AfricaChartered Accountants (S.A) continued in office as auditors for the company and its subsidiaries for 2015.

At the AGM, the shareholder will be requested to re-appoint Auditor-General of South AfricaChartered Accountants (S.A) as the independent external auditors of the company and to confirm Mr J van Schalkwyk as the designated lead audit partner for the 2016 financial year.

Annual general meetingThe annual general meeting will be held in terms of section 61 of the Companies Act 71 of 2008.

SecretaryThe company secretary is Mr A Haffejee.

Postal addressP O Box 786141Sandton2146

Business addressBlock C, Upper Grayston Office Park152 Ann CrescentStrathavonSandton2199

Corporate strategyCEF has continued with the development of its strategy in terms of its mandate. All entities in the Group review their corporate strategy on an annual basis and enter into shareholders compacts with the holding company. Performance against these compacts is monitored throughout the year.

Nature of businessThe principal activities of CEF are:• the acquisition of coal, the exploitation of coal deposits, the manufacture of liquid fuel, oil and other products from coal,

the marketing of the said products and any matter connected with the said acquisition, exploitation, manufacture and marketing;

• the acquisition, generation, manufacture, marketing or distribution of any other forms of energy and research connected therewith;

• any other object for which the Central Energy Fund may be applied, and which has been designated or approved by the Minister of Energy with the concurrence of the Minister of Finance; and

• to deliver sustainable development of the economy and communities through the targeting of skills development, the implementation of competitive supplier development programmes and the investment in social upliftment programmes of targeted groups through Corporate Social Investment programmes.

Irregular, fruitless and wasteful expenditureThe directors are not aware of any irregular, fruitless and wasteful expenditure which has been incurred during the year under review other than that disclosed in note 41 of the Annual Financial Statements.




Review of operationsHighlights of the financial year include:

Within the SHEQ arena no fatalities were recorded across the Group. In addition both the disabling injury frequency rate and environmental incidents were below the permitted maximums.

Drilling of three wells under the Project Ikhwezi drill programme have been completed with gas now flowing to the GTL following successful tie-in to the FA platform. The pilot fourth well has been completed but will not, for now, be linked to the platform. Reserves are less than originally anticipated.

SFF has secured rental agreements for much of the available ullage at Saldanha at favourable rates.

The iGas investment in the Rompco pipeline is now providing a good dividend flow and the shareholder loan is being repaid. A 128km extension of the pipeline in Mozambique was completed and commissioned in December 2014.

The CEF Board has approved an investment in the ACWA Power CSP project, subject to securing the required Shareholder approvals for the investment.

The corporate plan for 2015/16 was submitted as per the PFMA requirements.

IDENTIFIED CHALLENGES FACING THE GROUP ARE:

Constrained feedstock reserves and flows at PetroSA remain a serious challenge and impacts negatively on operations in the short term. Historically it has been widely known that feedstock constraints would be evident from about 2007. Operations beyond this date were only possible through restricted throughput. The gas flows from the Ikhwezi project are below expectations and this will limit refinery operations. A pragmatic and sustainable solution has yet to be defined and this remains a concern for the CEF executive.

The purchase of the Project Irene assets were terminated due to funding challenges.

The proposed investments in renewable energy projects were delayed and were not concluded during the year.

The weakening of the local currency over the year has impacted on the Rand costs associated with a number of projects and activities paid for in other currencies.

The funding of the African Exploration aspirations included in their corporate plan going forward will be a challenge.

Materiality and significance frameworkA materiality and significance framework has been developed for reporting losses through criminal conduct and irregular, fruitless and wasteful expenditure, as well as for significant transactions envisaged per section 54(2) of the PFMA that requires ministerial approval. The framework was finalised after consultation with the external auditors and has been formally approved by the Board.

Subsequent eventsThe directors are not aware of any other matters or circumstances arising since the end of the financial year, not otherwise dealt with in the financial statements which significantly affect the financial position of the Group or the results of the operations.

Authorised and issued share capitalThere were neither changes in the authorised nor issued share capital of the Group during the year under review. Details of the share capital of the company are set out in note 17 to the annual financial statements.



Group overview and other activities administered by CEFCEF SOC Ltd is the national energy utility with a focus on oil, gas, coal and renewable energy options and obtains its mandate primarily from the CEF Act. Each of the subsidiaries within the Group operates within a specific arena and with a specific mandate. In addition to wholly owned subsidiaries the Group has minority interests in a small number of renewable energy ventures. The structure of the Group is depicted below. Renewable energy activities of the holding company are managed through the Clean Energy Division (CED) and include the development of wholly-owned projects (internally and through the ETA and CCE subsidiaries) and joint ventures with other parties (Methcap, Darling Wind Power and EnerG Joburg).

Wholly owned subsidiaries operate in the fossil fuel space. These are:• PetroSA, which operates a gas-to-liquids refinery that uses indigenous gas as feedstock. It further is a partner in a

producing oil field in Ghana and has an exploration interest in Equatorial Guinea;• SFF which manages strategic crude oil infrastructure, strategic crude oil stocks, and which provides oil pollution control

services in Saldanha;• iGas, which is a shareholder in the Mozambique to South Africa gas pipeline and which is involved in the development of

other gas delivery projects currently under investigation;• African Exploration, which is mining coal for supply to Eskom and is concluding feasibility studies on expanding its coal

mining operations; and• PASA, which is the national petroleum and gas promotion and licensing agency.

CEF SOC LIMITED ADMINISTERS THE EQUALISATION FUND ON BEHALFOF THE DEPARTMENT OF ENERGY

The statutory fund is regulated by Ministerial Directives issued by the Minister of Energy in concurrence with the Minister of Finance as laid down by the Central Energy Fund Act. The company provides treasury, administrative and accounting services to the Fund.

ShareholderThe company is controlled by the Department of Energy. All shares are held by the State and are not transferable. This shareholding is in terms of the Central Energy Fund Act.

Accounting policiesWith the promulgation of the new Companies Act of 2008, the South African Statements of GAAP were withdrawn with effect from 1 December 2012. The Group subsequently received approval from National Treasury to prepare the annual financial statements in accordance with International Financial Reporting Standards, which standards have been used for the preparation of these financial statements.

LitigationsSFF - MORGAN STANLEY

Morgan Stanley instituted a High Court Action against SFF Association NPC for a damages claim resulting from SFF’s failure to deliver 50 596 barrels of crude oil. The claim for the damages is USD 5 865 240.10 plus interest. SFF is defending the claim and has filed a counter claim against Morgan Stanley (as assignee to Masefield SA by virtue of the fact that Morgan Stanley has taken cession and assignment of the rights and obligations of Masefield under the Storage Agreements concluded between SFF and Masefield) for the recovery of the amount of R45 967 791,69, being cargo dues, due and payable to SFF in respect of the handling and storage of crude oil under the Storage Agreements for Tanks at the Saldanha and Milnerton Storage Terminals. Almost all the various pre-trial notices for example the Expert Notices, Rule 37 Notices, Request for further Particulars have been exchanged. SFF’s legal team is continuing to collate the substantial evidence received from various witnesses and documents it has received. These documents are vital for the purposes of proving SFF’s case at the trial of this matter next year. As soon as this process is finalised, it is envisaged that SFF will be presented with An Advice on Evidence to enable it to assess for itself the prospects of success in this case. This will also chart a way forward for the settlement negotiations between the parties as it is believed that SFF will be in a stronger position at that stage.



SFF - VISIGRO

NERSA is defending an action brought by Visigro as result of NERSA having awarded SFF Association NPC a license to operate Milnerton Tank Farm having undertaken improvements to the tanks at an SABS standard. The impact of this action by Visgro on SFF would be for SFF to adhere to a different standard of refurbishment. The settlement proposals are nearing finalisation.

SFF - COPPERCAST

Coppercast concluded an agreement with SFF for the storage of a guaranteed maximum volume of 7 500 000 barrels of dispatch crude oil against payment to SFF. It is common cause that Coppercast acted in breach of the agreement in that it never effected payment of the amount due in terms of the agreement. SFF legal representatives have advised that they obtained an order of court to proceed against Coppercast, and have accordingly submitted all documents to the South African Embassy in the UAE for further submission to the UAE authorities for the claim to be served on Coppercast.

Funding of abandonment/rehabilitation provisionAt year-end PetroSA had an obligation to rehabilitate and abandon its offshore and onshore liabilities valued at R9.3 billion, which are currently not fully funded. As per the approved corporate plan the gap would be funded over time in line with the expected maturity of the liability. However, in terms of the recently promulgated National Environmental Management Act (NEMA), PetroSA is required to have a fully funded rehabilitation liability within the next 12 months from year-end. There are current challenges with funding this gap (approximated at R4.6 billion at year-end) from equity due to PetroSA’s weakened financial position which has emanated from depleting feedstock, the limited success of Project Ikhwezi and the significant decline in crude oil prices. CEF SOC has committed to assist PetroSA, through various support and oversight mechanisms, to close the funding gap. In addition, PetroSA is working closely with the regulator (Petroleum Agency of South Africa) to ensure PetroSA discharges its responsibilities as required under NEMA. The Group is also considering a variety of financial instruments to bridge this funding gap.

AcknowledgmentsThanks and appreciation are extended to all of our shareholders, staff, suppliers and consumers for their continued support of the Group.

The annual financial statements set out on pages 26 to 117, which have been prepared on the going concern basis, were approved by the board of directors on 29 July 2015 and were signed on its behalf by:

Dr S Mthembi-Mahanyele (Chairperson) Mr R Boqo (Non-executive)

Johannesburg

29 July 2015


DIRECTORS’ RESPONSIBILITIES AND APPROVALThe directors are responsible for the maintenance of adequate accounting records and the preparation and integrity of the Annual Financial Statements and related information. The external auditors are responsible for the audit on the fair presentation of the Annual Financial Statements.

The audited annual financial statements are prepared in accordance with International Financial Reporting Standards and are based upon appropriate accounting policies consistently applied and supported by reasonable and prudent judgements and estimates.

The directors are also responsible for the Group’s system of internal controls. These controls are designed to provide reasonable, but not absolute assurance as to the reliability of the Group’s Annual Financial Statements and to adequately safeguard, verify and maintain accountability of assets and to prevent and detect misstatements and losses.

The directors have reviewed the budgets and cash flow forecasts for the year ending 31 March 2016. On the basis of this review, and in view of the current financial position and existing borrowing facilities, the directors have every reason to believe that the company will be a going concern in the year ahead and have continued to adopt the going concern basis in preparing the Annual Financial Statements.

To enable the directors to meet the above responsibilities, the board of directors sets standards and implements systems of internal control and risk management that are designed to provide reasonable, but not absolute assurance against material misstatements and losses. The Group maintains internal financial controls to provide assurance regarding:

• The safeguarding of assets against unauthorised use or disposition; and• The maintenance of proper accounting records and the reliability of financial information used within the business and for

publication.

The controls contain self-monitoring mechanisms, and actions are taken to correct deficiencies as they are identified. Even an effective system of internal control, no matter how well designed, has inherent limitations, including the possibility of circumvention or the overriding of controls. An effective system of internal control therefore aims to provide reasonable assurance with respect to the reliability of financial information and, in particular, Annual Financial Statement presentation. Furthermore, because of changes in conditions, the effectiveness of internal financial controls may vary over time.

Unless otherwise stated elsewhere in the Annual Financial Statements nothing has come to the attention of the directors to indicate that any material breakdown in the functioning of these controls, procedures and systems has occurred during the year under review.

The Annual Financial Statements have been audited by the Auditor General of South Africa (AGSA) who was given unrestricted access to all financial records and related data, including minutes of all meetings of the shareholders, the board of directors, committees of the board, and management. The directors believe that all representations made to the independent auditors during their audit were valid and appropriate. The AGSA’s audit report is attached.

The consolidated annual financial statements set out on page 26-117, for the year ended 31 March 2015, were approved by the board of directors in terms of Section 51(1) (f) of the Public Finance Management Act on 29 July 2015 and was signed on its behalf by:

Dr S Mthembi-Mahanyele (Chairperson) Mr. R Boqo

Johannesburg

29 July 2015


DIRECTORS’ RESPONSIBILITIES AND DIRECTORS’ RESPONSIBILITIES AND DIRECTORS’ RESPONSIBILITIES AND APPROVALDIRECTORS’ RESPONSIBILITIES AND APPROVALDIRECTORS’ RESPONSIBILITIES AND

REPORT OF THE AUDITOR-GENERAL TO PARLIAMENT ON CEF SOC LIMITED

Introduction1. I have audited the consolidated and separate financial statements of CEF SOC Limited and its subsidiaries set out on

pages 109 to 210 which comprise the consolidated and separate statement of financial position as at 31 March 2015, the consolidated and separate statement of profit or loss and other comprehensive income, statement of changes in equity, and statement of cash flows for the year then ended, as well as the notes, comprising a summary of significant accounting policies and other explanatory information.

Accounting authority’s responsibility for the consolidated and separate financial statements2. The board of directors,which constitutes the accounting authority, is responsible for the preparation and fair presentation

of these consolidated and separate financial statements in accordance with International Financial Reporting Standards (IFRS) and the requirements of the Public Finance Management Act of South Africa, 1999 (Act No. 1 of 1999) (PFMA) and the Companies Act of South Africa, 2008 (Act No. 71 of 2008), and for such internal control as the accounting authority determines is necessary to enable the preparation of consolidated and separate financial statements that are free from material misstatement, whether due to fraud or error.

Auditor-General’s responsibility3. My responsibility is to express an opinion on these consolidated and separate financial statements based on my audit. I

conducted my audit in accordance with International Standards on Auditing. Those standards require that I comply with ethical requirements, and plan and perform the audit to obtain reasonable assurance about whether the consolidated and separate financial statements are free from material misstatement.

4. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated and separate financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated and separate financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated and separate financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated and separate financial statements.

5. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.

Opinion6. In my opinion, the consolidated and separate financial statements present fairly, in all material respects, the financial position

of CEF SOC Limited and its subsidiaries as at 31 March 2015 and its financial performance and cash flows for the year then ended, in accordance with IFRS and the requirements of the PFMA and the Companies Act.

Emphasis of matters7. I draw attention to the matters below. My opinion is not modified in respect of these matters.

Financial reporting framework

8. As disclosed in note 33 to the annual financial statements, National Treasury has exempted the public entity from using the South African Generally Accepted Accounting Practice (SA GAAP) as their financial reporting framework and as a result of the exemption obtained the annual financial statements were prepared in accordance with the International Financial reporting Framework Standards (IFRS).


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REPORT OF THE AUDITOR-GENERAL TO PARLIAMENT ON CEF SOC LIMITEDRestatement of corresponding figures

9. As disclosed in note 33 to the annual financial statements, the corresponding figures have been restated as a result of an error discovered during the current financial year in the separate annual financial statements of CEF SOC limited at, and for the year ended, 31 March 2014.

Significant uncertainties

10. As disclosed in note 21 to the annual financial statements, PetroSA commissioned additional research into the requirements to fully close or decommission redundant exploration wells. A reliable estimate of the cost cannot be made; therefore no amounts have been provided for these items.

11. As disclosed in note 32 to the annual financial statements, PetroSA notified employees in terms of section 189 of the Labour relations Act, 1995 (Act No 66 of 1995) on 24 February 2015 of a possible headcount reduction based on operational requirements. The ultimate outcome of the matter cannot presently be determined and no provision for any liability that may result based on the above has been made in the annual financial statements.

12. As disclosed in note 32 to the annual financial statements, PetroSA Ghana’s place of effective management changed to South Africa on 14 September 2012 and the company became a tax resident in South Africa. South Africa Income Tax legislation does not expressly deal with the tax treatment of opening balances of capital expenditure on property, plant and equipment (and intangible assets) prior to becoming a tax resident. Clarity in this regard is currently beig sought from the South African Revenue Service and National Treasury.

Material impairments

13. As disclosed in notes 1 and 26 to the annual financial statements, material losses to the amount of R14.5 billion were incurred as a result of impairment of property, plant and equipment.

Funding of abandonment provision

14. We draw attention to note 21 of the annual financial statements relating to the funding of the abandonment and rehabilitation provision. PetroSA has an obligation to rehabilitate and abandon its offshore and onshore operations valued at an amount of R9.3 billion which are currently not fully funded. In terms of the recently promulgated National Environmental Management Act, 1998 (Act No. 107 of 1998) (NEMA), PetroSA is required to have a fully funded rehabilitation liability within the next 12 months from the financial year end. There are currently challenges with funding this gap from equity due to PetroSA’s weakened financial position. The holding company, CEF SOC Limited, has committed to assist PetroSA, through various support and oversight mechanisms to close the funding gap. In addition, PetroSa is working closely with the regulator (Petroleum Agency of South Africa) to ensure PetroSA discharges its responsibilities as required under NEMA. PetroSA is also considering a variety of financial instruments to bridge this funding gap.

Additional matters15. I draw attention to the matters below. My opinion is not modified in respect of these matters.

Other reports required by the Companies Act

16. As part of my Audit of the financial statements for the year ended 31 March 2015, I have read the Directors’ Report, the audit Committee’s Report and the Company Secretary’s Certificate for the purpose of identifying whether there are material inconsistencies between these reports and the audited financial statements. These reports are the responsibility of the respective preparers. Based on reading these reports I have not identified material inconsistencies between the reports and the audited financial statements in respect of which I have expressed an unqualified opinion. I have not audited the reports and accordingly do not express an opinion on them.


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Report on other legal and regulatory requirements

17. In accordance with the Public Audit Act of South Africa, 2004 (Act No. 25 of 2004) (PAA) and the general notice issued in terms thereof, I have a responsibility to report findings on the reported performance information against predetermined objectives for selected objectives presented in the annual performance report, non-compliance with legislation and internal control. The objective of my test was to identify reportable findings as described under each subheading but not to gather evidence to express assurance on these matters. Accordingly, I do not express an opinion or conclusion on these matters.

Predetermined objectives

18. I performed procedures to obtain evidence about the usefulness and reliability of the reported performance information for the following selected objectives presented in annual performance report of the public entity for the year ended 31 March 2015:

• Objective 1: Contribute to the security of energy supply on page 54• Objective 2: Development of gas strategy for the group on page 55• Objective 3: Improve safety, health and environmental compliance on page 55

19. I evaluated the reported performance information against the overall criteria of usefulness and reliability.

20. I evaluated the usefulness of the reported performance information to determine whether it was presented in accordance with the National Treasury’s annual reporting principles and whether the reported performance as consistent with the planned objectives. I further performed tests to determined whether indicators and targets were well defined, verifiable, specific, measurable, time bound and relevant, as required by the National treasury’s Framework for managing programme performance information (FMPPI).

21. I assessed the reliability of the reported performance information to determine whether it was valid, accurate and complete.

22. I did not identify any material findings on the usefulness and reliability of the reported performance information for the selected objectives:• Objective 1: Contribute to the security of energy supply on page 54• Objective 2: Development of gas strategy for the group on page 55• Objective 3: Improve safety, health and environmental compliance on page 55

Additional matter23. Although I identified no material findings on the usefulness and reliability of the reported performance information for the

selected objectives, I draw attention to the following matter:

Achievement of planned targets

24. Refer to the annual performance report on pages 54 to 55 for information on the achievement of the planned targets for the year.

Compliance with legislation

25. I performed procedures to obtain evidence that the public entity had complied with applicable legislation regarding financial matters, financial management and other related matters. My findings on material non-compliance with specific matters in key legislation, as set out in the general notice issued in terms of the PAA, are as follows:

Financial statements, performance and annual reports26. The financial statements submitted for auditing were not prepared in all material respects with the requirements of section

55(1)(b) of the Public Finance Management Act and section 29(1)(a) of the Companies Act of South Africa. Material misstatements of non-controlling interest, commitments and Property plant and equipment identified by the auditors were subsequently corrected and resulted in the auditee receiving an unqualified audit opinion.


REPORT OF THE AUDITOR-GENERAL TO PARLIAMENT ON CEF SOC LIMITEDAudit Committee27. Audit Committee members were not all directors of the company, as required by section 94(4)(a) of the Companies Act of

South Africa.

Procurement and contract management28. Sufficient appropriate audit evidence could not be obtained that quotations and contracts were awarded to suppliers whose

matters have been declared by the South African Revenue Service to be in order as required by the Preferential procurement regulation 14.

29. Goods, works or service were not procured through a procurement process which is fair, equitable, transparent and competitive as required by the PFMA section 5(1)(a)(iii).

Expenditure management30. The accounting authority did not take effective steps to prevent irregular expenditure, as required by section 51(1)(b)(ii) of the

Public Finance Management Act.

Internal control

31. I considered internal control relevant to my audit of the financial statements, annual performance report and compliance with legislation. The matters reported below are limited to the significant internal control deficiencies that resulted in the findings on non-compliance with legislation included in this report.

Leadership32. There were a number of material misstatements identified in the Annual Financial Statements that should have been detected

and prevented by the internal controls implemented by management. Management should accept its oversight responsibilities in relation to established requirements and expectations in order to improve financial reporting results.

Financial and performance management33. Non-compliance with laws and regulations should continuously be monitored and steps taken to prevent processes from

allowing such non-compliance instances from occurring. Management should periodically review its control activities to determine their continued relevance, and refresh them when necessary in order to establish a well-controlled environment which do not allow possible non-compliance with laws and regulation. Non-compliance could have been prevented had compliance been properly reviewed and monitored. Re-alignment of policies and procedures are needed to adequately address the control environment to ensure that preventative actions are taken to avoid non-compliance with key legislation.

34. Regular and adequate reporting on key financial management information was not prioritised during the year resulting in major impairment adjustments and increases in abandonment provisions. This was mainly due to staff members not fully understanding the requirements of the financial reporting framework.

Auditor-General South AfricaJohannesburg

30 July 2015


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REPORT OF THE BOARD AUDIT ANDRISK COMMITTEEThis report is provided by the audit committee appointed in respect of the 2015 financial year of CEF SOC Limited.

CharterThe roles and responsibilities for the audit committee and risk committee were split during the financial year to improve and focus attention on risk management activities separately. The members of the two committees are the same members and the committee meetings takes place on the same dates.

The audit committee is guided by a detailed charter that is reviewed and approved by the board on an annual basis. The audit committee has regulated their affairs in compliance with this charter and have discharged all their responsibilities as contained therein.

PurposeThe Committee’s purpose and responsibilities arise from the Companies Act 71 of 2008 Section 97(7), The Public Audit Act 25 of 2004, Public Finance Management Act of 1999; Section 76 (4)(d) and Treasury Regulations 27.1. In performing its responsibilities the committee has reviewed the following:

• the effectiveness of the internal control systems;• the effectiveness of the internal audit function;• the risk areas of operations to be covered in the scope of the internal and external audits;• the adequacy, reliability and accuracy of financial information provided to management and other users of such information;• the accounting and auditing concerns identified as a result of the internal or external audits;• compliance with applicable legal and regulatory provisions;• the activities of the internal audit function, including its annual work program, coordination with the external auditors, the

reports of significant investigations and the responses of management to specific recommendations; and• the independence and objectivity of the external auditors.

MembershipThe audit committee and risk committee members were appointed by the board of directors and comprise of at least three non-executive members. The committees consist of the members listed hereunder and should meet on a minimum of two occasions per annum as per the approved Charter. During the financial year six meetings were held.

Name of member Number of meetings attended

Mr Boqo 5

Mr D Hlatshwayo 5

Ms B Mabuza 4

Mr T Sethosa 1

External auditThe Audit Committee, in consultation with executive management, agreed to the engagement letter, terms, nature and scope of the external audit plan as presented by the Auditor-General of South Africa. The committee has reviewed the Auditor-General of South Africa Strategic Audit Plan for the 2015 financial year and has approved the fees. The Audit Committee has satisfied itself that the Auditor-General of South Africa exercised their duties in an independent and objective manner.

Internal auditThe Committee considered and approved the internal audit charter for approval to the board and approved the annual work plan for the internal audit function. The internal audit function is responsible for reviewing and providing assurance on the adequacy and effectiveness of the internal control environment across operations. The Chief Audit Executive is responsible for reporting the findings of the internal audit work against the agreed audit plan to the Committee on a quarterly basis.

The Chief Audit Executive has direct access to the committee, primarily through its Chairperson. The Committee is also responsible for the assessment of the performance of the internal audit function. In the 2013 financial year, an external effectiveness review was performed by the Institute of Internal Auditors (IIA), reporting positive results and rating the internal audit function as “general conformance” with the IIA Standards. The next external assessment will be done in 2018 financial year.


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Internal control effectivenessThe Committee is satisfied that a system of internal controls has been put in place and that these controls have functioned effectively during the period under review. The Committee considers the system of internal controls appropriate in all material respects to:

• reduce risks to an acceptable level;• meet the business objectives;• ensure assets are adequately safeguarded; and• ensure that transactions undertaken are recorded in the accounting records.

It was noted that no significant or material non-compliance with prescribed policies and procedures has been reported. Accordingly, we can report that the system of internal controls for the period under review was efficient and effective.

Corporate governanceWe are the opinion that the Group continues to strive towards complying with sound principles of corporate governance. As per our discussions with management, management confirms that the content and quality of monthly and quarterly reports prepared and issued by the Interim Group Chief Executive Officer during the year under review were properly formulated and have complied with the PFMA in this regard.

Risk managementThe Board assigned the oversight of the risk management function to the Risk Committee. The Group implemented a risk management strategy which includes the fraud prevention plan and combined assurance plan. The Risk Committee monitored the significant risks faced by the company through reviewing risk reporting and participation in the risk assessment workshop. We are satisfied that significant risks were managed to an acceptable level.

ConclusionWe therefore recommend that the Board approve the audited Annual Financial Statements for 2014/15.

AppreciationThe committee expresses its sincere appreciation to the Interim Group Chief Executive Officer, Management, Internal Audit and the Auditor-General of South Africa.

On behalf of the Audit Committee

Mr R BoqoChairperson Board Audit and Risk Committee

27 July 2015

REPORT OF THE BOARD AUDIT ANDRISK COMMITTEE (CONTINUED)


REPORT OF THE BOARD AUDIT ANDREPORT OF THE BOARD AUDIT ANDRISK COMMITTEE REPORT OF THE BOARD AUDIT ANDRISK COMMITTEE REPORT OF THE BOARD AUDIT ANDRISK COMMITTEE

STATEMENT FROM THECOMPANY SECRETARYIn my capacity as Company Secretary, I hereby confirm, except where otherwise mentioned in the Annual Financial Statements, for the year ended 31 March 2015, that the company has lodged with the Companies and Intellectual Property Commission all such returns as are required of the company in terms of the Companies Act of South Africa of 2008 and that all such returns are to the best of my knowledge and belief, correct and up to date.

Mr A Haffejee


STATEMENT FROM THECOMPANY SECRETARYSTATEMENT FROM THECOMPANY SECRETARYSTATEMENT FROM THECOMPANY SECRETARYSTATEMENT FROM THECOMPANY SECRETARY

NOTES TO THE ANNUAL FINANCIAL STATEMENTSFor purposes of materiality (as per PFMA sections 50(1) and 55(2)) and significance (as per PFMA section 54(2)) the following framework of acceptable levels were agreed with the Executive Authority in consultation with the Auditor General:

• Section 50(1)-Material facts to be disclosed to the Minister of Energy are considered to be facts that may influence the decisions or actions of the Stakeholders of the Public Entity or the group of companies.

• Section 55(2)-Disclosure of material losses in the annual financial statements will be for all losses through criminal conduct and any irregular expenditure and fruitless and wasteful expenditure that occurred during the year.

• Section 54 (2)-The criteria to determine the level of significance was based upon the guiding principles as set out in the “Practice Note on applications under Section 54 of the PFMA No. 1 of 1999 (as amended) by Public Entities” as published by National Treasury during 2006. The significant rand level was determined as being 2% of total assets as follows:

APPROVAL LEVELS IN TERMS OF SECTION 54

CEF Group PetroSA iGas PASA SFF AEMFC

Public Entity’s board approval levels

<R882 546 <R680 869 <R43 303 <R7 456 <R102 853 <R7 456

CEF Board to approve <R882 546 >R680 869 >R43 303 >R7 456 >R102 853 >R7 456

and >R882 546 <R882 546 <R882 546 <R882 546 <R882 546 <R882 546

Obtain DME approval and inform National Treasury via the top-most holding company

The audited financial statements as at 31 March 2014 were used for the calculation.


NOTES TO THE ANNUAL FINANCIAL NOTES TO THE ANNUAL FINANCIAL STATEMENTSNOTES TO THE ANNUAL FINANCIAL STATEMENTSNOTES TO THE ANNUAL FINANCIAL

STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2015

Figures in Rand thousandsGroup Company

Note(s) 2015 2014Restated

2013Restated

20152014

Restated2013

Restated

AssetsNon-current Assets

Property, plant and equipment 1 9 457 903 19 722 018 17 251 535 72 544 77 292 83 117

Intangible assets 2 1 779 651 1 614 753 3 180 138 1 127 971 1 373

Investments in subsidiaries 3 - - - 2 759 942 2 759 942 2 760 332

Investment in joint ventures 4 11 199 8 416 5 253 - - -

Investments in associates 5 951 991 875 363 806 938 34 825 44 235 46 585

Loans to group companies 6 9 716 8 413 309 580 331 545 423 992 520 187

Other financial assets 7 371 724 330 372 231 206 - - -

Finance lease receivables 9 939 1 744 2 655 - - -

Deferred tax 8 - - - 4 336 4 640 4 070

Strategic inventory 12 3 118 505 3 118 505 3 119 429 - - -

Tax receivable - - 17 294 - - -

15 701 628 25 679 584 24 924 028 3 204 319 3 311 072 3 415 664

Current Assets

Inventories 13 2 213 231 2 984 535 2 808 405 - - -

Loans to group companies 6 - - - 30 975 58 500 58 500

Other financial assets 7 - 1 725 000 2 594 000 - - -

Current tax receivable 22 16 337 12 724 5 158 16 337 12 724 -

Finance lease receivables 9 773 794 815 - - -

Trade and other receivables 14 3 373 900 3 720 831 3 747 255 32 089 35 071 33 340

Cash and cash equivalents 15 10 364 012 11 310 905 13 071 429 4 028 514 3 906 166 3 743 175

15 968 253 19 754 789 22 227 062 4 107 915 4 012 461 3 835 015

Non-current assets held for sale and assets of disposal groups

16 60 669 10 669 10 669 - - -

Total Assets 31 730 550 45 445 042 47 161 759 7 312 234 7 323 533 7 250 679

Equity and Liabilities

Equity

Equity Attributable to Equity Holders of Parent

Share capital 17 - - - - - -

Reserves 1 704 074 1 467 755 1 319 509 - - -

Retained income 13 400 287 27 680 250 29 121 606 6 422 830 6 355 589 6 331 059

15 104 361 29 148 005 30 441 115 6 422 830 6 355 589 6 331 059

Non-controlling interest (895) (9 896) (10 782) - - -

15 103 466 29 138 109 30 430 333 6 422 830 6 355 589 6 331 059


STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2015STATEMENT OF FINANCIAL POSITION AS STATEMENT OF FINANCIAL POSITION AS STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2015STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2015STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2015

STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2015 (CONTINUED)



2013Restated

20152014

Restated2013

Restated

LiabilitiesNon-current Liabilities

Loans from group companies 6 - - - 489 021 489 021 489 021

Other financial liabilities 18 865 496 - - - - -

Operating lease liability 10 9 302 5 681 4 766 - - -

Retirement benefit obligation 11 85 599 75 813 90 035 - - -

Deferred income 20 1 031 2 093 10 014 703 2 006 9 977

Deferred tax 8 973 069 1 810 468 1 741 080 - - -

Provisions 21 10 126 155 8 405 677 8 545 486 - - -

12 060 652 10 299 732 10 391 381 489 724 491 027 498 998

Current Liabilities

Loans from group companies 6 405 36 406 300 300 324 137 393 092 343 208

Other financial liabilities 18 46 843 1 633 627 2 071 241 46 843 42 577 34 041

Current tax payable 22 20 774 27 316 31 866 - - 14 805

Unearned finance income 19 310 376 803 - - -

Trade and other payables 23 4 024 649 3 592 099 3 538 443 16 966 28 119 15 618

Deferred income 20 - 118 291 - 118 178

Provisions 21 110 041 277 584 305 189 11 734 13 011 12 772

Bank overdraft 15 286 761 357 655 - - - -

4 489 783 5 925 181 6 248 133 399 680 476 917 420 622

Liabilities of disposal groups 16 76 649 82 020 91 912 - - -

Total Liabilities 16 627 084 16 306 933 16 731 426 889 404 967 944 919 620

Total Equity and Liabilities 31 730 550 45 445 042 47 161 759 7 312 234 7 323 533 7 250 679


STATEMENT OF FINANCIAL POSITION AS STATEMENT OF FINANCIAL POSITION AS STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2015 STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2015 STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2015

STATEMENT OF COMPREHENSIVE INCOME



20152014

Restated

Revenue 24 18 515 161 21 553 172 13 266 18 263

Cost of sales 25 (17 161 296) (18 660 176) - -

Gross profit 1 353 865 2 892 996 13 266 18 263

Other income 240 362 1 214 027 4 850 17 897

Operating expenses (16 345 415) (5 554 559) (126 907) (154 666)

Operating (loss) profit 26 (14 751 188) (1 447 536) (108 791) (118 506)

Investment revenue 27 750 463 724 742 261 139 214 878

Income from equity accounted investments 213 538 178 716 - -

Finance costs 28 (1 330 524) (814 485) (63 290) (55 444)

(Loss) profit before taxation (15 117 711) (1 358 563) 89 058 40 928

Taxation 29 843 278 (94 304) (21 817) (16 398)

(Loss) profit for the year (14 274 433) (1 452 867) 67 241 24 530

Other comprehensive income:Items that will not be reclassified to profit or loss:Remeasurements on net defined benefit liability/asset (3 880) 14 811 - -Items that may be reclassified to profit or loss:Exchange differences on translating foreign operations 239 275 142 547 - -

Other comprehensive income for the year net of taxation 235 395 157 358 - -

Total comprehensive (loss) income for the year (14 039 038) (1 295 509) 67 241 24 530

Total comprehensive (loss) income attributable to:Owners of the parent (14 039 038) (1 296 395) 67 241 24 530

Non-controlling interest - 886 - -

(14 039 038) (1 295 509) 67 241 24 530

(Loss) profit attributable to :Owners of the parent (14 283 434) (1 453 753) 67 241 24 530

Non-controlling interest-Continuing operations 9 001 886 - -

(14 274 433) (1 452 867) 67 241 24 530


STATEMENT OF COMPREHENSIVE INCOMESTATEMENT OF COMPREHENSIVE INCOMESTATEMENT OF COMPREHENSIVE INCOMESTATEMENT OF COMPREHENSIVE STATEMENT OF COMPREHENSIVE

Figures in Rand thousands

Foreign currency

translation reserve

Revaluation reserve

Fair valueadjustment

assets available for sale reserve

Other NDR Total reserves Retained income

Total attributableto equity holders

of the Group/Company

Non-controlling interest

Total equity

STATEMENT OF CHANGES IN EQUITY

Group

Opening balance as previously reported 135 291 - (5 300) - 129 991 28 681 601 28 811 592 12 653 28 824 245

IFRS conversion - 1 353 258 - - 1 353 258 102 721 1 455 979 (23 435) 1 432 544

Prior period error - (163 740) - - (163 740) 317 711 153 971 - 153 971

Change in accounting policy and prior period (135 291) 129 792 10 799 (5 300) - 19 573 19 573 - 19 573

Balance at 01 April 2013 as restated - 1 319 310 5 499 (5 300) 1 319 509 29 121 606 30 441 115 (10 782) 30 430 333

Changes in equity

Loss for the year - - - - - (1 452 866) (1 452 866) 886 (1 451 980)

Other comprehensive income 142 547 - - 5 700 148 247 11 510 159 757 - 159 757

Balance at 01 April 2014 142 547 1 319 310 5 499 400 1 467 755 27 680 250 29 148 005 (9 896) 29 138 109

Changes in equity

Loss for the year - - - - - (14 274 433) (14 274 433) 9 001 (14 265 432)

Other comprehensive income/(loss) 244 750 - (45) (8 387) 236 318 (5 530) 230 788 - 230 788

Balance at 31 March 2015 387 297 1 319 310 5 454 (7 987) 1 704 074 13 400 287 15 104 361 (895) 15 103 466

Company

Balance at 01 April 2013 restated - - - - - 6 331 059 6 331 059 - 6 331 059

Profit for the year - - - - - 24 530 24 530 - 24 530

Total comprehensive income for the year - - - - - 24 530 24 530 - 24 530




Balance at 31 March 2015 - - - - - 6 422 830 6 422 830 - 6 422 830


STATEMENT OF CHANGES IN EQUITYSTATEMENT OF CHANGES IN EQUITYSTATEMENT OF CHANGES IN EQUITYSTATEMENT OF CHANGES IN EQUITYSTATEMENT OF CHANGES IN EQUITY


Foreign currency

translation reserve

Revaluation reserve

Fair valueadjustment

assets available for sale reserve

Other NDR Total reserves Retained income

Total attributableto equity holders

of the Group/Company

Non-controlling interest

Total equity

Group

Opening balance as previously reported 135 291 - (5 300) - 129 991 28 681 601 28 811 592 12 653 28 824 245

IFRS conversion - 1 353 258 - - 1 353 258 102 721 1 455 979 (23 435) 1 432 544

Prior period error - (163 740) - - (163 740) 317 711 153 971 - 153 971

Change in accounting policy and prior period (135 291) 129 792 10 799 (5 300) - 19 573 19 573 - 19 573

Balance at 01 April 2013 as restated - 1 319 310 5 499 (5 300) 1 319 509 29 121 606 30 441 115 (10 782) 30 430 333

Changes in equity

Loss for the year - - - - - (1 452 866) (1 452 866) 886 (1 451 980)

Other comprehensive income 142 547 - - 5 700 148 247 11 510 159 757 - 159 757

Balance at 01 April 2014 142 547 1 319 310 5 499 400 1 467 755 27 680 250 29 148 005 (9 896) 29 138 109

Changes in equity

Loss for the year - - - - - (14 274 433) (14 274 433) 9 001 (14 265 432)

Other comprehensive income/(loss) 244 750 - (45) (8 387) 236 318 (5 530) 230 788 - 230 788

Balance at 31 March 2015 387 297 1 319 310 5 454 (7 987) 1 704 074 13 400 287 15 104 361 (895) 15 103 466

Company







Balance at 31 March 2015 - - - - - 6 422 830 6 422 830 - 6 422 830


STATEMENT OF CASH FLOWS



20152014

Restated

Cash flows from operating activities

Cash generated (utilised) by operations 30 5 024 687 3 001 570 (111 994) (107 592)

Interest income 750 463 724 742 242 379 214 878

Dividends received - - 18 760 -

Finance costs (1 330 524) (814 485) (63 290) (55 444)

Tax (paid)/received (4 276) (19 738) (25 125) (44 496)

Net cash from operating activities 4 440 350 2 892 089 60 730 7 346

Cash flows from investing activities

Purchase of property, plant and equipment 1 (5 973 286) (5 296 985) (2 055) (1 260)

Sale of property, plant and equipment 1 28 956 17 478 (51) 23

Assets held for sale (50 000) - - -

Purchase of other intangible assets 2 (172 425) (179 811) (971) (627)

Sale of other intangible assets 2 314 149 298 2 -

Investments in associates 5 (79 411) (71 588) 9 410 2 350

Other financial assets (41 352) (99 166) - -

Repayment of amounts held by holding company (1 303) 301 167 119 972 96 585

Net cash from investing activities (6 288 507) (5 179 607) 126 307 97 071

Cash flows from financing activities

Repayment of other financial liabilities 1 003 712 431 386 - -

Finance lease payments 3 621 915 - -

Finance lease receipts 826 932 - -

Loans to group companies repaid (36 001) (263 894) 4 266 8 536

Loans to group companies - - (68 955) 50 038

Net cash from financing activities 972 158 169 339 (64 689) 58 574

Cash and cash equivalents movement for the year (875 999) (2 118 179) 122 348 162 991

Cash and cash equivalents at the beginning of the year 10 953 250 13 071 429 3 906 166 3 743 175

Cash and cash equivalents at end of the year 15 10 077 251 10 953 250 4 028 514 3 906 166


STATEMENT OF CASH FLOWSSTATEMENT OF CASH FLOWSSTATEMENT OF CASH FLOWS

Corporate informationThe consolidated financial statements of CEF SOC Limited and its subsidiaries (collectively, the Group) for the year ended 31 March 2015 were authorised for issue in accordance with a resolution of the directors on July 2015. CEF SOC Limited (the Company or the parent) is a state-owned company incorporated and domiciled in South Africa and whose shares are held by the South African Government. The registered office is located at 152 Ann Crescent, Block C, Upper Grayston Office Park, Strathoven, Sandton, 2199, South Africa.

The Group is a national energy utility with a focus on oil, gas, coal and renewable energy options. Information on the Group’s structure is provided in Note 3. Information on other related party relationships of the Group is provided in Note 35.

Presentation of annual financial statementsThe annual financial statements have been prepared in accordance with International Financial Reporting Standards, and the Companies Act 71 of 2008 and the Public Finance Management Act 1 of 1999. The annual financial statements have been prepared on the historical cost basis, and incorporate the principal accounting policies set out below. They are presented in South African Rands. Assets and liabilities will not be offset, unless it is required by the standard.

Principal accounting policiesThese accounting policies are consistent with the previous period, except for the changes set out in note 33 first-time adoption of International Financial Reporting Standards.

FIRST TIME ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS

These are the Group’s first financial annual financial statements prepared in accordance with International Financial Reporting Standards (IFRS). The financial statements were previously presented in accordance with South African Statements of Generally Accepted Accounting Practice (SA GAAP). The accounting policies included have been applied in preparing the annual financial statements for the year ended 31 March 2015, the comparative information and the opening balances in the statement of financial position at the date of transition. The date of transition to IFRS is 1 April 2012.

IFRS 1, First time Adoption of International Financial Reporting Standards (IFRS 1), sets out the requirements for the first time adoption of IFRS. Under IFRS 1, the IFRS standards and interpretations are applied retrospectively as at the transitional statement of financial position date with all adjustments to assets and liabilities taken to retained earnings unless certain exemptions are applied. As they are not considered applicable to CEF Group has not applied any exemptions to its opening statement of financial position.

IFRS 1 also includes specific guidance that a first time adopter must adhere to under certain circumstances. The Group has applied the guidelines to its opening statement of financial position date 1 April 2012.

Estimates

In accordance with IFRS 1, an entity’s estimates under IFRS at the date of transition to IFRS must be consistent with estimates made for the same date under the previous SA GAAP, unless there is objective evidence that those estimates were in error. The Group’s IFRS estimates as of 1 April 2014 are consistent with the estimates applied under SA GAAP for the same date.

IFRS is based on a conceptual framework that is similar to SA GAAP. The adoption of IFRS has not changed the Group’s statement of financial position, statement of profit or loss, statement of changes in equity and statement of cash flow for the year ended 31 March 2014 and 31 March 2013.

The effects of the transition to IFRS had no impact on the statement financial position, statement of profit or loss, statement of comprehensive income and statement of changes in equity. Certain additional disclosure has been included in the notes to the financial statements as a result of the adoption of IFRS.

Stripping costs during production phase

During the production phase, stripping costs are incurred in the production of inventory as well as in the creation of future benefits by improving access and mining flexibility in respect of the ore to be mined, the latter being referred to as a “production stripping asset”. An identifiable component is a specific volume of the ore body that is made more accessible by the stripping activity.

ACCOUNTING POLICIES


ACCOUNTING POLICIESACCOUNTING POLICIESACCOUNTING POLICIESACCOUNTING POLICIES

FIRST TIME ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (CONTINUED)

The mine plan defines the operations components, and also determines the expected volumes (tonnes) of waste to be stripped and ore to be mined in each of these components. The company removes waste and coal in the underlying seam in the same period. The blocks are small enabling the mine to open a seam and mine it in a short period. IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine clarified existing treatment of stripping costs and there is no effect on transition to IFRS.

CONSOLIDATION

Basis of consolidation

The consolidated annual financial statements incorporate the annual financial statements of the Group and all investees which are controlled by the Group.

The Group has control of an investee when it has power over the investee; it is exposed to or has rights to variable returns from involvement with the investee; and it has the ability to use its power over the investee to affect the amount of the investor’s returns.

The results of subsidiaries are included in the consolidated annual financial statements from the effective date of acquisition to the effective date of disposal.

Adjustments are made when necessary to the annual financial statements of subsidiaries to bring their accounting policies in line with those of the Group.

All intra-group transactions, balances, income and expenses are eliminated in full on consolidation.

Non-controlling interests in the net assets of consolidated subsidiaries are identified and recognised separately from the group’s interest therein, and are recognised within equity. Losses of subsidiaries attributable to non-controlling interests are allocated to the non-controlling interest even if this results in a debit balance being recognised for non-controlling interest.

Transactions which result in changes in ownership levels, where the Group has control of the subsidiary both before and after the transaction are regarded as equity transaction and are recognised directly in the statement of changes in equity.

The difference between the fair value of consideration paid or received and the movement in non-controlling interest for such transactions is recognised in equity attributable to the owners of the parent.

Where a subsidiary is disposed of and a non-controlling shareholding is retained, the remaining investment is measured to fair value with the adjustment to fair value recognised in profit or loss as part of the gain or loss on disposal of the controlling interest.

Business combinations

The Group accounts for business combinations using the acquisition method of accounting. The cost of the business combination is measured as the aggregate of the fair values of assets given, liabilities incurred or assumed and equity instruments issued. Costs directly attributable to the business combination are expensed as incurred, except the costs to issue debt which are amortised as part of the effective interest and costs to issue equity which are included in equity.

Contingent consideration is included in the cost of the combination at fair value as at the date of acquisition. Subsequent changes to the assets, liability or equity which arise as a result of the contingent consideration are not affected against goodwill, unless they are valid measurement period adjustments.

The acquiree’s identifiable assets, liabilities and contingent liabilities which meet the recognition conditions of IFRS 3 Business combinations are recognised at their fair values at acquisition date, except for non-current assets (or disposal group) that are classified as held-for-sale in accordance with IFRS five non-current assets held-for-sale and discontinued operations, which are recognised at fair value less costs to sell.

Contingent liabilities are only included in the identifiable assets and liabilities of the acquiree where there is a present obligation at acquisition date.

ACCOUNTING POLICIES (CONTINUED)


ACCOUNTING POLICIES ACCOUNTING POLICIES ACCOUNTING POLICIES

On acquisition, the Group assesses the classification of the acquiree’s assets and liabilities and reclassifies them where the classification is inappropriate for group purposes. This excludes lease agreements and insurance contracts, whose classification remains as per their inception date.

Non-controlling interests arising from a business combination, which are present ownership interests, and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation, are measured either at the present ownership interests’ proportionate share in the recognised amounts of the acquiree’s identifiable net assets or at fair value. The treatment is not an accounting policy choice but is selected for each individual business combination, and disclosed in the note for business combinations. All other components of non-controlling interests are measured at their acquisition date fair values, unless another measurement basis is required by IFRS’s.

In cases where the group held a non-controlling shareholding in the acquiree prior to obtaining control, that interest is measured to fair value as at acquisition date. The measurement to fair value is included in profit or loss for the year. Where the existing shareholding was classified as an available-for-sale financial asset, the cumulative fair value adjustments recognised previously to other comprehensive income and accumulated in equity are recognised in profit or loss as a reclassification adjustment.

Goodwill is determined as the consideration paid, plus the fair value of any shareholding held prior to obtaining control, plus non- controlling interest and less the fair value of the identifiable assets and liabilities of the acquiree.

Goodwill is not amortised but is tested on an annual basis for impairment. If goodwill is assessed to be impaired, that impairment is not subsequently reversed.

Goodwill arising on acquisition of foreign entities is considered an asset of the foreign entity. In such cases the goodwill is translated to the functional currency of the group at the end of each reporting period with the adjustment recognised in equity through to other comprehensive income.

Investment in associates

An associate is an entity over which the Group has significant influence and which is neither a subsidiary nor a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

An investment in associate is accounted for using the equity method, except when the investment is classified as held-for-sale in accordance with IFRS 5 non-current assets held-for-sale and discontinued operations. Under the equity method, investments in associates are carried in the consolidated statement of financial position at cost adjusted for post-acquisition changes in the Group’s share of net assets of the associate, less any impairment losses.

Losses in an associate in excess of the Group’s interest in that associate are recognised only to the extent that the group has incurred a legal or constructive obligation to make payments on behalf of the associate.

Any goodwill on acquisition of an associate is included in the carrying amount of the investment, however, a gain on acquisition is recognised immediately in profit or loss.

Profits or losses on transactions between the Group and an associate are eliminated to the extent of the group’s interest therein.

When the group reduces its level of significant influence or loses significant influence, the group proportionately reclassifies the related items which were previously accumulated in equity through other comprehensive income to profit or loss as a reclassification adjustment. In such cases, if an investment remains, that investment is measured to fair value, with the fair value adjustment being recognised in profit or loss as part of the gain or loss on disposal.

Joint arrangements

A joint arrangement is an arrangement of which two or more parties have joint control. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. A joint arrangement is either a joint operation or a joint venture.

A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement.


CONSOLIDATION (CONTINUED)

Joint ventures

An interest in a joint venture is accounted for using the equity method, except when the investment is classified as held-for-sale in accordance with IFRS 5 non-current assets held-for-sale and discontinued operations. Under the equity method, interests in joint ventures are carried in the consolidated statement of financial position at cost adjusted for post-acquisition changes in the company’s share of net assets of the joint venture, less any impairment losses. Profits or losses on transactions between the company and a joint venture are eliminated to the extent of the company’s interest therein.

When the company loses joint control, the Group proportionately reclassifies the related items which were previously accumulated in equity through other comprehensive income to profit or loss as a reclassification adjustment. In such cases, if an investment remains, that investment is measured to fair value, with the fair value adjustment being recognised in profit or loss as part of the gain or loss on disposal.

Joint operations

The company recognises the following in relation to its interests in a joint operation:

• its assets, including its share of any assets held jointly;• its liabilities, including its share of any liabilities incurred jointly;• its revenue from the sale of its share of the output arising from the joint operation;• its share of the revenue from the sale of the output by the joint operation; and• its expenses, including its share of any expenses incurred jointly.

SIGNIFICANT JUDGMENTS AND SOURCES OF ESTIMATION UNCERTAINTY

In preparing the annual financial statements in terms of the International Financial Reporting Standards, the Group’s management is required to make certain estimates and assumptions that may materially affect reported amounts of assets and liabilities at the date of the annual financial statements and the reported amounts of revenues and expenses during the reported period and the related disclosures. As these estimates and assumptions concern future events, due to the inherent uncertainty involved in this process, the actual results often vary from the estimates. These estimates and judgements are based on historical experience, current and expected future economic conditions and other factors, including expectations of the future events that are believed to be reasonable under the circumstances. Significant judgements include:

Allowance for slow moving, damaged and obsolete stock

An allowance for stock to write stock down to the lower of cost or net realisable value. Management has made estimates of the selling price and direct cost to sell on certain inventory items. The write down is included in the operating profit note.

Mineral, oil and gas reserves estimates

The minerals, oil and gas reserves are estimates of the amount minerals, oil and gas that can be economically and legally extracted from the Group’s petroleum and minerals properties. The Group estimates this reserve and resources based on information compiled by appropriately qualified persons relating to the geological and technical data on the size, depth, shape and grade of the minerals and recovery rates. The recoverable reserves are also determined based on foreign exchange rates, future capital development and productions costs do.

Fair value estimation

The fair value of financial instruments traded in active markets (such as trading and available-for-sale securities) is based on quoted market prices at the end of the reporting period. The quoted market price used for financial assets held by the Group is the current bid price.

The fair value of financial instruments that are not traded in an active market (for example, over the counter derivatives) is determined by using valuation techniques. The group uses a variety of methods and makes assumptions that are based on market conditions existing at the end of each reporting period. Quoted market prices or dealer quotes for similar instruments are used for long-term debt.




Other techniques, such as estimated discounted cash flows, are used to determine fair value for the remaining financial instruments. The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows. The fair value of forward foreign exchange contracts is determined using quoted forward exchange rates at the end of the reporting period.

The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments.

Impairment testing

The recoverable amounts of cash-generating units and individual assets have been determined based on the higher of value-in-use calculations and fair values less costs to sell. These calculations require the use of estimates and assumptions. It is reasonably possible that the [name a key assumption] assumption may change which may then impact our estimations and may then require a material adjustment to the carrying value of goodwill and tangible assets.

The Group reviews and tests the carrying value of assets when events or changes in circumstances suggest that the carrying amount may not be recoverable. In addition, goodwill is tested on an annual basis for impairment. Assets are grouped at the lowest level for which identifiable cash flows are largely independent of cash flows of other assets and liabilities. If there are indications that impairment may have occurred, estimates are prepared of expected future cash flows for each group of assets. Expected future cash flows used to determine the value in use of goodwill and tangible assets are inherently uncertain and could materially change over time. They are significantly affected by a number of factors including mineral and gas deposits, together with economic factors such as exchange rates, commodity prices, inflation and interest rates.

Provisions

Environmental, decommissioning and mine rehabilitation provisionsProvision is made for environmental, decommissioning and rehabilitation costs where either a legal or a constructive obligation is recognised as a result of past events. These costs will be incurred by the Group at the end of the operating life of some of the facilities and properties. The ultimate costs are uncertain and cost estimates made in determining the present obligation can vary in response to many factors, including changes to relevant legislation requirements, new technological changes costs increases and changes to the discount rate used and the expected timing. Therefore, significant estimates and assumptions are made in determining the probable obligation. As a result, there could be significant adjustments to the provisions established which would affect future financial results. Estimates are based upon costs that are regularly reviewed, by internal and external experts, and adjusted as appropriate for new circumstances.

OtherFor other provisions, estimates are made of legal or constructive obligations resulting in the raising of provisions, and the expected date of probable outflow of economic benefits to assess whether the provision should be discounted.

Provisions were raised and management determined an estimate based on the information available. Additional disclosure of these estimates of provisions are included in Note 21-Provisions.

Contingent provisions on business combinationsContingent consideration, resulting from business combinations, is valued at fair value at the acquisition date as part of the business combination. When the contingent consideration meets the definition of a financial liability, it is subsequently re-measured to fair value at each reporting date. The determination of the fair value is based on discounted cash flows. The key assumptions take into consideration the probability of meeting each performance target and the discount factor.

Expected manner of realisation for deferred taxDeferred tax is provided for on the fair value adjustments of investment properties based on the expected manner of recovery, i.e. sale or use. This manner of recovery affects the rate used to determine the deferred tax liability. Refer Note 8 – Deferred tax.

TaxationJudgement is required in determining the provision for income taxes due to the complexity of legislation. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.


SIGNIFICANT JUDGMENTS AND SOURCES OF ESTIMATION UNCERTAINTY (CONTINUED)

The Group recognises the net future tax benefit related to deferred income tax assets to the extent that it is probable that the deductible temporary differences will reverse in the foreseeable future. Assessing the recoverability of deferred income tax assets requires the group to make significant estimates related to expectations of future taxable income. Estimates of future taxable income are based on forecast cash flows from operations and the application of existing tax laws in each jurisdiction. To the extent that future cash flows and taxable income differ significantly from estimates, the ability of the Group to realise the net deferred tax assets recorded at the end of the reporting period could be impacted.

Entities in which the group holds less than 20% of the voting rights, but does have significant influenceManagement has assessed the level of influence that the Group has on Methcap (Pty) Limited and determined that it has significant influence even though the shareholding is below 20% because of the board representation and contractual terms. Consequently, this investment has been classified as an associate.

Defined benefit plansThe cost of the defined benefit pension plan and other post-employment medical benefits and the present value of the pension obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases, mortality rates and future pension increases. Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.

Classification of joint arrangementsAfrican Exploration Finance and Mining Company SOC Limited holds 33.3% of the voting rights of its joint arrangement. The group has joint control over this arrangement as under the contractual agreements, unanimous consent is required from all parties to the agreements for all relevant activities. The group’s joint arrangement is structured as a limited company and provides the group and the parties to the agreements with rights to the net assets of the limited company under the arrangements. Therefore, this arrangement is classified as a joint venture of the group.

Contingent liabilitiesManagement considers the existence of possible obligations which may arise from legal action as well as the possible non- compliance of the requirements of completion guarantees and other guarantees provided. The estimation of the amount disclosed is based on the expected possible outflow of economic benefits.

Evaluation of the useful life of assetsOn an annual basis, management evaluate the useful life of all assets. In carrying out this exercise, experience of asset’s historical performance and the medium-term business plan are taken into consideration.

Exploration and evaluation expenditureThe application of the Group’s accounting policy for exploration and evaluation expenditure requires judgement to determine whether it is likely that future economic benefits are likely, from either future exploitation or sale, or whether activities have not reached a stage that permits a reasonable assessment of the existence of reserves.

Operating lease commitments – Group as lessorThe Group has entered into commercial property leases on its buildings. The Group has determined, based on an evaluation of the terms and conditions of the arrangements, such as the lease term not constituting a substantial portion of the economic life of the commercial property, that it retains all the significant risks and rewards of ownership of these properties and accounts for the contracts as operating leases.

PROPERTY, PLANT AND EQUIPMENT

The cost of an item of property, plant and equipment is recognised as an asset when:

• it is probable that future economic benefits associated with the item will flow to the company; and• the cost of the item can be measured reliably.

Property, plant and equipment is initially measured at cost.




Costs include costs incurred initially to acquire or construct an item of property, plant and equipment and costs incurred subsequently to add to, replace part of, or service it. Such cost includes purchase price or construction costs, the present value of the expected cost for the decommissioning of an asset after its use and qualifying borrowing costs.

If a replacement cost is recognised in the carrying amount of an item of property, plant and equipment, the carrying amount of the replaced part is derecognised.

Improvements to leased premises are capitalised and written-off over the period of the lease.

The part of the crude that is necessary to operate (in technical terms) the plant and cannot be recouped (or can be recouped but would then be significantly impaired as sludge), even when the plant is abandoned, are considered as an item of PP&E. These items are initially measured at historical and subsequently measured at costs less accumulated depreciation and impairment. Depreciation is charged so as to write off the depreciable amount of the assets over their estimated useful lives, using the straight line method to write off the cost of each asset that reflects the pattern in which the asset’s future economic benefits are expected to be consumed by the entity.

Property, plant and equipment are depreciated on the straight line basis method over their expected useful lives to their estimated residual value. An exception is made for production assets and shutdown costs where the unit of production method is used to calculate depreciation.

Property, plant and equipment is carried at cost less accumulated depreciation and any impairment losses.

The useful lives of items of property, plant and equipment have been assessed as follows:

Item Average useful life

Unpumpable crude oil/crude oil sludge 5 - 65 years

Buildings 5 - 65 years

Tanks refurbishment 1 year

Plant and machinery 3 - 35 years

Furniture and fixtures 3 - 15 years

Motor vehicles 4 - 15 years

Office equipment 6 - 10 years

Computer equipment 2 - 10 years

Computer software 1 year

Drilling rig 13 years

Shutdown costs 3 - 5 years

Firefighting, security and operating equipment 3 - 25 years

Oil storage tanks 5 - 65 years

The depreciation charge for each period is recognised in profit or loss unless it is included in the carrying amount of another asset.

The gain or loss arising from the derecognition of an item of property, plant and equipment is included in profit or loss when the item is derecognised. The gain or loss arising from the derecognition of an item of property, plant and equipment is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item.

Assets which the (company/group) holds for rentals to others and subsequently routinely sell as part of the ordinary course of activities, are transferred to inventories when the rentals end and the assets are available-for-sale. These assets are not accounted for as non-current assets held for sale. Proceeds from sales of these assets are recognised as revenue. All cash flows on these assets are included in cash flows from operating activities in the cash flow statement.


SITE RESTORATION AND DISMANTLING COST

The company has an obligation to dismantle, remove and restore items of property, plant and equipment. Such obligations are referred to as environmental, decommissioning and mine rehabilitation. The cost of an item of property, plant and equipment includes the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, the obligation for which an entity incurs either when the item is acquired or as a consequence of having used the item during a particular period for purposes other than to produce inventories during that period.

As the related asset is measured using the cost model:

• subject to (b), changes in the liability are added to, or deducted from, the cost of the related asset in the current period;• if a decrease in the liability exceeds the carrying amount of the asset, the excess is recognised immediately in profit or loss; and• if the adjustment results in an addition to the cost of an asset, the entity considers whether this is an indication that the new

carrying amount of the asset may not be fully recoverable. If it is such an indication, the asset is tested for impairment by estimating its recoverable amount, and any impairment loss is recognised in profit or loss.

INTANGIBLE ASSETS

An intangible asset is recognised when:

• it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity; and the cost of the asset can be measured reliably. Intangible assets are initially recognised at cost.

Expenditure on research (or on the research phase of an internal project) is recognised as an expense when it is incurred. An intangible asset arising from development (or from the development phase of an internal project) is recognised when:

• it is technically feasible to complete the asset so that it will be available for use or sale;• there is an intention to complete and use or sell it;• there is an ability to use or sell it;• it will generate probable future economic benefits;• there are available technical, financial and other resources to complete the development and to use or sell the asset; and• the expenditure attributable to the asset during its development can be measured reliably.

Intangible assets are carried at cost less any accumulated amortisation and any impairment losses.

An intangible asset is regarded as having an indefinite useful life when, based on all relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows. Amortisation is not provided for these intangible assets, but they are tested for impairment annually and whenever there is an indication that the asset may be impaired. For all other intangible assets amortisation is provided on a straight line basis over their useful life.

The amortisation period and the amortisation method for intangible assets are reviewed every period-end.

Reassessing the useful life of an intangible asset with a finite useful life after it was classified as indefinite is an indicator that the asset may be impaired. As a result the asset is tested for impairment and the remaining carrying amount is amortised over its useful life.

Internally generated brands, mastheads, publishing titles, customer lists and items similar in substance are not recognised as intangible assets.




Amortisation is provided to write down the intangible assets, on a straight line basis, to their residual values as follows:

Financial instrumentsCLASSIFICATION

The Group classifies financial assets and financial liabilities into the following categories:

• Loans and receivables• Available-for-sale financial assets• Financial liabilities measured at amortised cost

Classification depends on the purpose for which the financial instruments were obtained/incurred and takes place at initial recognition. Classification is re-assessed on an annual basis, except for derivatives and financial assets designated as at fair value through profit or loss, which shall not be classified out of the fair value through profit or loss category.

INITIAL RECOGNITION AND MEASUREMENT

Financial instruments are recognised initially when the Group becomes a party to the contractual provisions of the instruments.

The Group classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financial liability or an equity instrument in accordance with the substance of the contractual arrangement.

Financial instruments are measured initially at fair value, except for equity investments for which a fair value is not determinable, which are measured at cost and are classified as available-for-sale financial assets.

For financial instruments which are not at fair value through profit or loss, transaction costs are included in the initial measurement of the instrument.

Loans and receivables are subsequently measured at amortised cost, using the effective interest method, less accumulated impairment losses.

Available-for-sale financial assets are subsequently measured at fair value. This excludes equity investments for which a fair value is not determinable, which are measured at cost less accumulated impairment losses.

Gains and losses arising from changes in fair value are recognised in other comprehensive income and accumulated in equity until the asset is disposed of or determined to be impaired. Interest on available-for-sale financial assets calculated using the effective interest method is recognised in profit or loss as part of other income. Dividends received on available-for-sale equity instruments are recognised in profit or loss as part of other income when the group’s right to receive payment is established.

Changes in fair value of available-for-sale financial assets denominated in a foreign currency are analysed between translation differences resulting from changes in amortised cost and other changes in the carrying amount. Translation differences on monetary items are recognised in profit or loss, while translation differences on non-monetary items are recognised in other comprehensive income and accumulated in equity.

Financial liabilities at amortised cost are subsequently measured at amortised cost, using the effective interest method.

Nature measurementMineral and Gas

licensesPatents Software licenses Development costs

Useful lives 5 - 10 years 0 - 1 year 2 - 10 years 0 - 1 year

Type of useful life Finite Finite and indefinite Finite Finite

Amortisation method used

Amortised on a straight-line basis over the term of the licenses

Armotisation over the period of expected future benefit and not amortised

Amortised on astraight-line basis over the term of the licenses

Amortised on a straight-line basis over the period of expected useful life of the related project

Acquired or Internally generated

AcquiredInternally generated and acquired

Acquired Internally generated


Financial instruments (continued)DERECOGNITION

Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership.

IMPAIRMENT OF FINANCIAL ASSETS

At each reporting date the Group assesses all financial assets, other than those at fair value through profit or loss, to determine whether there is objective evidence that a financial asset or group of financial assets has been impaired.

For amounts due to the Group, significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy and default of payments are all considered indicators of impairment.

In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is considered an indicator of impairment. If any such evidence exists for available-for-sale financial assets, the cumulative loss-measured as the difference between the acquisition cost and current fair value, less any impairment loss on that financial asset previously recognised in profit or loss-is removed from equity as a reclassification adjustment to other comprehensive income and recognised in profit or loss.

Impairment losses are recognised in profit or loss.

Impairment losses are reversed when an increase in the financial asset’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to the restriction that the carrying amount of the financial asset at the date that the impairment is reversed shall not exceed what the carrying amount would have been had the impairment not been recognised.

Reversals of impairment losses are recognised in profit or loss except for equity investments classified as available-for-sale.

Impairment losses are also not subsequently reversed for available-for-sale equity investments which are held at cost because fair value was not determinable.

Where financial assets are impaired through use of an allowance account, the amount of the loss is recognised in profit or loss within operating expenses. When such assets are written off, the write off is made against the relevant allowance account. Subsequent recoveries of amounts previously written off are credited against operating expenses.

FINANCIAL INSTRUMENTS DESIGNATED AS AVAILABLE-FOR-SALE

The Group designate into this category due to the financial asset is fail to meet the criteria for designation into other categories of financial assets.

LOANS TO (FROM) GROUP COMPANIES

These include loans to and from holding companies, fellow subsidiaries, joint ventures and associates and are recognised initially at fair value plus direct transaction costs.

Loans to group companies are classified as loans and receivables.

Loans from group companies are classified as financial liabilities measured at amortised cost.

TRADE AND OTHER RECEIVABLES

Trade receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in profit or loss when there is objective evidence that the asset is impaired. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 90 days overdue) are considered indicators that the trade receivable is impaired. The allowance recognised is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.




The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in profit or loss within operating expenses. When a trade receivable is uncollectable, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against operating expenses in profit or loss.

Trade and other receivables are classified as loans and receivables.

TRADE AND OTHER PAYABLES

Trade payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These are initially and subsequently recorded at fair value.

TaxCURRENT TAX ASSETS AND LIABILITIES

Current tax for current and prior periods is, to the extent unpaid, recognised as a liability. If the amount already paid in respect of current and prior periods exceeds the amount due for those periods, the excess is recognised as an asset.

Current tax liabilities (assets) for the current and prior periods are measured at the amount expected to be paid to (recovered from) the tax authorities, using the tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

DEFERRED TAX ASSETS AND LIABILITIES

A deferred tax liability is recognised for all taxable temporary differences, except to the extent that the deferred tax liability arises from the initial recognition of an asset or liability in a transaction which at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss).

A deferred tax asset is recognised for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilised. A deferred tax asset is not recognised when it arises from the initial recognition of an asset or liability in a transaction at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss).

A deferred tax asset is recognised for the carry forward of unused tax losses to the extent that it is probable that future taxable profit will be available against which the unused tax losses can be utilised.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

TAX EXPENSES

Current and deferred taxes are recognised as income or an expense and included in profit or loss for the period, except to the extent that the tax arises from:

• a transaction or event which is recognised, in the same or a different period, to other comprehensive income; or• a business combination.

Current tax and deferred taxes are charged or credited to other comprehensive income if the tax relates to items that are credited or charged, in the same or a different period, to other comprehensive income.

Current tax and deferred taxes are charged or credited directly to equity if the tax relates to items that are credited or charged, in the same or a different period, directly in equity.


Tax (continued)ROYALTIES TAX

In addition to corporate income taxes, the Group recognises taxes on royalty income. Royalty tax is treated as taxation arrangement when it has the characteristics of a tax. This is considered to be the case when it is imposed under government authority and the amount payable is calculated by reference to revenue derived (net of any allowable deductions) after adjustment for temporary differences.

SALES TAX

CurrentExpenses and assets are recognised net of the amount of sales tax, except:

• when the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case, the sales tax is recognised as part of the cost of acquisition of the asset or as part of the expense item, as applicable; or

• when receivables and payables are stated with the amount of sales tax included. The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position.

LeasesA lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership.

FINANCE LEASES-LESSOR

The Group recognises finance lease receivables in the statement of financial position.

Finance income is recognised based on a pattern reflecting a constant periodic rate of return on the group’s net investment in the finance lease.

FINANCE LEASES-LESSEE

Finance leases are recognised as assets and liabilities in the statement of financial position at amounts equal to the fair value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding liability to the lessor is included in the statement of financial position as a finance lease obligation.

The discount rate used in calculating the present value of the minimum lease payments is the interest rate implicit in the lease.

The lease payments are apportioned between the finance charge and reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate on the remaining balance of the liability.

OPERATING LEASES-LESSOR

Operating lease income is recognised as an income on a straight-line basis over the lease term.

Initial direct costs incurred in negotiating and arranging operating leases are added to the carrying amount of the leased asset and recognised as an expense over the lease term on the same basis as the lease income.

Income for leases is disclosed under revenue in profit or loss.

OPERATING LEASES – LESSEE

Operating lease payments are recognised as an expense on a straight-line basis over the lease term. The difference between the amounts recognised as an expense and the contractual payments are recognised as an operating lease asset. This liability is not discounted.

Any contingent rents are expensed in the period they are incurred.




InventoriesInventories are measured at the lower of cost and net realisable value. There are four types of inventory within the group:

STRATEGIC INVENTORY

Strategic crude oil is measured at the lower of cost and net realisable value. Cost is determined on a weighted average basis and includes purchase cost, transport, handling costs as well as allocated operating overheads. These inventories are being held in accordance with Ministerial Directives as prescribed by the Minister.

The carrying amount of the strategic crude oil is expected to be realised past 12 months after the reporting date, thus it is included in non-current assets and the net realisable value is calculated on a discounted cash flow basis.

TRADING INVENTORY

Finished and intermediate inventory is measured at the lower of cost and net realisable value according to the weighted average method. Cost includes production expenditure, depreciation and a proportion of triennial turnaround expenses and replacement of catalysts, as well as transport and handling costs. No account is taken of the value of raw materials and work in progress prior to it reaching intermediate storage tanks. Provision is made for obsolete, slow moving and defective inventories.

The net realisable value of crude oil and refined products is based on the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale.

COAL INVENTORY

Coal stockpiles are physically measured or estimated and valued at the lower of cost or net realisable value. Cost is determined by using the weighted-average method and includes expenditure incurred in acquiring, manufacturing and transporting the inventory to its present location. Manufacturing costs include an allocated portion of production overheads, which are directly attributable to the cost of manufacturing such inventory.

Net realisable value is the estimated future sales price of the product the entity expects to realise when the product is sold, less estimated costs to bring the product to sale.

SPARES, CATALYSTS AND CHEMICAL

These inventories are measured at the lower of cost on a weighted average cost basis and net realisable value less appropriate provision for obsolescence determined by reference to specific items of inventory.

The cost of inventories comprises of all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

When inventories are sold, the carrying amount of those inventories are recognised as an expense in the period in which the related revenue is recognised.

The amount of any write-down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realisable value, are recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.

Non-current assets held for sale (and) (disposal groups)Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. Management of the group must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification unless the sale is subject to conditions beyond the groups control.

Non-current assets held for sale (or disposal group) are measured at the lower of its carrying amount and fair value less costs to sell.


Non-current assets held for sale (and) (disposal groups) (continued)A non-current asset is not depreciated (or amortised) while it is classified as held for sale, or while it is part of a disposal group classified as held for sale.

Interest and other expenses attributable to the liabilities of a disposal group classified as held for sale are recognised in profit or loss.

Impairment of assetsThe group assesses at each end of the reporting period whether there is any indication that an asset may be impaired. If any such indication exists, the group estimates the recoverable amount of the asset.

Irrespective of whether there is any indication of impairment, the Group also:

• tests intangible assets with an indefinite useful life or intangible assets not yet available for use for impairment annually by comparing its carrying amount with its recoverable amount. This impairment test is performed during the annual period and at the same time every period; and

• tests goodwill acquired in a business combination for impairment annually.

If there is any indication that an asset may be impaired, the recoverable amount is estimated for the individual asset. If it is not possible to estimate the recoverable amount of the individual asset, the recoverable amount of the cash-generating unit to which the asset belongs is determined.

The recoverable amount of an asset or a cash-generating unit is the higher of its fair value less costs to sell and its value in use.

If the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. That reduction is an impairment loss.

An impairment loss of assets carried at cost less any accumulated depreciation or amortisation is recognised immediately in profit or loss. Any impairment loss of a revalued asset is treated as a revaluation decrease.

An entity assesses at each reporting date whether there is any indication that an impairment loss recognised in prior periods for assets other than goodwill may no longer exist or may have decreased. If any such indication exists, the recoverable amounts of those assets are estimated.

The increased carrying amount of an asset other than goodwill attributable to a reversal of an impairment loss does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior periods.

A reversal of an impairment loss of assets carried at cost less accumulated depreciation or amortisation other than goodwill is recognised immediately in profit or loss. Any reversal of an impairment loss of a revalued asset is treated as a revaluation increase.

Share capital and equityAn equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.

Employee benefitsSHORT-TERM EMPLOYEE BENEFITS

The cost of short-term employee benefits, (those payable within 12 months after the service is rendered, such as paid vacation leave and sick leave, bonuses, and non-monetary benefits such as medical care), are recognised in the period in which the service is rendered and are not discounted.

The expected cost of compensated absences is recognised as an expense as the employees render services that increase their entitlement or, in the case of non-accumulating absences, when the absence occurs.

The expected cost of profit sharing and bonus payments is recognised as an expense when there is a legal or constructive obligation to make such payments as a result of past performance.




DEFINED CONTRIBUTION PLANS

Payments to defined contribution retirement benefit plans are charged as an expense as they fall due.

Payments made to industry-managed (or state plans) retirement benefit schemes are dealt with as defined contribution plans where the group’s obligation under the schemes is equivalent to those arising in a defined contribution retirement benefit plan.

DEFINED BENEFIT PLANS

For defined benefit plans the cost of providing the benefits is determined using the projected unit credit method. Actuarial valuations are conducted on an annual basis by independent actuaries separately for each plan.

Consideration is given to any event that could impact the funds up to the end of the reporting period where the interim valuation is performed at an earlier date.

Past service costs are recognised immediately to the extent that the benefits are already vested, and are otherwise amortised on a straight line basis over the average period until the amended benefits become vested.

Actuarial gains and losses are recognised in the year in which they arise, in other comprehensive income.

Gains or losses on the curtailment or settlement of a defined benefit plan is recognised when the group is demonstrably committed to curtailment or settlement.

When it is virtually certain that another party will reimburse some or all of the expenditure required to settle a defined benefit obligation, the right to reimbursement is recognised as a separate asset. The asset is measured at fair value. In all other respects, the asset is treated in the same way as plan assets. In profit or loss, the expense relating to a defined benefit plan is presented as the net of the amount recognised for a reimbursement.

The amount recognised in the statement of financial position represents the present value of the defined benefit obligation as adjusted for unrecognised actuarial gains and losses and unrecognised past service costs, and reduces by the fair value of plan assets.

Any asset is limited to unrecognised actuarial losses and past service costs, plus the present value of available refunds and reduction in future contributions to the plan.

Provisions and contingenciesProvisions are recognised when:

• the group has a present obligation as a result of a past event;• it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and• a reliable estimate can be made of the obligation.

The amount of a provision is the present value of the expenditure expected to be required to settle the obligation.

Where some or all of the expenditure required to settle a provision is expected to be reimbursed by another party, the reimbursement shall be recognised when, and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation. The reimbursement shall be treated as a separate asset. The amount recognised for the reimbursement shall not exceed the amount of the provision.

Provisions are not recognised for future operating losses.

If an entity has a contract that is onerous, the present obligation under the contract shall be recognised and measured as a provision.

A constructive obligation to restructure arises only when an entity:

• has a detailed formal plan for the restructuring, identifying at least:• the business or part of a business concerned; and• the principal locations affected;


Provisions and contingencies (continued)• the location, function, and approximate number of employees who will be compensated for terminating their services;• the expenditures that will be undertaken; • when the plan will be implemented; and• has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement that plan or

announcing its main features to those affected by it.

After their initial recognition contingent liabilities recognised in business combinations that are recognised separately are subsequently measured at the higher of:

• the amount that would be recognised as a provision; and• the amount initially recognised less cumulative amortisation.

Contingent assets and contingent liabilities are not recognised. Contingencies are disclosed in Note 32.

Government grantsGovernment grants are recognised when there is reasonable assurance that:

• the group will comply with the conditions attaching to them; and• the grants will be received.

Government grants are recognised as income over the periods necessary to match them with the related costs that they are intended to compensate.

A government grant that becomes receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the entity with no future related costs is recognised as income of the period in which it becomes receivable.

Government grants related to assets, including non-monetary grants at fair value, are presented in the statement of financial position by setting up the grant as deferred income.

RevenueRevenue from the sale of goods is recognised when all the following conditions have been satisfied:

• the group has transferred to the buyer the significant risks and rewards of ownership of the goods;• the group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective

control over the goods sold;• the amount of revenue can be measured reliably;• it is probable that the economic benefits associated with the transaction will flow to the group; and• the costs incurred or to be incurred in respect of the transaction can be measured reliably.

When the outcome of a transaction involving the rendering of services can be estimated reliably, revenue associated with the transaction is recognised by reference to the stage of completion of the transaction at the end of the reporting period. The outcome of a transaction can be estimated reliably when all the following conditions are satisfied:

• the amount of revenue can be measured reliably;• it is probable that the economic benefits associated with the transaction will flow to the group;• the stage of completion of the transaction at the end of the reporting period can be measured reliably; and• the costs incurred for the transaction and the costs to complete the transaction can be measured reliably.

When the outcome of the transaction involving the rendering of services cannot be estimated reliably, revenue shall be recognised only to the extent of the expenses recognised that are recoverable.

Service revenue is recognised by reference to the stage of completion of the transaction at the end of the reporting period. Stage of completion is determined by services performed to date as a percentage of total services to be performed.




Contract revenue comprises:

• the initial amount of revenue agreed in the contract; and• variations in contract work, claims and incentive payments:

• to the extent that it is probable that they will result in revenue; and• they are capable of being reliably measured.

Revenue is measured at the fair value of the consideration received or receivable and represents the amounts receivable for goods and services provided in the normal course of business, net of trade discounts and volume rebates, and value added tax.

Interest is recognised, in profit or loss, using the effective interest rate method.

Royalties are recognised on the accrual basis in accordance with the substance of the relevant agreements. Dividends are recognised, in profit or loss, when the company’s right to receive payment has been established.Service fees included in the price of the product are recognised as revenue over the period during which the service is performed.

Cost of salesWhen inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realisable value, is recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.

The related cost of providing services recognised as revenue in the current period is included in cost of sales. Contract costs comprise:

• costs that relate directly to the specific contract;• costs that are attributable to contract activity in general and can be allocated to the contract; and• such other costs as are specifically chargeable to the customer under the terms of the contract.

Translation of foreign currenciesFUNCTIONAL AND PRESENTATION CURRENCY

Items included in the annual financial statements of each of the group entities are measured using the currency of the primary economic environment in which the entity operates (functional currency).

The consolidated annual financial statements are presented in Rand which is the group functional and presentation currency.

FOREIGN CURRENCY TRANSACTIONS

A foreign currency transaction is recorded, on initial recognition in Rands, by applying to the foreign currency amount the spot exchange rate between the functional currency and the foreign currency at the date of the transaction.

At the end of the reporting period:

• foreign currency monetary items are translated using the closing rate;• non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate

at the date of the transaction; and• non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date

when the fair value was determined.

Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous annual financial statements are recognised in profit or loss in the period in which they arise.

When a gain or loss on a non-monetary item is recognised to other comprehensive income and accumulated in equity, any exchange component of that gain or loss is recognised to other comprehensive income and accumulated in equity.


Translation of foreign currencies (continued)When a gain or loss on a non-monetary item is recognised in profit or loss, any exchange component of that gain or loss is recognised in profit or loss.

Cash flows arising from transactions in a foreign currency are recorded in Rands by applying to the foreign currency amount the exchange rate between the Rand and the foreign currency at the date of the cash flow.

Related partiesThe services received or rendered from or to related parties arise mainly from service transactions, including management fees for services performed on behalf of the company.

The receivables from related parties arise mainly from services transactions and are due on month after the date of the services. The receivables are unsecured in nature and bear no interest. There are no provisions held against receivables from related parties.The payables to related parties arise mainly from service transactions, including management fees and are due one month after the date of purchase. The payables bear no interest.

The loans to or from related parties arise from loan agreements entered into for the year under review. These loans may be subordinated by CEF SOC Limited.

Adoption of International Financial Reporting StandardsThe following standards and amendments to existing standards have been published and are not yet effective and the Group has not adopted them early.

1. IFRS 9, ‘Financial instruments’, issued in November 2009 (effective 1 January 2018). In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments which reflects all phases of the financial instruments project and replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. The standard introduces new requirements for classification and measurement, impairment, and hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted. Retrospective application is required, but comparative information is not compulsory. The Group is in the process of assessing the potential impact of IFRS 9 on its financial position and performance.

2. IFRS 15, ‘Revenue from Contracts with Customer’, (effective 1 January 2017). IFRS 15 deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard replaces IAS 18 ‘Revenue’ and IAS 11 ‘Construction contracts’ and related interpretations. The Group is assessing the impact of IFRS 15.

Key assumptions made by management in applying accounting policiesCRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

In preparing the annual financial statements in terms of IFRS, the group’s management is required to make certain estimates and assumptions that may materially affect reported amounts of assets and liabilities at the date of the annual financial statements and the reported amounts of revenues and expenses during the reported period and the related disclosures. As these estimates and assumptions concern future events, due to the inherent uncertainty involved in this process, the actual results often vary from the estimates. These estimates and judgements are based on historical experience, current and expected future economic conditions and other factors, including expectations of the future events that are believed to be reasonable under the circumstances.

ENVIRONMENTAL AND DECOMMISSIONING PROVISION

Provision is made for environmental and decommissioning costs where either a legal or constructive obligation is recognised as a result of past events. Estimates are made in determining the present obligation of environmental and decommissioning provisions, which include the actual estimate, the discount rate used and the expected date of closure of mining activities in determining the




present value of environmental and decommissioning provisions. Estimates are based upon costs that are regularly reviewed, by internal and external experts, and adjusted as appropriate for new circumstances.

INVENTORY

Coal stocks are measured using survey methods. At reporting date an independent surveyor is employed to perform the stock measurement concurrently with the company and the results are compared for reasonableness.

OTHER PROVISIONS

For other provisions, estimates are made of legal or constructive obligations resulting in the raising of provisions, and the expected date of probable outflow of economic benefits to assess whether the provision should be discounted.

RECOVERABILITY OF ASSETS

PetroSA assesses its cash generating units (CGUs) at each reporting period to determine whether any indication of impairment exists. Impairment tests are performed when there is an indication of impairment of assets or a reversal of previous impairments of assets. Where an indicator of impairment exists, a formal estimate of the recoverable amount is made, which is considered to be the higher of the fair value less costs of disposal (FVLCD) and value in use (VIU). Management therefore has implemented certain impairment indicators and these include movements in exchange rates, commodity prices and the economic environment its businesses operate in. Estimates are made in determining the recoverable amount of assets which include the estimation of cash flows and discount rates used. In estimating the cash flows, management base cash flow projections on reasonable and supportable assumptions that represent managements’ best estimate of the range of economic conditions that will exist over the remaining useful life of the assets, based on publicly available information. The discount rates used are pre-tax rates that reflect the current market assessment of the time value of money and the risks specific to the assets for which the future cash flow estimates have not been adjusted. These estimates and assumptions are subject to risk and uncertainty. Therefore, there is a possibility that changes in circumstances will impact these projections, which may impact the recoverable amount of CGUs.

IMPAIRMENTS AND IMPAIRMENT REVERSALS

Impairment tests are performed when there is an indication of impairment of assets or a reversal of previous impairments of assets. Management therefore has implemented certain impairment indicators and these include movements in exchange rates, commodity prices and the economic environment its businesses operate in. Estimates are made in determining the recoverable amount of assets which include the estimation of cash flows and discount rates used. In estimating the cash flows, management base cash flow projections on reasonable and supportable assumptions that represent managements’ best estimate of the range of economic conditions that will exist over the remaining useful life of the assets, based on publicly available information. The discount rates used are pre-tax rates that reflect the current market assessment of the time value of money and the risks specific to the assets for which the future cash flow estimates have not been adjusted.

CONTINGENT LIABILITIES

Management considers the existence of possible obligations which may arise from legal action as well as the possible non-compliance of the requirements of completion guarantees and other guarantees provided. The estimation of the amount disclosed is based on the expected possible outflow of economic benefits should there be a present obligation.

HYDROCARBON RESERVE AND RESOURCE ESTIMATES

Hydrocarbon reserves are estimates of the amount of hydrocarbons that can be economically and legally extracted from the group’s oil properties. The group estimates its commercial reserves and resources based on information compiled by appropriately qualified persons relating to the geological and technical data on the size, depth, shape and grade of the hydrocarbon body and suitable production techniques and recovery rates. Commercial reserves are determined using estimates of oil and gas in place, recovery factors and future commodity prices.

Future development costs are estimated using assumptions as to the number of wells required to produce the commercial reserves, the cost of such wells and associated production facilities, and other capital costs. The carrying amount of oil development and production assets at 31 March 2015 is shown in Note 3.


HYDROCARBON RESERVE AND RESOURCE ESTIMATES (CONTINUED)

As the economic assumptions used may change and as additional geological information is obtained during the operation of a field, estimates of recoverable reserves may change. Such changes may impact the Group’s reported financial position and results which include:

1) The carrying value of exploration and evaluation assets and production assets may be affected due to changes in estimated future cash flows.

2) Depreciation and amortisation charges in the statement of profit or loss and other comprehensive income may change where such charges are determined using the Units of Production method.

3) Provisions for decommissioning may change, where changes to the reserve estimates affect expectations about when such activities will occur and the associated cost of these activities.

4) The recognition and carrying value of deferred tax assets may change due to changes in the judgements regarding the existence of such assets and in estimates of the likely recovery of such assets

EVALUATION OF THE USEFUL LIFE OF ASSETS

On an annual basis, management evaluates the useful life of all assets. In carrying out this exercise, experience of asset’s historical performance and the medium-term business plan are taken into consideration.

Carrying value of intangible exploration and evaluation assets

The amount of intangible exploration and evaluation assets represent active exploration assets. These amounts will be written off to the statement of profit or loss and comprehensive income as exploration costs unless commercial reserves are established or the determination process is not completed and there are no indicators of impairment.

The key areas in which management have applied judgement are as follows: Group’s intention to proceed with a future work programme for a prospect or license; the likelihood of licence renewal or extension; and the success of a well result or geological or geophysical survey.

UNITS OF PRODUCTION (UOP) DEPRECIATION OF OIL AND GAS ASSETS

Oil and gas properties are depreciated using the UOP method. The actual production for the period is divided by the total proved developed and undeveloped hydrocarbon reserves. This results in a depreciation/amortisation charge (UOP rate) proportional to the depletion of the anticipated remaining production from the field.

The life of each item, which is assessed at least annually, has regard to both its physical life limitations and present assessments of economically recoverable reserves of the field at which the asset is located. These calculations require the use of estimates and assumptions, including the amount of recoverable reserves and estimates of future capital expenditure. The calculation of the UOP rate of depreciation/amortisation will be impacted to the extent that actual production in the future is different from current forecast production based on total proved reserves whereas the life of each item and the total recoverable reserves is impacted by future capital expenditure (because the future estimated capex does not affect the UOP rate directly; it only affects the life and value of the assets to be depreciated).

CARRYING VALUE OF INTANGIBLE EXPLORATION AND EVALUATION ASSETS

The amount of intangible exploration and evaluation assets represent active exploration assets. These amounts will be written off to the statement of profit or loss and comprehensive income as exploration costs unless commercial reserves are established or the determination process is not completed and there are no indicators of impairment.

The key areas in which management have applied judgement are as follows: Group’s intention to proceed with a future work programme for a prospect or license; the likelihood of licence renewal or extension; and the success of a well result or geological or geophysical survey.




NOTES TO THE ANNUAL FINANCIAL STATEMENTS

2015 2014 Restated

Figures in Rand thousandsCost/

valuationAccumulateddepreciation

Carrying value

Cost/valuation

Accumulateddepreciation

Carrying value

1. Property, plant and equipment Group

Land 57 065 - 57 065 57 065 - 57 065

Buildings 313 424 (69 992) 243 432 313 250 (65 068) 248 182

Plant and machinery 1 756 935 (115 114) 1 641 821 1 719 284 (221 284) 1 498 000

Furniture and fixtures 664 375 (553 937) 110 438 609 648 (501 745) 107 903

Motor vehicles 87 294 (51 718) 35 576 68 880 (52 316) 16 564

Office equipment 5 921 (4 544) 1 377 5 877 (4 421) 1 456

Computer equipment 18 730 (10 891) 7 839 18 551 (13 389) 5 162

Computer software 2 035 (1 864) 171 1 859 (1 859) -

Shut down costs capitalised 637 837 (586 091) 51 746 635 928 (219 430) 416 498

Production assets 37 982 217 (31 680 658) 6 301 559 28 306 499 (19 320 914) 8 985 585

Assets under development 3 313 597 (2 691 285) 622 312 9 144 141 (2 145 868) 6 998 273

Restoration expenditure 2 810 009 (2 460 577) 349 432 2 629 754 (1 292 534) 1 337 220

Mine infrastructure 50 581 (15 446) 35 135 63 220 (13 110) 50 110

Total 47 700 020 (38 242 117) 9 457 903 43 573 956 (23 851 938) 19 722 018

Company

Buildings 94 084 (28 548) 65 536 94 045 (23 519) 70 526

Plant and machinery 4 000 (800) 3 200 4 000 (400) 3 600

Furniture and fixtures 3 435 (2 901) 534 3 435 (2 588) 847

Motor vehicles 1 355 (1 222) 133 1 355 (1 049) 306

Office equipment 4 559 (3 800) 759 4 609 (3 521) 1 088

Computer equipment 3 409 (2 823) 586 5 640 (4 715) 925

Assets under development 1 796 - 1 796 - - -

Total 112 638 (40 094) 72 544 113 084 (35 792) 77 292


NOTES TO THE ANNUAL FINANCIAL STATEMENTSNOTES TO THE ANNUAL FINANCIAL STATEMENTSNOTES TO THE ANNUAL FINANCIAL STATEMENTSNOTES TO THE ANNUAL FINANCIAL NOTES TO THE ANNUAL FINANCIAL

Figures in Rand thousandsOpening balance Additions Disposals Transfer/

reclassificationForeign exchange

movementsChange inestimate

Depreciation Impairment loss Closing balance

NOTES TO THE ANNUAL FINANCIAL STATEMENTS (CONTINUED)

Reconciliation of property, plant and equipment Group - 2015

Land 57 065 - - - - - - - 57 065

Buildings 248 182 382 (209) - - 837 (5 760) - 243 432

Plant and machinery 1 498 000 169 761 - - - - (25 940) - 1 641 821

Furniture and fittings 107 903 22 063 (961) 45 172 (2) 454 43 601 (107 792) 110 438

Motor vehicles 16 564 21 202 (499) - - 358 (2 049) - 35 576

Office equipment 1 456 156 - - - - (235) - 1 377

Computer equipment 5 162 2 830 1 - - 2 771 (2 925) - 7 839

Shutdown cost 416 498 1 909 - - - - (161 854) (204 807) 51 746

Computer software - 176 - - - - (5) - 171

Plant and machinery 8 985 585 786 537 (18 515) 8 577 001 249 164 - (1 855 228) (10 422 985) 6 301 559

Restoration expenditure 1 337 220 44 633 - - 14 140 317 337 (341 028) (1 022 870) 349 432

Assets under development 6 998 273 4 923 528 - (8 608 204) - - - (2 691 285) 622 312

Mine infrastructure 50 110 109 (8 773) 2 297 - 11 (8 619) - 35 135

19 722 018 5 973 286 (28 956) 16 266 263 302 321 768 (2 360 042) (14 449 739) 9 457 903

Reconciliation of property, plant and equipment Group - 2014 restated

Land 59 364 - (630) (1 669) - - - - 57 065

Buildings 255 631 1 602 - 1 669 - - (10 720) - 248 182

Plant and machinery 1 520 900 - - - - 2 956 (25 856) - 1 498 000

Furniture and fittings 113 950 21 205 (196) 15 631 7 57 (42 751) - 107 903

Motor vehicles 15 914 4 711 (439) - - - (3 622) - 16 564

Office equipment 1 953 222 (2) (8) - - (709) - 1 456

Computer equipment 6 463 1 657 (76) (37) - 39 (2 883) (1) 5 162

Shutdown cost - - - 635 928 - - (88 323) (131 107) 416 498

Production assets 7 989 091 406 321 (676) 1 884 841 163 113 294 (729 107) (728 292) 8 985 585

Restoration expenditure 2 144 912 15 614 (14 915) 57 278 17 066 (363 114) (130 325) (389 296) 1 337 220

Assets under development 5 093 444 4 837 613 (394) (786 522) - - - (2 145 868) 6 998 273

Mine infrastructure 49 913 8 040 (150) (70) - (3 102) (4 521) - 50 110

17 251 535 5 296 985 (17 478) 1 807 041 180 186 (362 870) (1 038 817) (3 394 564) 19 722 018


NOTES TO THE ANNUAL FINANCIAL NOTES TO THE ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL

(CONTINUED)

Figures in Rand thousandsOpening balance Additions Disposals Transfer/

reclassificationForeign exchange

movementsChange inestimate

Depreciation Impairment loss Closing balance

Reconciliation of property, plant and equipment Group - 2015

Land 57 065 - - - - - - - 57 065

Buildings 248 182 382 (209) - - 837 (5 760) - 243 432

Plant and machinery 1 498 000 169 761 - - - - (25 940) - 1 641 821

Furniture and fittings 107 903 22 063 (961) 45 172 (2) 454 43 601 (107 792) 110 438

Motor vehicles 16 564 21 202 (499) - - 358 (2 049) - 35 576

Office equipment 1 456 156 - - - - (235) - 1 377

Computer equipment 5 162 2 830 1 - - 2 771 (2 925) - 7 839

Shutdown cost 416 498 1 909 - - - - (161 854) (204 807) 51 746

Computer software - 176 - - - - (5) - 171

Plant and machinery 8 985 585 786 537 (18 515) 8 577 001 249 164 - (1 855 228) (10 422 985) 6 301 559

Restoration expenditure 1 337 220 44 633 - - 14 140 317 337 (341 028) (1 022 870) 349 432

Assets under development 6 998 273 4 923 528 - (8 608 204) - - - (2 691 285) 622 312

Mine infrastructure 50 110 109 (8 773) 2 297 - 11 (8 619) - 35 135

19 722 018 5 973 286 (28 956) 16 266 263 302 321 768 (2 360 042) (14 449 739) 9 457 903

Reconciliation of property, plant and equipment Group - 2014 restated

Land 59 364 - (630) (1 669) - - - - 57 065

Buildings 255 631 1 602 - 1 669 - - (10 720) - 248 182

Plant and machinery 1 520 900 - - - - 2 956 (25 856) - 1 498 000

Furniture and fittings 113 950 21 205 (196) 15 631 7 57 (42 751) - 107 903

Motor vehicles 15 914 4 711 (439) - - - (3 622) - 16 564

Office equipment 1 953 222 (2) (8) - - (709) - 1 456

Computer equipment 6 463 1 657 (76) (37) - 39 (2 883) (1) 5 162

Shutdown cost - - - 635 928 - - (88 323) (131 107) 416 498

Production assets 7 989 091 406 321 (676) 1 884 841 163 113 294 (729 107) (728 292) 8 985 585

Restoration expenditure 2 144 912 15 614 (14 915) 57 278 17 066 (363 114) (130 325) (389 296) 1 337 220

Assets under development 5 093 444 4 837 613 (394) (786 522) - - - (2 145 868) 6 998 273

Mine infrastructure 49 913 8 040 (150) (70) - (3 102) (4 521) - 50 110

17 251 535 5 296 985 (17 478) 1 807 041 180 186 (362 870) (1 038 817) (3 394 564) 19 722 018


Figures in Rand thousandsOpening balance

Additions Disposals Depreciation Closing balance

Reconciliation of property,plant and equipmentCompany - 2015

Buildings 70 526 39 - (5 029) 65 536

Production assets 3 600 - - (400) 3 200

Furniture and fixtures 847 - - (313) 534

Motor vehicles 306 - - (173) 133

Office equipment 1 088 62 - (391) 759

Computer equipment 925 158 51 (548) 586

Assets under development - 1 796 - - 1 796

77 292 2 055 51 (6 854) 72 544

Reconciliation of property,plant and equipment Company - 2014 Restated

Buildings 75 291 226 - (4 991) 70 526

Plant and machinery 4 000 - - (400) 3 600

Furniture and fixtures 872 252 - (277) 847

Motor vehicles 502 - - (196) 306

Office equipment 1 516 151 - (579) 1 088

Computer equipment 936 631 (23) (619) 925

83 117 1 260 (23) (7 062) 77 292

Pledged as security

The property, plant and equipment of African Exploration and Mining are held as collateral against the due performance by the company of its obligations on the loan from the holding company. A register containing the information required by Regulation 25(3) of the Companies Regulations, 2011 is available for inspection at the registered office of the Group.




(CONTINUED)

Property, plant and equipment (continued) PetroSARestoration expenditure relates to the abandonment provision (Note 21) and is amortised on a units of production basis. The units of production method is also used in calculating depreciation on producing assets. Due to the nature of the business, the gas and oil reserves at the end of each financial year differ from the previous year. This necessitates a change in the estimated remaining useful lives of these assets at the end of each financial year. The effect on the current year is a decrease of R123 million in profit. Due to the number of variables involved in the depreciation calculation it is not practicable to estimate the effect in future years.

Impairment-GTL RefineryOil and gas reserves are used in assessing oil and gas producing properties for impairment. A significant reduction in the oil and gas price and a downgrade of proved and probable reserves triggered an impairment review. When such indicators are identified, management must exercise further judgement in making an estimate of the recoverable amount (value in use) of the asset against which to compare the carrying value. The outcome of the review necessitated an impairment of R11,7 billion (2014: R3,4 billion) based on a recoverable amount of R3,2 billion (2014: R16,5 billion). This was determined by comparing the CGU’s carrying value at year-end against the expected present value of the free cash flows (value in use) from this CGU, based on a 5-year business plan approved by the Board of Directors. These cash flows are management’s best estimate taking into account past experience and future economic assumptions, such as forward curves for crude oil, product prices and exchange rates and discounted using the company WACC of 14% (2014: 12,5%). The impairment loss was recorded as part of operating expenses.

Impairment-Jubilee and TEN developmentThe impairment charge of R2,7 billion for 2015, based on a recoverable amount of R3,7 billion, includes a review of carrying values of all PP&E assets in light of current commodity prices and changes in discount rates from 10% - 11%. The crude price assumptions used in the value in use computation are $61.49 (2016: $77, 2017: $81, 2018: $86, 2019: $91).

PetroSA will continue to review the recoverable amount of the CGU in the event of future changes in reserves and relevant macro-economic indicators.

Figures in Rand thousands2015 2014 Restated

Cost/valuation


Carrying value

Cost/valuation


Carrying value

2. Intangible assetsGroup

Patents 57 423 (52 686) 4 737 57 700 (52 686) 5 014

Computer software 66 971 (43 539) 23 432 57 909 (35 643) 22 266

Licence fee 211 (211) - 211 (2121)

Exploration and appraisal 1 731 851 - 1 731 851 1 567 756 (934) 1 566 822

Restoration costs 19 631 - 19 631 20 651 20 651

Total 1 876 087 (96 436) 1 779 651 1 704 227 (89 474) 1 614 753

Company

Patents 50 490 (50 490) - 50 490 (50 490) -

Computer software 5 656 (4 529) 1 127 7 730 (6 759) 971

Total 56 146 (55 019) 1 127 58 220 (57 249) 971



Figures in Rand thousandsOpeningbalance

Additions Disposals Written back TransfersForeign

exchangemovements

Change inestimate

Amortisation Total

Reconciliation of intangible assets Group - 2015

Patents 5 014 - - - - - - (277) 4 737

Computer software, internally generated 22 266 12 428 (83) - - - 1 053 (12 232) 23 432

Exploration and appraisal 1 566 822 159 957 (231) (136) (16 266) 21 705 - - 1 731 851

Restoration costs 20 651 40 - - - 3 120 (4 180) - 19 631

1 614 753 172 425 (314) (136) (16 266) 24 825 (3 127) (12 509) 1 779 651

Reconciliation of intangible assets Group - 2014 Restated

Patents 5 291 - - - - - - (277) - 5 014

Computer software 21 654 11 604 (55) - (20) - - (10 917) - 22 266

Exploration and appraisal 3 054 444 161 250 (145 243) 136 (1 573 382) 70 551 - - (934) 1 566 822

Restoration costs 98 750 6 957 - (36 170) (57 278) 14 364 (5 972) - - 20 651

3 180 139 179 811 (145 298) (36 034) (1 630 680) 84 915 (5 972) (11 194) (934) 1 614 753

Openingbalance


exchangemovements

Change inestimate

Amortisation Impairment loss

Total



(CONTINUED)



exchangemovements

Change inestimate

Amortisation Total

Reconciliation of intangible assets Group - 2015

Patents 5 014 - - - - - - (277) 4 737

Computer software, internally generated 22 266 12 428 (83) - - - 1 053 (12 232) 23 432

Exploration and appraisal 1 566 822 159 957 (231) (136) (16 266) 21 705 - - 1 731 851

Restoration costs 20 651 40 - - - 3 120 (4 180) - 19 631

1 614 753 172 425 (314) (136) (16 266) 24 825 (3 127) (12 509) 1 779 651

Reconciliation of intangible assets Group - 2014 Restated

Patents 5 291 - - - - - - (277) - 5 014

Computer software 21 654 11 604 (55) - (20) - - (10 917) - 22 266

Exploration and appraisal 3 054 444 161 250 (145 243) 136 (1 573 382) 70 551 - - (934) 1 566 822

Restoration costs 98 750 6 957 - (36 170) (57 278) 14 364 (5 972) - - 20 651

3 180 139 179 811 (145 298) (36 034) (1 630 680) 84 915 (5 972) (11 194) (934) 1 614 753

Openingbalance


exchangemovements

Change inestimate

Amortisation Impairment loss

Total




Opening balance

Additions Disposals Amortisation Total

Reconciliation of intangible assets Company - 2015

Computer equipment 971 971 (2) (813) 1 127

Reconciliation of intangible assets Company - 2014 Restated

Computer equipment 1 373 627 - (1 029) 971

1 373 627 - (1 029) 971



(CONTINUED)

Figures in Rand thousands% Holding

2015% Holding

2014

Carrying amount

2015

Carrying amount

2014

3. Investments in subsidiaries

GroupName of company

African Exploration 100.00 % 100.00 % - -

Cotec Development 100.00 % 100.00 % - -

Cotec Patrade 100.00 % 100.00 % - -

CCE 81.50 % 81.50 % - -

Carbon Stream Africa - % 100.00 % - -

CEF Carbon SA 100.00 % 100.00 % - -

Klippoortjie 100.00 % 100.00 % - -

Mahnes Areas 100.00 % 100.00 % - -

ETA 100.00 % 100.00 % - -

SASDA - % 100.00 % - -

SA Gas Development 100.00 % 100.00 % - -

Klippoortjie 100.00 % 100.00 % - -

Mahnes Areas 100.00 % 100.00 % - -

OPC 100.00 % 100.00 % - -

Petroleum Agency SA 100.00 % 100.00 % - -

SFF 100.00 % 100.00 % - -

SANERI 100.00 % 100.00 % - -

PetroSA 100.00 % 100.00 % - -

PetroSA Synfuel International 100.00 % 100.00 % - -

PetroSA Sudan 100.00 % 100.00 % - -

PetroSA (Namibia) 100.00 % 100.00 % - -

PetroSA Egypt 100.00 % 100.00 % - -

PetroSA Europe BV 100.00 % 100.00 % - -

PetroSA Brass 100.00 % 100.00 % - -

PetroSA Gryphon Marin Permit 100.00 % 100.00 % - -

PetroSA Iris 100.00 % 100.00 % - -

PetroSA Themis 100.00 % 100.00 % - -

PetroSA Equatorial Guinea 100.00 % 100.00 % - -

PetroSA Ghana 100.00 % 100.00 % - -



Figures in Rand thousands% holding

2015% holding

2014Carrying amount

2015Carrying amount

2014

3. Investments in subsidiaries (continued)

CompanyName of company

African Exploration 100.00 % 100.00 % 4 4

Carbon Stream Africa - % 100.00 % - -

CCE 81.50 % 81.50 % 45 478 45 478

CEF Carbon SA 100.00 % 100.00 % - -

Cotec Development 100.00 % 100.00 % - -

Cotec Patrade 100.00 % 100.00 % - -

ETA 100.00 % 100.00 % 4 000 4 000

SA Gas Development 100.00 % 100.00 % - -

Klippoortjie 100.00 % 100.00 % - -

OPC 100.00 % 100.00 % - -

PetroSA 100.00 % 100.00 % 2 755 936 2 755 936

SFF 100.00 % 100.00 % 1 1

Petroleum Agency SA 100.00 % 100.00 % - -

PetroSA Brass 100.00 % 100.00 % - -

Sasda - % 100.00 % - -

SANERI 100.00 % 100.00 % - -

PetroSA Ghana 100.00 % 100.00 % - -

2 805 419 2 805 419

Impairment of investment in subsidiaries (45 477) (45 477)

2 759 942 2 759 942

Reporting periodAll subsidiaries financial year ends is March except for PetroSA Ghana which is 31 December.

DisinvestmentThe shares in Carbon Stream Africa SOC Limited were cancelled during the financial year due to deregistration of that company.Consequently the investment in that company was written off in full.



(CONTINUED)


% Ownership

interest2015

% Ownership

interest2014

Carrying amount

2015

Carrying amount

2014

4. Joint arrangements

The following table lists all of the joint ventures in the group:


Pan African Mineral Development Company Proprietary Limited (PAMDC)

33.00 % 33.00 % 11 199 8 416

GTL.F1 AG 50.00 % 50.00 % - -

11 199 8 416

PAMDC

The governments of South Africa, Zimbabwe and Zambia created a special purpose vehicle, PAMDC (Pty) Ltd, to collaborate and develop mineral resources in the region as enshrined in the Southern African Development Community Mining Protocol, the Plan of Action for the Global Mining Initiative of the New Partnership for the Africa’s Development and African Mining Partnership. PAMDC (Pty) Ltd is co-owned by the parties in equal proportions. South African government through AEMFC SOC Limited is a co-share owner in PAMDC (Pty) Ltd.

The memorandum of agreement states that decisions on the relevant activities require the unanimous consent of all the parties. PAMDC (Pty) Ltd is a joint venture since the partners have rights to the net assets of PAMDC (Pty) Ltd and the memorandum give the parties the rights to a share of the net outcome generated by the economic activity.

GTL.F1

GTL.F1 AG is the process licensor of the Low Temperature Fischer Tropsch (LTFT) technology and its principal place of business is in Germany.

Reporting period

The reporting date of the GTL. F1 AG’ s year end is 31 December 2014.

Unrecognised losses

The Group has discontinued recognising its share of the losses of GTL.F1 AG, as the investment at a group level is held at R nil and the Group has no obligation for any losses of the joint venture. The total unrecognised losses for the current period amount to R30,8 million (2014: R19,3 million). The accumulated unrecognised losses to date amount to R94,9 million (2014: R78,9 million). The accumulated unrecognised losses to date amount to R94,9 million (2014: R78.9 million).


Figures in Rand thousands% Holding

2015% Holding

2014

Carrying amount

2015

Carrying amount

2014

5. Investments in associates


Darling Wind Power Proprietary Limited 49.00 % 49.00 % - -

Baniettor Mining Proprietary Limited 49.00 % 49.00 % 98 98

GTL.F1 AG - % - % - -

Rompco 25.00 % 25.00 % 915 444 835 944

Methcap SPV1 Proprietary Limited 19.00 % 19.00 % 3 466 2 299

Thin Film Solar Technologies SA Proprietary Limited 45.00 % 45.00 % 34 199 34 452

Philips Lighting Maseru Proprietary Limited 30.00 % 30.00 % - 3 786

Ener-G Systems Proprietary Limited 29.00 % 29.00 % 357 357

953 564 876 936

Impairment of investment in associates

Methcap SPV1 Proprietary Limited (1 475) (1 475)

Baniettor Mining Proprietary Limited (98) (98)

951 991 875 363

Company

Darling Wind Power Proprietary Limited 49.00 % 49.00 % - -

Baniettor Mining Proprietary Limited 49.00 % 49.00 % 98 98

Methcap SPV1 Proprietary Limited 19.00 % 19.00 % 1 475 1 475

Thin Film Solar Technologies SA Proprietary Limited 45.00 % 45.00 % 34 468 34 468

Philips Lighting Maseru Proprietary Limited 30.00 % 30.00 % - 9 410

Ener-G Systems Proprietary Limited 29.00 % 29.00 % 357 357

36 398 45 808

Impairment of investments in associates

Methcap SPV1 Proprietary Limited (1 475) (1 475)

Baniettor Mining Proprietary Limited (98) (98)

34 825 44 235




(CONTINUED)

Figures in Rand thousands%Holding

2015

% Ownership

interest2014

Carrying amount

2015

Carrying amount

2014

Heading 2015 2014

Assets

Non-current 4 583 219 4 010 603 - -

Current 1 046 940 577 477 - -

5 630 159 4 588 080 - -

Equity and liabilities

Equity and reserves 1 825 029 1 393 404 - -

Non-current liabilities 930 829 2 584 648 - -

Current liabilities 2 874 301 610 028 - -

5 630 159 4 588 080 - -

Revenue 1 902 476 1 622 200 - -

Profit 894 768 803 203 - -

5. Investments in associates (continued)

Divestitures

Pursuant to the Section 54 of the Public Finance Management Act 1 of 1999 approval by the Minister of Energy, the investment in Phillips Lighting Maseru (Pty) Ltd, with a carrying value of R9,4 million was sold during the financial year at a profit of R1,3 million.

Associates with different reporting dates

The reporting date of the following associates are not the same as the group’s financial year:

Baniettor Mining Proprietary Limited 30 June

Rompco 30 June

Philips Lighting Maseru Proprietary Limited 31 December

Methcap SPV1 Proprietary Limited 31 December

Rompco

The company’s year end is 30 June.



2015 2014Restated

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Restated

6. Loans (from) group company’s subsidiaries

African Exploration - - 208 899 208 899

CCE - - 53 970 49 483

Cotec Patrade - - 3 731 3 731

ETA - - 18 761 19 409

SA Gas Development - - 135 867 257 141

OPC - - (23 682) (22 353)

Petroleum Agency SA - - (300 050) (334 333)

PetroSA - - (489 021) (489 021)

- - (391 525) (307 044)

Impairment of loans to subsidiaries - - (76 462) (72 623)

- - (467 987) (379 667)

Terms and conditions

All the loans to the subsidiaries are interest free with no fixed determinable repayment terms until that time the companies have sufficient profits and have enough capital to sustain themselves, except for iGas SOC Limited.

Loans to iGas SOC Ltd

CEF SOC Limited-non-Interest bearing loan

In terms of a Ministerial Directive, CEF SOC Limited provided the initial working capital to fund the operations of the entity until such time as sufficient income is generated by the entity. This loan will start bearing interest in December 2015.

CEF SOC Limited-Interest Bearing loan

CEF SOC Limited provided an interest bearing loan of R352,5 million to iGas SOC Ltd to enable iGas, as of 1 July 2005, to acquire the 25% shareholding in ROMPCO. The interest bearing portion of the loan is R30,97 million (2014: R89,4 million). Annual interest is paid at six months JIBAR plus a margin of 1,15% per annum to CEF SOC Limited. Capital repayment of R29 million is due in July and January each year. The loan will be repaid in full on 27 July 2015.




(CONTINUED)


2015 2014Restated

20152014

Restated

6. Loans (from) group company’s subsidiaries (continued)

Baniettor Mining Proprietary Limited 23 933 23 933 23 933 23 933

Darling Wind Power Proprietary Limited 15 452 15 483 16 595 16 626

Ener-G Systems Proprietary Limited 5 782 4 479 12 677 11 375

Thin Film Technology 5 077 5 077 5 077 5 077

Thin Film Cash on Call - (36 032) - (36 032)

50 244 12 940 58 282 20 979

Impairment of loans to associates (40 933) (40 933) (40 933) (40 933)

9 311 (27 993) 17 349 (19 954)

Non-current assets 9 716 8 413 331 545 423 992

Current assets - - 30 975 58 500

Non-current liabilities - - (489 021) (489 021)

Current liabilities (405) (36 406) (324 137) (393 092)

9 311 (27 993) (450 638) (399 621)

Loans to group companies impaired

As of 31 March 2015, loans to group companies of R117 million (2014: R114 million) were impaired and provided for in full.


7. Other financial assets

Cash at bank

Restricted cash - 1 725 000 - -

Loans and receivables

Ghana National Petroleum Corporation (GNPC) 52 330 - - -

GTL.F1 AG 153 190 126 839 - -

Lurgi 153 732 169 651 - -

Restricted cash for environmental rehabilitation guarantee 12 472 33 882 - -

371 724 330 372 - -

371 724 2 055 372 - -

Non-current assets

Non-current 371 724 330 372 - -

Current assets

Current asset - 1 725 000 - -

371 724 2 055 372 - -

In 2014, a decision was taken to impair PetroSA’s loans to PetroSA Equatorial Guinea due to its irrecoverability. At 31 March 2015, PetroSA waived its claim of R2 billion (2014: R1,7 billion) against PetroSA Equatorial Guinea and the loan was written off.

Cash at bank

Restricted cash is interest bearing and its use is restricted as a reserve for the servicing of debt (paid on 27 February 2015) under the group’s financing agreements in relation to the PetroSA Ghana Ltd investment.

Ghana National Petroleum Corporation (GNPC)

The loan bears interest at LIBOR plus a margin percentage of 1,5%. Interest is compounded monthly. The loan will be repaid with 40% of GNPC’s receivables per each lifting of TEN production until the liability is fully discharged. TEN production is scheduled to commence in August 2016.

GTL.F1 AG

The loan accrues interest at EURIBOR + 0,75%. This loan is repayable on the commencement of profit generation by the company.

Lurgi

The amount owing by Lurgi is in respect of a purchase of 12,5% share in the GTL.F1 AG Joint Venture. The loan accrues interest at EURIBOR + 0,75%. The loan is repayable based on dividends receivable by Lurgi from the GTL.F1 AG technology company.

Restricted cash for environmental rehabilitation guarantee

The funds are held in a long-term investment account held in terms of the Mineral and Petroleum Resources Development Act, 2002, for African Exploration and Mining to execute environmental rehabilitation on current mining operations and exploration assets. The insurance guarantor undertakes to pay R39,1 million towards the environmental rehabilitation programme of Vlakfontein Mine and R42,9 million towards rehabilitation of T Projects. Interest earned on the investments for the year is R0,5 million.



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(CONTINUED)

8. Deferred tax

Deferred tax (liability) asset

Property plant and equipment (1 187 187) (2 041 172) (597) (689)

Provisions 40 049 29 994 4 933 5 443

Other deferred tax liability-prepaid expenses (286) (384) - (114)

Deferred tax asset 28 117 21 377 - -

Tax losses available for offset against future taxable income 146 238 179 717 - -

Total deferred tax liability (973 069) (1 810 468) 4 336 4 640

The deferred tax assets and the deferred tax liability relate to income tax in the same jurisdiction, and the law allows net settlement.

Therefore, they have been offset in the statement of financial position as follows:

Reconciliation of deferred tax asset/(liability)

At beginning of year (1 810 467) (1 741 079) 4 640 4 070

Increase/(decrease) in tax losses available for set off against (23 709) 179 718 - -

future taxable income

Taxable /(deductible) temporary difference on provisions (281) 22 311 (537) 544

Taxable /(deductible) temporary difference unredeemed 6 739 (1 964) - -

capital expenditure

Taxable /(deductible) temporary difference movement 134 148 97 084 - -

investment property at fair value

Temporary difference on available for sale financial asset - - - -

Taxable /(deductible) temporary difference movement on 719 864 (366 344) 119 140

tangible and intangible assets

Taxable /(deductible) temporary difference prepayments 637 (193) 114 (114)

(973 069) (1 810 467) 4 336 4 640

Where the expected recovery of an assets is through sale the capital gains tax rate of 19% (2014:18,6%) is used if the expected manner of recovery is through the indefinite use. If the manner of recovery is partly through use and partly through sale, a combination of capital gains rate and normal tax rate is used the normal tax rate of 28% (2014: 28%) is applied.

PetroSA continued with its development programme of the F-O field, known as project Ikhwezi. Project Ikhwezi will contribute toward further increasing PetroSA’s assessed loss position. As it is unlikely that the assessed loss will be utilised in the foreseeable future, no deferred tax asset has been recognised. The current tax value of the unrecognised estimated tax loss/assessed loss is R5,1 billion (2014: R3,4 billion).

Unrecognised deferred tax asset

Deductible temporary differences not recognised as deferred tax assets (16 427)

Unused tax losses not recognised as deferred tax assets 16 507 15 719 16 544 -

16 507 15 719 117 -

Use and sales rate

Where the expected recovery of an assets is through sale the capital gains tax rate of 19% (2014:18,6%) is used. If the expected manner of recovery is through indefinite use. If the manner of recovery is partly through use and partly through sale, a combination of capital gains rate and normal tax rate is used. The normal tax rate of 28% (2014: 28%) is applied.


2015 2014Restated

20152014

Restated


9. Finance lease receivables

Gross investment in the lease due

- within one year 773 794 - -

- in second to fifth year inclusive 939 1 744 - -

1 712 2 538 - -

less: Unearned finance income (310) (376) - -

1 402 2 162 - -

Non-current assets 939 1 744 - -

Current assets 773 794 - -

1 712 2 538 - -

The company entered into finance leasing arrangements for Solar Water Heaters with customers in Nelson Mandela Bay and Ekurhuleni Metropolitan.

The average lease terms are six years and the average effective lending rate was 10% (2014: 10% ; 2013: 10%).

Finance lease receivables impaired

As of 31 March 2015, finance lease receivables of R0, 285 million - (2014: R 0,112 million) were impaired and provided for.

The amount of the provision was R0, 285 million-as of 31 March 2015 (2014: R0,112 million).

The amount was determined in reference to the expected payments from customers that should have been received as at 31 March 2015 excluding the 90 days, as per the CEF group policy, before year end.

10. Operating lease asset (accrual)

Non-current liabilities (9 302) (5 681) - -

Contracts relating to rental payable and receivable have been smoothed over the contract periods.



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(CONTINUED)

11. Retirement benefits

Defined benefit planCarrying value

Present value of the defined benefit obligation-wholly unfunded (33 405) (29 822) - -

Fair value of plan assets (52 194) (45 991) - -

(85 599) (75 813) - -

Movements in the defined benefit obligation was as follows:

Opening balance 177 683 197 028 - -

Interest paid 15 553 15 438 - -

Benefits paid (10 448) (9 946) - -

Current service cost 3 349 4 239 - -

Actuarial gains/losses 2 918 (29 076) - -

189 055 177 683 - -

Movements in the plan assets was as follows:

Market value of assets at beginning of the year 101 869 106 993 - -

Return on plan assets 9 883 8 447 - -

Actuarial gains/losses (1 321) (8 592) - -

Contributions paid by employer - 3 052 - -

Benefit payments (6 975) (6 599) - -

Refunds received - (1 432) - -

103 456 101 869 - -

Net expense recognised in profit or loss

Interest cost 15 553 15 438 - -

Key assumptions used

Assumptions used:

Discount rates used SFF 8.09% 9.01%

Discount rates used PetroSA 8.50% 9.00%

Medical inflation rate SFF 7.75% 8.46%

Medical inflation rate PetroSA 6.75% 7.25%

Mortality rate SFF PA(90)+1 PA(90)

Mortality rate PetroSA PA(90)-2 PA(90)-2

An actuarial valuation was conducted by QED Actuaries & Consultants (Pty) Ltd at 31 March 2015.

The plan asset is unquoted. It is a policy of insurance. Therefore the split of the underlying investments is not readily available, and is most likely to be predominantly invested in CPI-linked bonds.


2015 2014Restated

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Restated


11. Retirement benefits (continued)

Sensitivity Analysis SFFFinancial assumptions

2015 Valuation interest

rate- 1,0%

2015 Valuation interest

rateused

Accrued liabilities

-Continuation members 36 900 33 405

Total accrued liability 36 900 33 405

Change 10%

Projections for 2016

Interest cost 2 616 2 702

Demographic assumptions

PA (90) + 1 PA (90)

Accrued liabilities

-Continuation members 31 973 33 405

Total accrued liability 31 973 33 405

Change -4%

Projections for 2016

Interest cost 2 587 2 702

Expected accrued liability as at 31 March 2016

Accrued liability as at 31 March 2015 33 405

Plus: Interest cost 2 702

Less: Benefits paid (estimate) (2 292)

Estimated Net Liability as at 31 March 2016 33 815

Post-employment medical benefits for PetroSA

The PetroSA group has provided for an amount of R155,6 million of which R103,4 million was funded (2014: R147,9 million of which R101,9 million was funded). This is the funding of post-retirement medical scheme costs for all employees and pensioners. The commitment is actuarially valued annually, with the most recent valuation performed as at 31 March 2015.

The post-employment medical arrangement provides health benefits to retired employees and certain dependants. The benefit was applicable and on offer only to employees in the service of PetroSA before 1 May 2012.

During the 2013 financial year, PetroSA funded a portion of the post-retirement medical liability through the purchase of a company-funded annuity policy. As this annuity policy is CPI linked, the company is exposed to revaluation risks if medical inflation is higher than the CPI increases granted. The current value of the annuity policy is R103,4 million.

The net defined benefit obligation in respect of promised post-retirement medical scheme costs as at 31 March 2015 is R52,2 million. The obligation is partially funded and was valued using the “projected unit method”. A discount rate of 8,5% and a health care cost inflation of 6,75% were assumed. Mortality assumptions were in line with standard table SA56/62 ultimate (pre-retirement) and PA(90) rated down by two years (post-retirement).



2015 2014Restated

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(CONTINUED)

11. Retirement benefits (continued)

A sensitivity analysis was performed on key assumptions. A 1% or one year-downward rating change in assumptions will increase or decrease the net obligation as follows:

Discount rate-R20,7 million and R16,9 million respectively (2014: R20,2 million and R16,4 million respectively).Mortality rate-R4,6 million and R4,5 million respectively (2014: R50,3 million and R41,7 million respectively).

Health care cost inflation: R20,3 million and R16,9 million respectively (2014: R65,9 million and R29,5 million respectively).

A 1% or one year-downward rating change in assumptions will increase or decrease combined interest and service cost as follows: Discount rate-R15,7 million and R14,8 million respectively (2014: R18,7 million and R16,7 million respectively).Mortality rate-R15,7 million and R14.8 million respectively (2014: R17 million and R15,6 million respectively).

Health care cost inflation-R17,4 million and R13,5 million respectively (2014: R18,7 million and R14,3 million respectively).

12. Strategic inventory

These inventories are being held in accordance with Ministerial Directives as prescribed by the Minister of Energy. The carrying amount of these inventories are expected to be realised past 12 months after the reporting date, thus it is included in non-current assets.

A portion of these inventories are defined as unpumpable crude oil (1,37 million barrels at a cost price of R499 million) has been classified as property, plant and equipment. These volumes are required to be maintained in order for the operation of the oil storage facilities.

An amount of R1,074 billion was spent to purchase the 155 million litres of diesel white product was injected into the New National Multi- Products Pipeline by the company during the 2011/2012 financial year. The product is valued at R1,750 billion as at 31 March 2015 (2014: R1,325 billion), but is being carried at cost.

Crude oil 2 044 701 2 044 701 - -

Diesel 1 073 804 1 073 804 - -

3 118 505 3 118 505 - -

13. Inventories

Petroleum fuels 1 895 820 2 647 819 - -

Crude oil 31 199 11 156 - -

Consumer stores, spares and catalysts 281 429 318 305 - -

Run of mine stock 4 877 5 056 - -

Crushed coal 1 372 3 040 - -

2 214 697 2 985 376 - -

Inventories (write-downs) (1 466) (841) - -

2 213 231 2 984 535 - -

The ROM stock is the coal directly extracted from the pit. This is either sold to external customers or crushed according to customer specification and converted to crushed coal.

Write down relates to the coal with low qualities written down to net realisable value.


2015 2014Restated

20152014

Restated


14. Trade and other receivables

Trade receivables 2 363 495 2 928 489 9 676 9 122

Deferred expenses 1 141 1 244 - -

Prepayments 357 742 188 157 - -

Deposits 8 537 12 070 - -

VAT 332 091 272 499 664 2 515

Operating lease receivables 6 497 13 549 - -

Underlift 17 697 - - -

Statutory receivables 160 010 62 148 - -

Provision for doubtful debts (149 797) (75 680) (3 758) (3 758)

Sundry receivables 276 487 318 355 25 507 27 192

3 373 900 3 720 831 32 089 35 071

Trade and other receivables past due but not impaired

Trade and other receivables which are less than three months past due are not considered to be impaired. At 31 March 2015, R91,2 million (2014: R102,3 million were past due but not impaired.

The ageing of amounts past due but not impaired is as follows:

1 month past due 61 781 55 480 711 44

2 months past due 2 928 13 470 - 245

3 months past due 26 565 33 358 779 681

91 274 102 308 1 490 970

Reconciliation for doubtful debts

Opening balance 75 680 73 177 3 758 2 670

Provision for impairment 79 341 84 - 1 088

Amounts written off as uncollectable (2 101) (2 761) - -

Amounts recovered (3 123) (1 250) - -

Impairment losses recognised on receivables - 6 430 - -

149 797 75 680 3 758 3 758

The provision for doubtful debts consists of a number of customer account balances. The amount due from a customer of SFF in relation to storage of crude oil, and related costs incurred on their behalf, has been outstanding for longer than three years. Judgement is still to be served in court for this case.



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(CONTINUED)

15. Cash and cash equivalents

Cash and cash equivalents consist of cash on hand and balances with banks and investments in money market instruments. Cash and cash equivalents included in the statement of financial position comprise the following:

Short-term investments in money market and cash on hand 7 773 205 8 745 515 4 007 479 3 892 672

Bank balances 2 558 312 2 534 717 21 035 13 494

Term deposits 32 495 30 673 - -

Bank overdraft (286 761) (357 655) - -

10 077 251 10 953 250 4 028 514 3 906 166

Current assets 10 364 012 11 310 905 4 028 514 3 906 166

Current liabilities (286 761) (357 655) - -

10 077 251 10 953 250 4 028 514 3 906 166

A term deposit of R32,5 million (2014: R30,7 million) is held in the company PetroSA Rehabilitation (NPC), and is committed solely for the abandonment expenditure for the Oribi/Oryx field. R1,4 million has been set aside for the abandonment funding and these funds are not available for the general purposes of the group.

16. Disposal Groups held for sale

The CCE board of directors have resolved to dispose of its 8.8 MW Biomass to electricity generation power plant under construction.

The sale of equipment and project rights was concluded with the George Wood Waste Consortium at R50 million. However the sale is subject to the consortium being successful in its bid to participate in the small REIPP programme at the DoE. The results of the bid are expected in June 2015.

The Minister of Energy’s approval in terms of section 54(2) of the Public Finance Management Act No. 1 of 1999 to dispose of the OPC was received on 26 October 2012. The Minister approved the CEF SOC Board’s request to dispose of the business of OPC and to donate the assets to SFF.

Assets and liabilities

Non-current assets held for sale

Property, plant and equipment 10 669 10 669 - -

Assets of disposal groups

Property, plant and equipment 50 000 - - -

60 669 10 669 - -

Liabilities of disposal groups

Other financial liabilities 76 649 82 020 - -

17. Share capital

Authorised

100 Ordinary per value shares of R1 each - - - -

Issued

1 Ordinary par value shares of R1 each - - - -


2015 2014Restated

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Restated


18. Other financial liabilities

Held at amortised cost

Bank loan - 1 591 050 - -

Reserve based lending facility 918 362 - - -

Upstream Training Trust (27 315) 23 176 25 551 23 176

Demand site levy 21 292 19 401 21 292 19 401

912 339 1 633 627 46 843 42 577

Bank loan

The US Dollar denominated loan balance outstanding is secured by a cash collateral of R1,7 million. The loan accrues interest at LIBOR plus a margin percentage. This margin percentage amounted to 0,58500% throughout the financial year. All interest payable accrues from day to day at the relevant rate of interest, is calculated on the basis of the actual number of days elapsed and a 360 day year and is compounded quarterly. The loan was repaid on 27 February 2015.

Reserve based lending facility

The facility is a revolving credit facility secured against the producing asset of PetroSA Ghana. The loan accrues interest at LIBOR plus a margin percentage, varying between 3,25% and 4,50% over the period of the loan. The loan is due to mature in February 2021. All interest payable accrues from day to day at the relevant rate of interest, is calculated on the basis of the actual number of days elapsed and a 360 day year.

Upstream Training Trust

Under the administration of the Petroleum Agency SA, Upstream Training Trust continued to provide bursaries to students and to contribute monies to various approved and industry related projects.

Demand site levy

Levies are collected by the company on behalf of the Department of Energy from oil companies which is mandated by the Central Energy Fund Act 38 of 1977. These funds are transferred to National Treasury 30 days after collection.

Non-current liabilities 865 496 - - -

Current liabilities 46 843 1 633 627 46 843 42 577

912 339 1 633 627 46 843 42 577

19. Unearned finance income

Current liabilities 310 376 - -

ETA entered into finance lease arrangement with customers for its solar water heating installations. The average lease term was 72 months and the average effective borrowing rate was 10% (2014: 10%).



2015 2014Restated

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(CONTINUED)


2015 2014Restated

20152014

Restated

20. Deferred income

Solar Park and Vaal Dam projects 703 2,006 703 2 006

Guarantee fees - 118 - 118

Environmental deposits 328 87 - -

1 031 2 211 703 2 124

Non-current liabilities 1 031 2 093 703 2 006

Current liabilities - 118 - 118

1 031 2 211 703 2 124

Solar Park and Vaal Dam projects

CEF manages the Solar Park and Vaal Dam projects on behalf of the Department of Energy with the undertaking of feasibility studies for these projects to generate renewable energy.

Environmental deposits

These relate to cash deposits received from operators and licencees in terms of issued rights and permits. The environmental deposit can only be paid back to the holder on relinquishment of the rights in terms of section 43 of the MPRDA and on the granting of a closure certificate by the Minister.




Additions Utilised duringthe year

Reversed duringthe year

Change indiscount factor

Interestexpense


Finance cost Total

21. Provisions

Reconciliation of provisions Group - 2015

Abandonment/environmental 8 405 679 235 039 - - 328 213 1 155 179 - 2 045 10 126 155

Rehabilitation 13 837 - (463) - - - - - 13 374

Product warranties 93 426 - (29) - - - - 490

Social investment 36 863 - (2,710) - - - - - 34 153

Provision for Interest and penalties 14 166 1 367 - - - - - - 15 533

Bonus 212 623 36 674 (196 697) (540) (5 569) - - - 46 491

8 683 261 273 506 (199 870) (569) 322 644 1 155 179 - 2 045 10 236 196


Abandonment /environmental 8 222 564 67 357 (51 081) (5 609) (360 521) 532 858 - 111 8 405 679

Provision for interest and penalties 13 025 1 141 - - - - - - 14 166

Rehabilitation 9 104 7 551 (1 191) (1 627) - - - - 13 837

Social investment 40 622 - (3 759) - - - - - 36 863

Product warranties 121 - (28) - - - - - 93

Bonus 243 945 208 340 (236 050) 302 (3 914) - - - 212 623

Contingent consideration 321 294 (170 067) (151 227) - - - - - -

8 850 675 114 322 (443 336) (6 934) (364 435) 532 858 - 111 8 683 261

Reconciliation of provisions - Company - 2015

Bonus 13 011 6 434 (7 711) 11 734


Bonus 12 772 13 013 (12 774) 13 011

Non-current liabilities 10 126 155 8 405 677 - -

Current liabilities 110 041 277 584 11 734 13 011

10 236 196 8 683 261 11 734 13 011

Openingbalance


Total



(CONTINUED)

Group Company

2015 2014Restated

20152014

Restated



Reversed duringthe year


Interestexpense


Finance cost Total

21. Provisions


Abandonment/environmental 8 405 679 235 039 - - 328 213 1 155 179 - 2 045 10 126 155

Rehabilitation 13 837 - (463) - - - - - 13 374

Product warranties 93 426 - (29) - - - - 490

Social investment 36 863 - (2,710) - - - - - 34 153

Provision for Interest and penalties 14 166 1 367 - - - - - - 15 533

Bonus 212 623 36 674 (196 697) (540) (5 569) - - - 46 491

8 683 261 273 506 (199 870) (569) 322 644 1 155 179 - 2 045 10 236 196


Abandonment /environmental 8 222 564 67 357 (51 081) (5 609) (360 521) 532 858 - 111 8 405 679

Provision for interest and penalties 13 025 1 141 - - - - - - 14 166

Rehabilitation 9 104 7 551 (1 191) (1 627) - - - - 13 837

Social investment 40 622 - (3 759) - - - - - 36 863

Product warranties 121 - (28) - - - - - 93

Bonus 243 945 208 340 (236 050) 302 (3 914) - - - 212 623

Contingent consideration 321 294 (170 067) (151 227) - - - - - -

8 850 675 114 322 (443 336) (6 934) (364 435) 532 858 - 111 8 683 261


Bonus 13 011 6 434 (7 711) 11 734


Bonus 12 772 13 013 (12 774) 13 011

Non-current liabilities 10 126 155 8 405 677 - -

Current liabilities 110 041 277 584 11 734 13 011

10 236 196 8 683 261 11 734 13 011

Openingbalance


Total



2015 2014Restated

20152014

Restated

21. Provisions (continued)

Abandonment/environmental

The abandonment provision represents the present value of abandonment costs relating to oil and gas interests, the majority of which are expected to be incurred up to 2020. Assumptions, based on the current economic environment, have been made which management believes are a reasonable basis upon which to estimate the future liability. These estimates are reviewed regularly to take into account any material changes to the assumptions. However, actual abandonment costs will ultimately depend upon future market prices for the necessary abandonment works required which will reflect market conditions at the relevant time. Furthermore, the timing of abandonment is likely to depend on when the fields cease to produce at economically viable rates. This in turn will depend upon future oil and gas prices, which are inherently uncertain.

Major assumptions included in the calculation of provisions is that the South African inflation decreased from 6.9% to 4% and US inflation decreased from 1,3% to 0,4%. A sensitivity analysis indicates that R1 weakening of the Rand against the US Dollar translates into R493 million increase in the provision and a US$1 decrease in the brent crude oil price translate into a decrease in the provision by R19 million.

PetroSA commissioned additional research into the requirements to fully close or decommission redundant exploration wells. No reliable estimate of the cost can currently be made. Therefore no amounts have been provided for these items.

The total cost of future restoration is estimated at R9,6 million. This cost includes the net expenditure to abandon and to rehabilitate both the onshore and offshore facilities as well as other related closure costs. The costs are expected to be incurred as follows:

Financial year R’million- within one year -- in three years and beyond 9 622

PetroSA has commissioned an external expert to assess the quantum and scope of the group abandonment provision. This assessment occurs every five years. The current year assessment include additional research into the requirements to fully close or decommission redundant exploration wells. For these wells, no reliable estimate of the cost can be made at present. Therefore no amounts have been provided for these items.

Funding of abandonment/environmental rehabilitation

At year-end PetroSA had an obligation to rehabilitate and abandon its offshore and onshore liabilities valued at R9,3 billion, which are currently not fully funded. As per the approved corporate plan the gap would be funded over time in line with the expected maturity of the liability. However, in terms of the recently promulgated National Environmental Management Act (NEMA), PetroSA is required to have a fully funded rehabilitation liability within the next 12 months from year-end. There are current challenges with funding this gap (approximated at R4,6 billion at year-end) from equity due to PetroSA’s weakened financial position which has emanated from depleting feedstock, the limited success of Project Ikhwezi and the significant decline in crude oil prices. CEF SOC has committed to assist PetroSA, through various support and oversight mechanisms, to close the funding gap. In addition, PetroSA is working closely with the regulator (Petroleum Agency of South Africa) to ensure PetroSA discharges its responsibilities as required under NEMA. The company is also considering a variety of financial instruments to bridge this funding gap.

PetroSA has set aside funds towards the cost of abandonment/environmental rehabilitation. These funds are not available for the general purposes of the group. The funds are comprised of the following investments:

Rand millions

Portion of cash deposit 477 477

Cash in escrow account 31 31

Financial guarantee (refer to Note 35) 180 180

688 688




(CONTINUED)


21. Provision (continued)

Environmental rehabilitation for SFF

This provision relates to the abandonment of the Milnerton and Saldanha tank farms and the environmental rehabilitation at Ogies and is based on the cost report provided by Kantey & Templer Consulting Engineers on 20 May 2011, updated with valuation calculations performed by management as at 31 March 2014. The assumptions will be revised for the current financial year at 31 March 2015.

Assumptions for the Saldanha calculation:

The six Saldanha In-Ground tanks will be decommissioned and withdrawn from service but not demolished. The Scope of Work includes for the cleaning, decommissioning and mothballing of the equipment within the perimeter fences of the tank-farm. The Scope of Work and items to be costed are as listed below.

The Scope of Work will also include for the removal of the equipment outside of the tank-farm boundary fence as detailed below.The value of any recovered material including steel from tanks, steel piping, transformers and electrical cabling will not be used to offset the cost of demolition of the various facilities. Allowance will be made for potentially recoverable material to be placed in waste skips after demolition. The cost of removal from the tank-farm to a scrap yard will be deemed to be offset by the value of the recovered materials.

The decommissioning cost estimate will not include the removal or mothballing of the Chevron facilities as it is assumed that this would be undertaken by Chevron at their expense.

The tanks will be inerted when the crude oil is cross pumped from one tank to the other and when the tanker is loaded with the crude oil and sludge after each group of three tanks have been cleaned.

Assumptions for the Milnerton calculation:

The cost of removal of all of the following within the tankfarm is to be included:

a. Tankage, ring beams and sand-bitumen layersb. Concrete bund subdivision wallsc. Crude pumpsets and pump bayd. All crude pipelines including valvese. All oily water and stormwater drainage systems including manholes and catchpitsf. Oily water separatorg. Spill basinh. Fire pump house including pumpsets and equipmenti. Fire water reservoirj. Fire water ringmain including hydrantsk. Tank fire protection systemsl. Tank gauging systemsm. Cathodic protection facilities and earthing facilitiesn. Main sub-stationo. Power reticulation including transformers, RMU’s and cablingp. MCC’s including DB’s and startersq. Area lighting including cablingr. Standby generators. Office building, security building and fire equipment storest. The facilities in the Soekor/Algoa area, the barracks area and the manager’s houseu. Detonation fence foundationsv. Perimeter concrete screen wallw. Perimeter guard towers including supportsx. Perimeter electric fences and alarm systemsy. Main entrance vehicle inspection structurez. Roadway surfacing.



21. Provision (continued)

The allowance with respect to earthworks within the tankfarm boundary is to be as follows:a. Earth bund walls are to be demolished and the material spread over the bund floors and compactedb. No further allowance will be made to return the area to its original ground level – i.e. the existing terracing will remain.

The following items will be assumed to remain:a. The tankfarm perimeter demarcation fenceb. The main MV feed from the City of Cape Town.

The cost of removal of all of the following from the servitude between the Chevron tie-in and the Milnerton facility is to be included:a. Removal of crude oil pipelines including valves up to the Chevron boundaryb. Backfill and compact excavated trenchesc. Reinstatement of servitude and road crossingsd. Within the Chevron boundary, allowance has been made to leave this section of the pipeline in place and cap the ends of the pipeline.

The value of any recovered material including steel from tanks, steel piping, transformers and electrical cabling will not be used to offset the cost of demolition of the various facilities. Allowance will be made for potentially recoverable material to be placed in waste skips after demolition. The cost of removal from the tankfarm to a scrap yard will be deemed to be offset by the value of the recovered materials.

No allowance has been made for the removal of crude oil/sludge from the tanks and pipeline.

Vlakfontein Mine environmental rehabilitation

As at 31 March 2015 the environmental rehabilitation balance of R18,7 million (2014: R25,4 million) was recognised for Vlakfontein Mine rehabilitation based on estimates provided by independent environmental consultants. The net present value of the environmental rehabilitation provision is based on discount rates taking into account long bond yields rates of 7,11% for 2018 cashflows and 8.33% for 2039 cashflows (2014: 8,02%) and inflation rates of 5.5% (2014: 6,32%) in line with South African Reserve Bank long-term inflation targets. Current mine plans envisage the expected outflow to occur at the end of the life of mine. In respect of the rehabilitation provision, a corresponding asset write down of R8,7 million (write up of 2014: R5,4 million) was recognised as property, plant and equipment in the mine infrastructure asset class.

De-sludge

This is in respect of the de-sludging of the tanks at the Milnerton terminal.

Rehabilitation

This amount is for the rehabilitation of the land at the Voorbaai terminal of PetroSA. SFF funds are held for the rehabilitation of the Klippoortje dump on behalf of High Carbon Products (Pty) Limited. The fund was held in an attorneys trust account. Contractually these funds could only be released to High Carbon Products (Pty) Limited after the issuing of a closure certificate by DME. The closure certificate was signed by the Chief Director of Mineral Regulation on 21 November 2013 and the funds were released to High Carbon Products (Pty) Limited.

Litigation

SFF/ Morgan Stanley

Morgan Stanley instituted a High Court Action against SFF Association NPC for a damages claim resulting from SFF’s failure to deliver 50 596 barrels of crude oil. The claim for the damages is USD 5 865 240.10 plus interest. SFF is defending the claim and has filed a counter claim against Morgan Stanley (as assignee to Masefield SA by virtue of the fact that Morgan Stanley has taken




(CONTINUED)


2015 2014Restated

20152014

Restated

cession and assignment of the rights and obligations of Masefield under the Storage Agreements concluded between SFF and Masefield) for the recovery of the amount of R45 967 791.69, being cargo dues, due and payable to SFF in respect of the handling and storage of crude oil under the Storage Agreements for Tanks at the Saldanha and Milnerton Storage Terminals. This matter is still to be heard in court.

Product warranty

The warranty provision represents management’s best estimate of the Group’s liability under one period warranties granted on

Social investment

This provision is for commitments to community investment projects as a pre-condition for the issuing of exploration licences.

Bonus

The provision is for incentives for employees who qualify in terms of their performance during the financial year.

Contingent consideration

The provision was raised to account for the financial implication of production target and approvals which may be met in terms of the Sabre share purchase agreement.

Provision for interest and penalties

The provision relates to the interest and penalties due to SARS for submission of the VAT returns from 2006. The assumptions used in the calculation the interest and penalties rate applicable each year as gazetted by SARS.

22. Current tax payable (receivable)

Current tax receivable 16 337 12 724 16 337 12 724

Current tax payable - - - -

16 337 12 724 16 337 12 724

Current tax payable 20 774 27 316 - -

Current tax receivable - - - -

20 774 27 316 - -

23. Trade and other payables

Trade payables 1 761 479 2 020 100 6 786 14 537

Sundry creditors 830 852 773 574 4 079 9 219

Accrued leave pay 97 015 98 694 2 724 3 363

Accruals 1 314 712 685 721 - -

Lease smoothing 551 149 - -

Salary payables 20 040 13 861 3 377 1 000

4 024 649 3 592 099 16 966 28 119


Group Company

Figures in Rand thousands2015 2014

Restated2015

2014Restated

25. Cost of sales

Cost of goods sold 17 161 296 18 660 176 - -

26. Operating (loss) profitOperating (loss) profit for the year is stated after accounting for the following:

Operating lease chargesPremises

• Contractual amounts 21 688 16 523 - -

Equipment

• Contractual amounts 2 658 3 435 1 162 1 349

24 346 19 958 1 162 1 349

Property, plant and equipment (768) (128) (23) -

Loss on sale of intangible assets (339) (138 361) - -

Impairment on property, plant and equipment 14 449 739 3 394 564 - -

Impairment on intangible assets - 934 - -

Impairment on loans to group companies (9) 10 052 4 479 22 347

Profit on exchange differences 80 2 527 - -

Amortisation on intangible assets 12 509 11 194 813 1 029

Depreciation on property, plant and equipment 2 360 042 1 038 817 6 854 7 062

Employee costs 1 480 580 1 429 553 80 615 70 752

Research and development costs 4 146 11 812 4 146 11 658

27. Investment revenue

Dividend revenue

Dividends received 18 760 - 18 760 -

Interest revenue

Subsidiaries - - 4 759 10 447

Investments 720 565 699 576 236 177 202 333

Other interest 11 138 25 166 1 443 2 098

731 703 724 742 242 379 214 878

750 463 724 742 261 139 214 878


24. Revenue

Sale of goods 17 447 435 20 219 430 - -

Rendering of services 869 099 1 246 001 11 886 16 250

Rental Income 175 734 77 568 1 380 1 992

Interest received (trading) 209 399 - 21

Revenue 22 684 9 774 - -

18 515 161 21 553 172 13 266 18 263



(CONTINUED)

Group Company

Figures in Rand thousands2015 2014

Restated2015

2014Restated

28. Finance costs

Group companies 1 860 1 068 61 840 52 967

Non-current borrowings 12 631 18 301 - -

Interest on overdraft 2 573 868 - -

Capitalised - 5 608 - -

Late payment of tax 1 388 1 141 - -

Interest on abandonment provision 1 154 270 532 578 - -

Other interest paid 157 802 254 921 1 450 2 477

1 330 524 814 485 63 290 55 444

29. TaxationMajor components of the tax (income) expenseCurrent

Local income tax-current period 37 552 32 351 21 513 16 969

Local income tax-recognised in current tax for prior periods 1 395 - - -

Foreign income tax or withholding tax-current period 16 11 - -

38 963 32 362 21 513 16 969

Deferred

Originating and reversing temporary differences (937 163) (25 686) 304 (571)

Arising from previously unrecognised tax loss/tax credit/ temporary difference

- (85 830) - -

Benefit of unrecognised tax loss/tax credit/temporarydifference used to reduce deferred tax expense

54 922 173 458 - -

(882 241) 61 942 304 (571)

(843 278) 94 304 21 817 16 398

Reconciliation between accounting profit and tax expense

Accounting profit (15 117 711) (1 358 563) 89 058 40 928

Capital gains on sale of shares 1 265 - 1 265 -

Tax at the applicable tax rate of 28% (2014: 28%) (4 291 230) (395 716) 24 583 11 461

Tax effect of adjustments on taxable income

Non taxable income (40 954) (32 200) (5 253) -

Non deductible expenses 49 931 19 797 2 490 5 576

CGT on sale of shares 236 - 236 -

Temporary differences (543) 496 (543) 496

Effects of tax rates in different jurisdictions (85 677) 10 581 - -

Redeemed capital expenditure (8185) (11 938)

At the effective income tax rate of 28% (2011: 28%) (4 375 157) (408 980) 22 778 17 533

Tax expense in respect of prior years (4 403 764) (437 908) - (564)

Tax losses carried forward - (85 830) - -

Originating or reversable temporary differences 3 636 262 344 124 - -

(5 142 659) (588 594) 22 778 16 969



2015 2014Restated

20152014

Restated

30. Cash generated from (used in) operations

(Loss) profit before taxation (15 117 711) (1 358 563) 89 058 40 928

Adjustments for:

Depreciation and amortisation 2 372 551 1 050 011 7 667 8 091

Profit on sale of non-current assets and disposal groups (5 371) - - -

Minority interest - 890 - -

Interest received-investment (750 463) (724 742) (261 139) (214 878)

Finance costs 1 330 524 814 485 63 290 55 444

Impairment loss 14 449 739 3 394 564 - -

Other cashflow movements (66) - - -

Movements in retirement benefit assets and liabilities 3 471 12 002 - -

Movements in provisions 1 562 721 (181 636) (1 277) 239

Non distributable reserves 236 319 148 246 - -

Foreign currency translation reserve (606 632) (39 653) - -

Liabilities disposal group - (9 890) - -

Transfer/change in estimate of property, plant and equipment

(Increase)/decrease in inventories 771 304 (176 130) - -

(Increase)/decrease in trade and other receivables 346 931 26 424 2 983 (1 732)

(Decrease)/increase in trade and other payables 432 550 53 656 (11 155) 12 347

Deferred income (1 180) (8 094) (1 421) (8 031)

5 024 687 3 001 570 (111 994) (107 592)

31. CommitmentsAuthorised capital expenditureApproved by the directors

PetroSA contracted for 1 613 778 4 609 642 - -

AEMFC contracted for 64 496 113 166 - -

PASA contracted for - 566 - -

PetroSA not yet contracted for 1 347 137 1 386 782 - -

3 025 411 6 110 156 1 382 -

This committed expenditure relates to property and will be financed by available bank facilities, retained profits, rights issue of shares, issue of debentures, mortgage facilities, existing cash resources, funds internally generated, etc.

Operating leases – as lessee (expense)Minimum lease payments due

- within one year 27 108 21 516 - -

- in second to fifth year 93 243 54 986 - -

- later than five years 56 479 69 309 - -

176 830 145 811 - -

Operating lease payments represent rentals payable by the group for certain of its office and storage’s properties. Leases are negotiated for a term between two to five years and rentals increase with an average escalation of 9% per year.




(CONTINUED)


2015 2014Restated

20152014

Restated

31. Commitments (continued)

CEF Company

Operating lease payments represent rental payable by the company for certain of its office properties. Leases are negotiated for an average term of seven years and rentals are fixed for an average of three years. No contingent rent is payable.

Operating leases – as lessor (income)Minimum lease payments due

- within one year 6 048 1 747 - -

- in second to fifth year inclusive 10 503 - - -

16 551 1 747 - -

Certain of the group’s property are held to generate rental income. The average lease term is seven years.

32. Contingencies

Restructuring

Some of the Group companies is currently going through a restructuring process. CEF has started the process during May 2014 and some staff members already received their severance packages at 31 March 2015 while the rest will be finalised by the end of June 2015. No provision was made at time of this report due to outstanding calculation.

CCE

A notice of Income tax audit was received from SARS during the reporting period. Management of the holding company decide to enter into a Voluntary Disclosure Programme with SARS on all tax matters including VAT. The notice of Income tax audit was later withdrawn by SARS however the company remained exposed to a VAT interest and penalties on input VAT previously claimed for the periods 2011 to 2015 as the company was not making any taxable supplies during those period.

Based on the experts opinion, the company is exposed to a potential liability of R13,9 million made up of input VAT repayment of R10,8 million and interest of R3,1 million. A contingent liability has been disclosed in the financial statements.

SFF

Tank refurbishment

The National Energy Regulator of South Africa (NERSA) is defending an action brought by a property developer as a result of NERSA having awarded SFF Association NPC a license to operate Milnerton Tank Farm. NERSA issued the license to SFF with a condition that it must undertake refurbishments to the Milnerton Tank Farm at an SABS standard, whilst the property developer preferred a higher standard to which the Milnerton Tank Farm be refurbished to. A court decision favourable to the property developer against NERSA, would result in SFF having to incur higher refurbishment costs than the condition of the license.




32. Contingencies (continued)

Litigation case

Litigation is in progress against the company relating to a dispute with a customer for a damages claim resulting from SFF’s alledged failure to deliver 50 596 barrels of crude oil. The claim for the damages is USD5,9 million plus interest, calculated at 15,5% per annum, from September 2011. SFF is defending the claim and has filed a counter claim against the customer for the recovery of the amount of R46 million, being cargo dues, due and payable to SFF in respect of the handling and storage of crude oil under the Storage Agreements for Tanks at the Saldanha and Milnerton Storage Terminals. The company’s legal representatives and management consider the likelihood of the action against the company being successful as 50/50. Should SFF be unsuccessful in defending this case, the company could be liable for the customer’s claim, and legal costs.

PetroSA

Mbizana Integrated Energy Centre

PetroSA maybe liable for any soil contamination resulting from the dispensing of fuel at the Mbizana Integrated Energy Centre. The estimated financial impact is R1 million.

Restructuring

PetroSA had notified employees in terms of Section 189 of the Labour Relations Act 66 of 1995 of possible headcount reductions based on operational requirements, on 24 February 2015. It is not possible, at this time, to measure reliably the obligations arising from this notice, nor is it practicable to estimate their magnitude or possible timing of payment. Therefore, no amounts have been provided for these obligations as at 31 March 2015.

PetroSA Ghana Ltd Corporate Tax

On 14 September 2012 PetroSA Ghana’s place of effective management changed to South Africa and the company became a tax resident in South Africa. The South African Income Tax legislation does not expressly deal with the tax treatment of the opening balances of capital expenditure on plant, property and equipment (and intangible assets) prior to commencing to be tax resident. Clarity in this regard is being sought from the South African Revenue Services and National Treasury. In the event that no deduction is allowed in respect of capital expenditure prior to 14 September 2012, the aggregate of 2012 to 2014 years would be in the region of R269 million (USD22 million).



(CONTINUED)


2015 2014Restated

20152014

Restated

32. Contingencies (continued)

Guarantees

1. DME for Rehabilitation of E-BT/E-AR mining lease 27 100 27 100 27 100 27 100

2. Eskom for payment of guarantee for electrical supply 2 435 2 435 2 435 2 435

3. Eskom for payment of guarantee for electrical supply 9 485 9 485 9 485 9 485

4. Department of Energy for rehabilitation of FA mining lease 450 000 450 000 450 000 450 000

5. ABSA Bank for SA Gas Development to acquire a 25% interest - 60 000 - 60 000

in Rompco

6. ABSA Bank for OPCSA's Deed of Suretyship 2 000 2 000 2 000 2 000

7. The group has issued guarantees for the rehabilitation of land disturbed 180 000 180 000 - -

by mining on the Sable field

8. The group has issued a manufacture and excisable bond in favour of 5 000 5 000 - -

the South African Revenue Services

9. The group has issued an evergreen VAT guarantee in favour of the 6 546 6 546 - -

Dutch VAT Authorities (Euro 0.5m)

10. ABSA Bank for SA Gas Development Deed of Suretyship 2 100 2 100 2 100 2 100

11. Rehabilitation of land disturbed by mining 15 900 15 900 - -

12. DEG-Deutsche Investitions-Und Entwicklungsgesellschaft MBH as - 20 833 - 20 833

lender to Rompco

13. Standard Bank of South Africa Ltd as lender to Rompco - 29 167 - 29 167

700 566 810 566 493 120 603 120

Cession and pledge to Absa Bank Limited of R15 900 000-Rehabilitation of mining leases

African Exploration Mining and Finance Corporation SOC Limited has obtained mining rights from the Department of Mineral Resources. African Exploration Mining and Finance Corporation SOC Limited had to issue a financial guarantee for the rehabilitation of the land disturbed by mining (execution of environmental management programme) concerning the responsibility in terms of the Mineral and Petroleum Development Act 2002 (Act 28 of 2002), which is incumbent on African Exploration Mining and Finance Corporation SOC Limited (referred to as “the mine owner” to execute the Environmental Management Programme approved in terms of the provisions of the said Act for the mine known as Vlakfontein Mine, situated in the magisterial district of eMalahleni, Mpumalanga Province. ABSA Bank Limited issued a financial guarantee of R15,9 million to the Department of Mineral Resources in the previous financial period.

Cession and pledge to Absa Bank Limited of RNil

SA Gas Development SOC Limited, a subsidiary of CEF SOC Limited has acquired a 25% interest in Rompco (Proprietary) Limited. In order for SA Gas Development SOC Limited to give effect to the above mentioned acquisition it was obliged to procure guarantees from a financial institution in support of its obligation as Debt Service Support provider to Rompco (Proprietary) Limited. Absa Bank Limited has issued guarantees to the value of R590 million (current outstanding amount R136 million) CEF SOC Limited has issued a counter guarantee to Absa Bank Limited to the same value. CEF SOC Limited has ceded and pledged an amount of RNil (2014 R76,2 million) to Absa Bank Limited for the guarantee facility. The guarantee has been cancelled.

Claims

PetroSA is considering settling a claim made by a former employee 4 000 4 000 - -

PetroSA is considering settling a claim made in terms of a contract 81 834 119 801 - -

85 834 123 801 - -




33. First-time adoption of International Financial Reporting Standards

The Group has applied IFRS 1, First-time adoption of International Financial Reporting Standards, to provide a starting point for the reporting under International Reporting and Accounting Standards. On principle these standards have been applied retrospectively and the 2004 comparatives contained in these annual financial statements differ from those published in the annual financial statements published for the year ended 31 March 2015.

The Group adopted IFRS for the first time in the year under review. For periods up to and including the year ended 31 March 2014, the Group prepared its financial statements in accordance with South African Generally Accepted Accounting Practice (SA GAAP).

Accordingly, the Group has prepared financial statements, together with comparatives, which comply with IFRS applicable for periods ending on or after 31 March 2015, together with the comparative period data as at and for the year ended 31 March 2014, as described in the summary of significant accounting policies. In preparing these financial statements, the group’s opening statement of financial position was prepared as at 1 April 2013, the group’s date of transition to IFRS. This note explains the principal adjustments made by the Group in restating its SA GAAP financial statements, including the statement of financial position as at 1 April 2013 and the financial statements for the year ended 31 March 2014.



(CONTINUED)


As reported under

previous GAAP

OtherEffects of transition to IFRS

IFRS

33. First-time adoption of International Financial Reporting Standards (continued)The effect of the transition was as follows.

Reconciliation of equity at 31 March 2013 (date of transition to the new standards)

Property, plant and equipment 15 724 591 74 481 1 452 463 17 251 535

Intangible assets 3 178 185 1 953 - 3 180 138

Investment in subsidiaries - - - -

Investment in joint ventures - 5 253 - 5 253

Investment in associates 812 190 (5 252) - 806 938

Loans to group companies 9 877 299 703 - 309 580

Other financial assets 231 206 - - 231 206

Finance lease receivables 2 770 (115) - 2 655

Deferred tax 5 257 (5 257) - -

Strategic inventory 3 126 074 (6 645) - 3 119 429

Tax receivable 17 294 - - 17 294

Non-current assets 23 107 444 364 121 1 452 463 24 924 028

Inventories 2 808 405 - - 2 808 405

Trade and other receivables 3 745 510 2 193 (448) 3 747 255

Other financial assets 2 594 000 - - 2 594 000

Current tax 5 230 (72) - 5 158

Finance lease receivable 815 - - 815

Cash and cash equivalents 13 071 430 (1) - 13 071 429

Current assets 22 225 390 2 120 (448) 22 227 062

Non-current assets held for sale and assets of disposal groups 10 669 - - 10 669

Assets 45 343 503 366 241 1 452 015 47 161 759

Revaluation reserve 129 991 (163 740) 1 353 258 1 319 509

Retained earnings 28 681 601 340 800 99 205 29 121 606

Minority interest 12 653 (23 435) - (10 782)

Equity 28 824 245 153 625 1 452 463 30 430 333

Operating lease liabilities - 4 766 - 4 766

Deferred tax 1 745 720 (4 640) - 1 741 080

Provisions 8 601 662 (56 176) - 8 545 486

Deferred income 10 014 - - 10 014

Retirement benefit obligation 90 035 - - 90 035

Non-current liabilities 10 447 431 (56 050) - 10 391 381


33. First-time adoption of International Financial Reporting Standards (continued)

Loans to group companies 597 299 703 - 300 300

Trade and other payables 3 589 183 (50 292) (448) 3 538 443

Other financial liabilities 2 037 200 34 041 - 2 071 241

Current tax 28 855 3 011 - 31 866

Finance lease obligation 855 (52) - 803

Operating lease liabilities 920 (920) - -

Provisions 320 536 (15 347) - 305 189

Retention 890 (890) - -

Deferred income 291 - - 291

Liabilities 5 979 327 269 254 (448) 6 248 133

Liability for disposal groups 92 500 (588) - 91 912

Total liabilities 16 519 258 212 616 (448) 16 731 426

Total equity and liabilities 45 343 503 366 241 1 452 015 47 161 759

Reconciliation of equity at 31 March 2014

Property, plant and equipment 18 211 254 74 481 1 436 283 19 722 018

Intangible assets 1 614 754 (1) - 1 614 753

Investment in associates 883 422 (8 059) - 875 363

Loans to group companies 8 771 (358) - 8 413

Other financial assets 301 699 28 673 - 330 372

Deferred tax 205 773 (205 773) - -

Finance lease receivable 1 858 (114) - 1 744

Investment in joint ventures - 8 416 - 8 416

Strategic inventory 3 125 150 (6 645) - 3 118 505

Non-current assets 24 352 681 (109 380) 1 436 283 25 679 584

Inventories 2 984 535 - - 2 984 535

Other financial assets 1 753 673 (28 673) - 1 725 000

Current tax 12 637 87 - 12 724

Finance lease receivable 794 - - 794

Payments in advance 1 245 (1 245) - -

Trade and other receivables 3 700 139 16 778 3 914 3 720 831

Cash and cash equivalents 11 310 905 - - 11 310 905

Current assets 19 763 928 (13 053) 3 914 19 754 789



As reported under

previous GAAP


IFRS



(CONTINUED)


Non-current assets held for sale and assets of disposal groups 10 669 - - 10 669

Total assets 44 127 278 (122 433) 1 440 197 45 445 042

Reserve 278 238 (147 960) 1 337 477 1 467 755

Retained earnings 27 241 878 335 651 102 721 27 680 250

Minority interest 13 543 (23 439) - (9 896)

Equity 27 533 659 164 252 1 440 198 29 138109

Operating lease liabilities - 5 681 - 5 681

Deferred tax 2 015 686 (205 218) - 1 810 468

Retirement benefit obligation 75 813 - - 75 813


Provisions 8 487 594 (81 917) - 8 405 677

Non-current liabilities 10 581 186 (281 454) - 10 299 732

Loans from group companies 36 406 - - 36 406

Other financial liabilities 1 591 050 42 577 - 1 633 627

Trade and other payables 3 640 062 (47 963) - 3 592 099

Current tax 21 523 5 793 - 27 316

Unearned finance income 572 (196) - 376

Operating lease liabilities 149 (149) - -


Provisions 283 116 (5 532) - 277 584

Bank overdraft 357 655 - - 357 655

5 930 651 (5 470) - 5 925 181

Liabilities of disposal groups 81 782 238 - 82 020

Liabilities 16 593 619 (286 686) - 16 306 933

Total Equity and Liabilities 44 127 278 (122 434) 1 440 198 45 445 042


As reported under

previous GAAP


IFRS



Property, plant and equipment 79 117 - 4 000 83 117

Intangible assets 1 374 (1) - 1 373

Investment in subsidiaries 2 760 332 - - 2 760 332

Investment in associates 44 235 2 350 - 46 585

Loans to group companies 677 981 (157 794) - 520 187

Deferred tax 5 257 (1 187) - 4 070

Non-current assets 3 568 296 (156 632) 4 000 3 415 664

Trade and other receivables 33 362 426 (448) 33 340

Current tax - - - -

Loans to group companies 58 500 - - 58 500


Current assets 3 835 037 426 (448) 3 835 015

Total Assets 7 403 333 (156 206) 3 552 7 250 679

Retained earnings 6 327 801 (742) 4 000 6 331 059

Equity 6 327 801 (742) 4 000 6 331 059

Loans to group companies 489 021 - - 489 021


Deferred tax 460 (460) - -

Non-current liabilities 499 458 (460) - 498 998


Trade and other payables 49 666 (33 600) (448) 15 618

Other financial liabilities - 34 041 - 34 041

Current tax 14 805 - - 14 805


Provisions 12 772 - - 12 772

Liabilities 576 074 (155 004) (448) 420 622

Total Equity and Liabilities 7 403 333 (156 206) 3 552 7 250 679



As reported under

previous GAAP


IFRS



(CONTINUED)


Property, plant and equipment 73 691 - 3 601 77 292

Intangible assets 971 - - 971

Investment in subsidiaries 2 759 942 - - 2 759 942

Loans to group companies - 423 992 - 423 992

Investment in associates 44 235 - - 44 235

Deferred tax 5 324 (684) - 4 640

Non-current assets 2 884 163 423 308 3 601 3 311 072

Reconciliation of equity at 31 March 2014

Trade and other receivables 30 936 221 3 914 35 071


Current tax 12 565 159 - 12 724


Current assets 4 629 315 (620 768) 3 914 4 012 461

Assets 7 513 478 (197 460) 7 515 7 323 533

Retained earnings 6 347 476 598 7 515 6 355 589

Equity 6 347 476 598 7 515 6 355 589


Loans from group companies 489 021 - - 489 021

Non-current liabilities 491 027 - - 491 027

Other financial liabilities - 42 577 - 42 577

Trade and other payables 71 598 (43 479) - 28 119

Loans from group companies 590 248 (197 156) - 393 092

Provisions 13 011 - - 13 011


Current liabilities 674 975 (198 058) - 476 917

Total Equity and Liabilities 7 513 478 (197 460) 7 515 7 323 533


As reported under

previous GAAP


IFRS


33. First-time adoption of International Financial Reporting Standards (continued)GroupCash flow 2013

Tax paid 48 661 69 388 - 118 049

Deferred tax-cash flow note 69 388 (69 388) - -

Cash flow 118 049 - - 118 049

Cash flow 2014

Tax paid 91 085 69 450 (180 273) (19 738)

Deferred tax-cash flow note 69 450 (69 450) - -

Cash flow 160 535 - (180 273) (19 738)

CompanyCash flow 2013

Tax paid (13 492) (5 240) - (18 732)

Deferred tax-cash flow note (5 240) 5 240 - -

Cash flow (18 732) - - (18 732)

Cash flow 2014

Tax paid (43 970) (527) 1 (44 496)

Deferred tax-cash flow note (527) 527 - -

Cash flow (44 497) - 1 (44 496)



As reported under

previous GAAP


IFRS

Explain any material differences, or state there are no material differences.

Notes

Exceptions from full retrospective application

The Group has applied the following mandatory exceptions from retrospective application.

Estimates exception

Estimates under IFRS 1 at 1 April 2013, are consistent with estimates made for the same date under SA GAAP.

All other mandatory exceptions in IFRS 1 were not applicable because there were no significant differences between IFRS and SA GAAP in these areas.

Exemptions from full retrospective application

Business combination exemption

The company has applied the business combination exemption in IFRS 1 and has not restated business combinations that took place prior to the 1 April 2013 transition date.

Foreign currency translation reserve exemption

The group has elected to set the previously accumulated foreign currency translation reserve to zero at 1 April 2013. This exemption has been applied to all subsidiaries in accordance with IFRS 1.



(CONTINUED)



The remaining optional exemptions are not applicable to the Group. Explanation of the effect of the transition to IFRS.The following explains the material adjustments to the annual financial statements:

a) Foreign currency translation reserve adjustment - As allowed by IFRS, the group has reset its cumulative foreign translation reserve account to zero at 1 April 2013. The value of the reserve amounts to R95 million.

b) Employee benefit adjustment-actuarial gains/losses totaling R14,5 million recorded in retained earnings were recognised in other comprehensive income.

Revaluations

The effective date of the revaluations of the Tanks at the Saldanha Terminal (included in Plant and Machinery) was 01 April 2013. Revaluations were performed by independent valuers, Mr Curtin (candidate member of the American Society of Appraisers) and Mr Hinder (Chartered Surveyor), of Ernst & Young Incorporated UK. Ernst & Young Incorporated UK is not connected to the company.

The valuation analysis has been performed on the assumption that SFF is a government-backed entity, established by Statute and not subject to private enterprise metrics such as IFRS 13 level commercial market sector participants functional and economic obsolescence benchmarks. The valuation was based on the weighted age of 32 years of the in-ground concrete tanks, to reflect their construction between 1979 and 1982.

These assumptions were based on current market conditions.

The part of the crude that is necessary to operate (in technical terms) the plant and cannot be recouped (or can be recouped but would then be significantly impaired as sludge), even when the plant is abandoned, should be considered as an item of property, plant and equipment and amortised over the life of the plant. This was previously recorded as strategic inventory, and has now been reclassified to property, plant and equipment.

Strategic inventory and property, plant and equipment

As per IAS 2, if an item of inventory is not held for sale or consumed in a production process or during the process of rendering services, but is necessary to operate or benefit from an asset during more than one operating cycle and it cannot be recouped through sale (or is significantly impaired after it has been used to operate the asset or benefit from that asset), this item of inventory is accounted for as an item of property, plant and equipment. This applies even if the part of inventory that is an item of property, plant and equipment cannot physically be seperated from the rest of inventories. The part of the crude that is necessary to operate the plant and cannot be recouped (or can be recouped but would then be significantly impaired as sludge), even when the plant is abandoned, has been reclassified from strategic inventory to property, plant and equipment, and is amortised over the life of the plan.

Prior year errors

Strategic inventory and Provisions

33 000 Barrels of bonny light crude oil, that is due to a customer, has incorrectly been included in the company’s strategic inventory balances since the 2012 financial year. In addition, a provision had been raised for damages due to the customer, which are currently still being disputed in Court. This provision has been de-recognised, and corrected in the prior periods.




Other financial assets and Cash and cash equivalents

Funds invested in the money market has been reclassified out of cash and cash equivalents to other financial assets held for trading.

Trade and other payables, trade and other receivables and operating lease liability

Operating leases are smoothed over the terms of the contracts. In prior years the operating lease liabilities were included in trade and other payables and trade and other receivables, but have now been reclassified to operating lease liabilities.

Profit or loss

Recoveries of expenses incurred on behalf of customers, were previously included in revenue and other income. This has now been reclassified to operating expenses. Legal costs and interest expenses provided for in prior periods have been de-recognised, as the outcome of the cases are still being decided on in Court.




(CONTINUED)


2015 2014Restated

20152014

Restated

34. Related parties

Ultimate holding company CEF (Proprietary) LimitedSubsidiaries Refer to Note 3Joint ventures Refer to Note 4Associates Refer to Note 5Key management personnel Refer to Note 36

Related party balancesLoan accounts-owing (to) by related parties

CCE - - 99 447 98 991


African Exploration - - 208 899 208 899

ETA - - 18 761 19 409

Cotec Patrade - - 3 731 3 731

Philip Lighting Maseru - 9 410 - 9 410

Thin Film Solar Technology 39 545 39 545 39 545 39 545

DWP 17 000 17 000 17 000 17 000

Baniettor 23 933 23 933 23 933 23 933

Ener-G 12 482 11 732 12 482 11 732

Methcap 1 475 1 475 1 475 1 475

PAMDC 1 016 411 1 016 411

Amounts included in trade receivable regarding related parties

CCE - - 1 077 38

SA Gas Development - - 344 390

African Exploration - - 144 875

PetroSA - - 148 43

PASA - - 44 133

SFF - - 1 798 1 392

PAMDC 1 129 411 1 129 411

DWP 3 755 3 755 3 755 3 755

Mine Health and Safety Council - 24 - 24

Rompco - 579 - -

Equalisation Fund 194 304 194 304

SANEDI 870 1 517 870 1 517

PAMDC/AEMFC (2) 9 - -



2015 2014Restated

20152014

Restated

34. Related parties (continued)

Amounts included in trade payable regarding related parties

SA Gas Development - - 6 -

PetroSA - - 101 96

PASA - - - 315

SFF - - 15 29

SANEDI - 3 - 3

PAMDC 1 129 - - -

Cash on call


OPC - - 23 682 22 353

PetroSA - - 489 021 489 021

PASA - - 300 050 334 333

DWP 405 374 405 374

Upstream Training Trust 25 551 23 176 25 551 23 176

Thin Film Solar Technology - 36 032 - 36 032

Interest payable

PetroSA - - 2 485 2 485

Interest receivable


DWP 3 755 3 755 3 755 3 755

Interest paid


ETA - - - 173

OPC - - 1 344 1 152

PetroSA - - 28 699 25 648

PASA - - 18 921 17 498

DWP 23 36 23 36

Thin Film Solar Technology 1 837 1 032 1 837 1 032

Upstream Training Trust 1 378 1 149 1 378 1 149




(CONTINUED)


2015 2014Restated

20152014

Restated


Office rental received

SA Gas Development - - 201 183

Sasda - - - 239

SFF - - 78 51

SANEDI 651 591 651 591

PAMDC 148 136 148 136

Services rendered

CCE - - 417 396


African Exploration - - 51 1 518

Sasda - - - 1 324

PetroSA - - 100 65

PASA - - 321 310

SFF - - 5 386 5 317

DWP - 947 - 947

Mine Health and Safety Council 90 258 90 258

Rompco 229 51 - -

Equalisation Fund 1 767 1 883 1 767 1 883

SANEDI 1 964 2 290 1 964 2 290

PAMDC 862 766 862 766

Office rental paid

SFF - - - 28

Services receive

PetroSA - - 771 500

SFF - - - 5

Other income

CEF Carbon - - - 15 568

Carbon Stream - - - 2 224

SASDA - - - 64 231



Other

DOE Funding - 2 006 - 2 006

UTT-PASA loan - 20 - -

PAMDC rent to AEMFC 21 - - -

SASDA - - - 64 231

SA Gas Development - - 294 -

SFF - - 68 26

35. Interests in unconsolidated structured entities PetroSA Development Trust

The PetroSA Development Trust was established to facilitate the development and transformation of the lives of people from historically-disadvantaged and impoverished communities and the enhancement of the education and literacy levels in these communities, in particular those within which PetroSA operates such as the Mossel Bay region and other deserving communities.

Gannet Trust

The Gannet Trust group of companies was created to underwrite insurance risks for PetroSA and other companies with similar risk profiles. Gannet Trust enables PetroSA to access the re-insurance markets that would not otherwise be available to it. Gannet Trust is also available to accept risks that are either uninsured, uninsurable or that bridge the gap between the underwriter imposed risk retentions and PetroSA’s preferred risk retentions.

36. Directors’ emolumentsNon-Executive

2015Directors’

feesOther

expensesTotal

Dr S Mthembi-Mahanyele 888 49 937

Mr G Bezuidenhoudt* - - -

Mr R Boqo 303 9 312

Mr R Jawoodeen 712 190 902

Mr S Gamede 55 4 59

Ms B Mabuza 564 - 564

Mr T Maqubela* - - -

Ms X Mtwa* - 7 7

Mr T Sethosa* - - -

Mr D Hlatshwayo 108 - 108

2 630 259 2 889

2014

Dr S Mthembi-Mahanyele 920 243 1 163

Mr R Boqo 788 190 978

Mr R Jawoodeen 280 33 313

Mr S Gamede 692 230 922

Ms B Mabuza 539 36 575

Ms X Mtwa* - 130 130

Mr T Sethosa (Alternate) 240 10 250

3 459 872 4 331


The above transactions were carried out on commercial terms and conditions.


2015 2014Restated

20152014

Restated



(CONTINUED)


36. Directors’ emoluments (continued)Executive Management

2015 SalaryPerformance

bonuses provision

Total

Mr S Mncwango (Executive Director)** 2 840 - 2 840

Dr C Cooper 1 535 564 2 099

Mr A Haffejee 1 313 369 1 682

Mr S Mthethwa 2 070 761 2 831

Dr P Masangane 1 793 659 2 452

9 551 2 353 11 904

2014

Mr S Mncwango (Executive Director) 2 698 1 096 3 794

Dr C Cooper 1 480 733 2 213

Mr A Haffejee 1 334 392 1 726

Mr S Mthethwa 694 333 1 027

Ms Z Sithole 1 158 465 1 623

Dr P Masangane 1 772 856 2 628

9 136 3 875 13 011

* Directors are not remunerated in their personal capacity** Not for a full year


Figures in Rand thousand Note(s)

Financial assets at fair value

through profit or loss

Debt instruments at amortised cost

Equity instruments at cost less impairment

Financial liabilities at

amortised costLeases

Equity and non financial assets

and liabilitiesTotal


37. Categories of financial instruments (continued)Categories of financial instruments - Group - 2015

Assets

Non-current Assets

Property, plant and equipment 1 - - - - - 9 457 903 9 457 903

Goodwill - - - - - - -

Intangible assets 2 - - - - - 1 779 651 1 779 651

Investment in joint ventures 4 11 199 - - - - - 11 199

Investments in associates 5 951 991 - - - - - 951 991

Loans to group companies 6 - 9 716 - - - - 9 716

Other financial assets 7 - - - - - 371 724 371 724

Finance lease receivables 9 - - - - 939 - 939

Strategic inventory 12 - - - - - 3 118 505 3 118 505

963 190 9 716 - - 939 14 727 783 15 701 628

Current Assets

Inventories 13 - - - - - 2 213 231 2 213 231

Current tax receivable 22 - - - - - 16 337 16 337


Trade and other receivables 14 - 2 658 732 - - 6 497 708 671 3 373 900

Cash and cash equivalents 15 - 10 364 012 - - - - 10 364 012

- 13 022 744 - - 7 270 2 938 239 15 968 253

Non-current assets held for sale and assets of disposal groups 16 - - - - - 60 669 60 669

Total Assets 963 190 13 032 460 - - 8 209 17 726 691 31 730 550



(CONTINUED)










37. Categories of financial instruments (continued)Categories of financial instruments - Group - 2015

Assets

Non-current Assets

Property, plant and equipment 1 - - - - - 9 457 903 9 457 903

Goodwill - - - - - - -








963 190 9 716 - - 939 14 727 783 15 701 628

Current Assets

Inventories 13 - - - - - 2 213 231 2 213 231





- 13 022 744 - - 7 270 2 938 239 15 968 253


Total Assets 963 190 13 032 460 - - 8 209 17 726 691 31 730 550












37. Categories of financial instruments (continued)


Equity

Reserves 17 - - - - - 1 704 074 1 704 074

Retained income 17 - - - - - 13 400 287 13 400 287

- - - - - 15 104 361 15 104 361

Non-controlling interest - - - - - (895) (895)

Total Equity - - - - - 15 103 466 15 103 466

Liabilities

Non-current Liabilities

Other financial liabilities 18 - - - 865 496 - - 865 496

Operating lease liability 10 - - - - 9 302 - 9 302

Retirement benefit obligation 11 - - - - - 85 599 85 599

Deferred income 20 - - - - - 1 031 1 031

Deferred tax 8 - - - - - 973 069 973 069

Provisions 21 - - - - - 10 126 155 10 126 155

- - - 865 496 9 302 11 185 854 12 060 652

Current Liabilities

Loans from group companies 6 - - - 405 - - 405


Current tax payable 22 - - - - - 20 774 20 774

Trade and other payables 23 - - - 4 024 649 - - 4 024 649

Provisions 21 - - - - - 110 041 110 041

Unearned finance income - - - - 310 - 310

Bank overdraft 15 - - - 286 761 - - 286 761

- - - 4 358 658 310 130 815 4 489 783

Liabilities of disposal groups 16 - - - - - 76 649 76 649

Total Liabilities - - - 5 224 154 9 612 11 393 318 16 627 084

Total Equity and Liabilities - - - 5 224 154 9 612 26 496 784 31 730 550



(CONTINUED)












Equity

Reserves 17 - - - - - 1 704 074 1 704 074

Retained income 17 - - - - - 13 400 287 13 400 287

- - - - - 15 104 361 15 104 361

Non-controlling interest - - - - - (895) (895)

Total Equity - - - - - 15 103 466 15 103 466

Liabilities





Deferred income 20 - - - - - 1 031 1 031

Deferred tax 8 - - - - - 973 069 973 069

Provisions 21 - - - - - 10 126 155 10 126 155

- - - 865 496 9 302 11 185 854 12 060 652

Current Liabilities

Loans from group companies 6 - - - 405 - - 405




Provisions 21 - - - - - 110 041 110 041

Unearned finance income - - - - 310 - 310

Bank overdraft 15 - - - 286 761 - - 286 761

- - - 4 358 658 310 130 815 4 489 783















37. Categories of financial instruments

Categories of financial instruments - Group - 2014

Assets

Non-current Assets

Property plant and equipment 1 - - - - - 19 722 018 19 722 018






Finance lease receivables 9 - - - - 1 744 - 1 744


883 779 8 413 - - 1 744 24 785 648 25 679 584

Current Assets

Inventories 13 - - - - - 2 984 535 2 984 535

Other financial assets 7 - - 1 725 000 - - - 1 725 000





- 14 556 287 1 725 000 - 14 343 3 459 159 19 754 789


Total Assets 883 779 14 564 700 1 725 000 - 16 087 28 255 476 45 445 042



(CONTINUED)











Categories of financial instruments - Group - 2014

Assets

Non-current Assets

Property plant and equipment 1 - - - - - 19 722 018 19 722 018






Finance lease receivables 9 - - - - 1 744 - 1 744


883 779 8 413 - - 1 744 24 785 648 25 679 584

Current Assets

Inventories 13 - - - - - 2 984 535 2 984 535

Other financial assets 7 - - 1 725 000 - - - 1 725 000





- 14 556 287 1 725 000 - 14 343 3 459 159 19 754 789


Total Assets 883 779 14 564 700 1 725 000 - 16 087 28 255 476 45 445 042


Figures in Rand thousands Note(s)











Equity

Reserves 17 - - - - - 1 467 755 1 467 755

Retained income 17 - - - - - 27 680 250 27 680 250

- - - - - 29 148 005 29 148 005

Non-controlling interest - - - - - (9 896) (9 896)

Total Equity - - - - - 29 138 109 29 138 109


Liabilities




Deferred income 20 - - - - - 2 093 2 093

Deferred tax 8 - - - - - 1 810 468 1 810 468

Provisions 21 - - - - - 8 405 677 8 405 677

- - - - 5 681 10 294 051 10 299 732

Current Liabilities

Loans from group companies 6 - - - 36 406 - - 36 406

Other financial liabilities 18 - - - 1 633 627 - - 1 633 627


Finance lease obligation 19 - - - - 376 - 376


Deferred income 20 - - - - - 118 118

Provisions 21 - - - - - 277 584 277 584

Bank overdraft 15 - - - 357 655 - - 357 655

- - - 5 619 787 376 305 018 5 925 181






(CONTINUED)

Figures in Rand thousands Note(s)











Equity

Reserves 17 - - - - - 1 467 755 1 467 755

Retained income 17 - - - - - 27 680 250 27 680 250

- - - - - 29 148 005 29 148 005

Non-controlling interest - - - - - (9 896) (9 896)

Total Equity - - - - - 29 138 109 29 138 109

Liabilities




Deferred income 20 - - - - - 2 093 2 093

Deferred tax 8 - - - - - 1 810 468 1 810 468

Provisions 21 - - - - - 8 405 677 8 405 677

- - - - 5 681 10 294 051 10 299 732

Current Liabilities


Other financial liabilities 18 - - - 1 633 627 - - 1 633 627


Finance lease obligation 19 - - - - 376 - 376


Deferred income 20 - - - - - 118 118

Provisions 21 - - - - - 277 584 277 584

Bank overdraft 15 - - - 357 655 - - 357 655

- - - 5 619 787 376 305 018 5 925 181
















Categories of financial instruments - Company - 2015

Assets

Non-current Assets

Property, plant and equipment 1 - - - - - 72 544 72 544

Intangible assets 2 - - - - - 1 127 1 127

Investments in subsidiaries 3 - - - - - 2 759 942 2 759 942



Deferred tax 8 - - - - - 4 336 4 336

34 825 331 545 - - - 2 837 949 3 204 319

Current Assets



Trade and other receivables 14 - 32 089 - - - - 32 089

Cash and cash equivalents 15 4 028 514 - 4 028 514

- 4 091 578 - - - 16 337 4 107 915

Total Assets 34 825 4 423 123 - - - 2 854 286 7 312 234


Equity

Total Equity - - - - - 6 422 830 6 422 830



(CONTINUED)












Assets

Non-current Assets


Intangible assets 2 - - - - - 1 127 1 127




Deferred tax 8 - - - - - 4 336 4 336

34 825 331 545 - - - 2 837 949 3 204 319

Current Assets




Cash and cash equivalents 15 4 028 514 - 4 028 514

- 4 091 578 - - - 16 337 4 107 915

Total Assets 34 825 4 423 123 - - - 2 854 286 7 312 234


Equity

Total Equity - - - - - 6 422 830 6 422 830














Liabilities



Deferred income 20 - - - - - 703 703

- - - 489 021 - 703 489 724

Current Liabilities



Trade and other payables 23 - - - 16 966 - - 16 966

Provisions 21 - - - - - 11 734 11 734

- - - 387 946 - 11 734 399 680

Total Liabilities - - - 876 967 - 12 437 889 404

Total Equity and Liabilities - - - 876 967 - 6 435 267 7 312 234



(CONTINUED)












Liabilities



Deferred income 20 - - - - - 703 703

- - - 489 021 - 703 489 724

Current Liabilities




Provisions 21 - - - - - 11 734 11 734

- - - 387 946 - 11 734 399 680

Total Liabilities - - - 876 967 - 12 437 889 404



Note(s)











Assets

Non-current Assets


Intangible assets 2 - - - - - 971 971




Deferred tax 8 - - - - - 4 640 4 640

44 235 423 992 - - - 2 842 845 3 311 072

Current Assets




Cash and cash equivalents 15 3 906 166 - - - - 3 906 166

- 3 999 737 - - - 12 724 4 012 461

Total Assets 44 235 4 423 729 - - - 2 855 569 7 323 533


Retained income 17 - - - - - 6 355 589 6 355 589


Figures in Rand thousand



(CONTINUED)

Note(s)











Assets

Non-current Assets


Intangible assets 2 - - - - - 971 971




Deferred tax 8 - - - - - 4 640 4 640

44 235 423 992 - - - 2 842 845 3 311 072

Current Assets




Cash and cash equivalents 15 3 906 166 - - - - 3 906 166

- 3 999 737 - - - 12 724 4 012 461

Total Assets 44 235 4 423 729 - - - 2 855 569 7 323 533


Retained income 17 - - - - - 6 355 589 6 355 589


Note(s)












Liabilities



Deferred income 20 - - - - - 2 006 2 006

- - - 489 021 - 2 006 491 027

Current Liabilities




Deferred income 20 - - - - - 118 118

Provisions 21 - - - - - 13 011 13 011

463 788 13 129 476 917





(CONTINUED)

Note(s)











Liabilities



Deferred income 20 - - - - - 2 006 2 006

- - - 489 021 - 2 006 491 027

Current Liabilities




Deferred income 20 - - - - - 118 118

Provisions 21 - - - - - 13 011 13 011

463 788 13 129 476 917




38. Risk management Introduction

The group has a risk management and central treasury function that manages the financial risks relating to the group’s operations. The group’s liquidity, credit, foreign exchange, interest rate and crude oil price risks are monitored continually. Approved policies exist for managing these risks.

Risk profile

In the course of the group’s business operations it is exposed to liquidity, credit, foreign exchange, interest rate and crude oil price risk. The risk management policy of the group relating to each of these risks is discussed below.

Risk management objectives and policies

The group’s objective in using financial instruments is to reduce the uncertainty over future cash flows arising from movements in foreign exchange, interest rates and crude oil prices. Throughout the year under review it has been, and remains, the group’s policy that no speculative trading in derivative instruments be undertaken.

Maturity profile

The maturity profiles of financial assets and liabilities at the reporting date are as follows:

GroupAt 31 March 2015

AssetsLess than 1

yearBetween 1 and 5 years

Over 5 years

Non-interest bearing

Total

Cash 10 364 012 - - - 10 364 012

Other financial assets - 217 992 153 732 - 371 724

Trade and other receivables 3 373 900 - - - 3 373 900

Forward exchange contracts 72 260 - - - 72 260

Loans to group companies - 9 716 - - 9 716

Finance lease receivable 773 939 - - 1 712

Total financial assets 13 810 945 228 647 153 732 - 14 193 324

Liabilities

Trade and other payables 4 017 518 - - - 4 017 518

Loans to group companies 405 - - - 405

Bank overdrafts 286 761 - - - 286 761

Other financial liabilities 46 843 865 496 - - 912 339

Unearned finance income 310 - - - 310

Operating lease liability - 9 302 - - 9 302

Total financial liabilities 4 351 837 874 798 - - 5 226 635




(CONTINUED)


38. Risk management Introduction (continued)

At 31 March 2014

AssetsLess than 1


Over 5 years

Non-interest bearing

Total

Cash 11 310 905 - - - 11 310 905

Other financial assets 1 725 000 160 721 169 651 - 2 055 372

Trade and other receivables 3 720 512 - - - 3 720 512

Forward exchange contracts 23 383 - - - 23 383

Loans to group companies - 18 599 - - 18 599

Finance lease receivable 794 1 744 - - 2 538

Total financial assets 16 780 594 181 064 169 651 - 17 131 309

Liabilities

Trade and other payables 3 580 574 - - - 3 580 574

Unearned finance income 376 - - - 376

Loans to group companies 36 406 - - - 36 406

Bank overdrafts 357 655 - - - 357 655

Other financial liabilities 1 633 627 - - - 1 633 627

Operating lease liability - 5 681 - - 5 681

Total financial liabilities 5 608 638 5 681 - - 5 614 319





Company

At 31 March 2015

AssetsLess than 1


Over 5 years

Non-interestbearing

Total

Cash 4 028 514 - - - 4 028 514

Trade and other receivables 32 089 - - - 32 089

Loans to group companies 30 975 331 545 - - 362 520

Total financial assets 4 091 578 331 545 - - 4 423 123

Liabilities

Trade and other payables 16 966 - - - 16 966

Other financial liabilities 46 843 - - - 46 843

Loans to group companies 324 137 - 489 021 - 813 158

Total financial liabilities 387 946 - 489 021 - 876 967

At 31 March 2014

Assets

Cash 3 906 166 - - - 3 906 166

Trade and other receivables 35 071 - - - 35 071

Loans to group companies 58 500 423 992 - - 482 492

Total financial assets 3 999 737 423 992 - - 4 423 729

Liabilities

Trade and other payables 28 119 - - - 28 119

Loans to group companies 393 092 - 489 021 - 882 113

Other financial liabilities 42 577 - - - 42 577

Total financial liabilities 463 788 - 489 021 - 952 809



(CONTINUED)



Interest rate risk

Exposure to interest rate risk on liabilities and investments is monitored on a proactive basis. The financing of the group is structured on a combination of floating and fixed interest rates.

The following table sets out the carrying amount by maturity of the group’s financial instruments that are exposed to interest rate risk and the effective interest rates applicable:

At 31 March 2015

Fixed rateLess than 1


Over 5 years

Total

Cash and cash equivalents (6,096%) 9 006 215 - - 9 006 215

Floating Rate


Bank overdraft (3,58%) (286 761) - - (286 761)

Lurgi (0,77%) - - 153 732 153 732

GTL.F1 (1,07%) - 153 190 - 153 190

At 31 March 2014

Fixed rate


Floating Rate


Bank overdraft (1,29%) (357 655) - - (357 655)

Lurgi (4,24%) - - 169 651 169 651

GTL.F1 (1,305%) - 126 839 - 126 839

PetroSA Ghana Limited (0,8186%) - - 740 759 740 759

Interest rate instruments

The Group is mainly exposed to fluctuations in USD LIBOR, EURIBOR and ZAR interest rates. The group measures its interest rate risk exposure by running various sensitivity analyses including 10% favourable and adverse changes in the key variables. The sensitivity analyses include only interest bearing monetary items and adjust their value at the period end for a 10% change in interest rates.

Financial Instruments

As at 31 March 2015, a 10% relative change in the:• ZAR interest rate would have impacted profit or loss for the year by R25,9 million (2014: R70,8 million);• EURIBOR interest rate would have impacted profit or loss for the year by R0,4 million (2014: R0,2 million); and• USD LIBOR interest rate would have impacted profit or loss for the year by R0 million (2014: R0,3 million).





Financial Liabilities

As at 31 March 2015 a 10% strengthening in ZAR against the relevant currencies would have resulted in a decrease in foreign currency denominated liabilities of R133 million (2014: R261 million) and a 10% weakening in ZAR against the US Dollar would have resulted in an increase in foreign currency denominated liabilities of R133 million (2014: R261 million).

Credit risk

Financial assets, which potentially subject the group to concentrations of credit risk, pertain principally to trade receivables and investments in the South African money market. Trade receivables of R2,2 billion (2014: R2,9 billion) are presented net of the allowance for doubtful debts.

The exposure to credit risk with respect to trade receivables is not concentrated due to a large customer base.

The group manages counter-party exposures arising from money market and derivative financial instruments by only dealing with well- established financial institutions of a high credit rating. Losses are not expected as a result of non-performance by these counter parties.

Credit limits with financial institutions are revised and approved by the Board annually.

Financial currency management

The group is exposed to foreign currency fluctuations as it raises funding on the offshore financial markets, imports raw material and spares and furthermore exports finished product and crude oil. All local sales of finished products are sold on a foreign currency denominated basis.

The group takes cover on foreign exchange transactions where there is a future currency exposure. The group also makes use of a natural hedge situation to manage foreign currency exposure.

A sensitivity analysis was done for the net effect on revenue and expenses, and the weakening or strengthening of the Rand/Dollar exchange rate by R1 based on actual revenue and cost will increase or decrease profit by R454 million (2014: R593 million) respectively.

Financial currency instruments

The group is mainly exposed to fluctuations in the EUR, GBP and USD. The group measures its market risk exposure by running various sensitivity analyses including 10% favourable and adverse changes in the key variables. The sensitivity analyses include only outstanding foreign currency denominated monetary items and adjust their translation at the period end for a 10% change in foreign currency rates.

Financial assets

As at 31 March 2015 a 10% strengthening in ZAR against the relevant currencies would have resulted in a decrease in foreign currency denominated assets of R55 million (2014: R122 million) and a 10% weakening in ZAR against the relevant currencies would have resulted in an increase in foreign currency denominated assets of R55 million (2014: R122 million).

Financial liabilities

As at 31 March 2015 a 10% strengthening in ZAR against the relevant currencies would have resulted in a decrease in foreign currency denominated liabilities of R133 million (2014: R261 million) and a 10% weakening in ZAR against the US Dollar would have resulted in an increase in foreign currency denominated liabilities of R133 million (2014: R261 million).



(CONTINUED)



Foreign exchange risk

PetroSA has entered into certain forward exchange contracts which do not relate to specific items appearing on the Statement of Financial Position but which were entered into to cover foreign commitments not yet due and proceeds not yet received. The contracts will be utilised for purposes of trade.

Foreign currency exposure at the end of the reporting period

Exchange rates used for conversion of foreign items were:

Closing rate: 2015 2014

USD 12,2093 10,6070

Euro 13,0932 14,5792

GBP 18,0245 17,6490

Average:

USD 11,0602 10,1139

Euro 13,9828 13,5570

GBP 18,0245 17,6490

Forward exchange contracts which relate to future commitments

2015

Amount in foreign currency purchased Forward exchange rate Maturity date

Liabilities

104 390 069 US$ 12,2753 Less than 3 months

315 242 £ 18,0485 Less than 3 month

52 540 £ 18,4643 Longer than 3 months but less than

6 months

2014

Assets


Liabilities


41 769 110 US$ 10,8477 Longer than 3 months but less than

6 months


9 months


12 months

3 320 133 £ 17,6698 Less than 3 months

As at 31 March 2015, a 10% relative change in the USD to the ZAR would have impacted profit or loss for the year by R128,1 million (2014: R220 million). As at 31 March 2015, a 10% relative change in the GBP to the ZAR would have impacted profit or loss for the year by R0,7 million (2014: R6 million).


Figures in Rand thousandFair value

Estimated fair value gain

2015 2014 2015 2014



Forward exchange contracts-assets - 85 401 - (4 341)

Forward exchange contracts-liabilities (1 287 989) (2 261 861) 72 260 (2 627)

(1 287 989) (2 176 460) 72 260 (6 968)

Price risk

External sales and purchases are subject to price and basis risks associated with volume and timing differences.

A sensitivity analysis was performed for revenue and every $1 increase or decrease in the Brent Crude oil price will increase or decrease profit by R60,2 million (2014: R53,8 million) respectively, based on the 2014/15 financial results.

39. Going concern

The directors believe that the group has adequate financial resources to continue in operation for the foreseeable future and accordingly the consolidated annual financial statements have been prepared on a going concern basis. The directors have satisfied themselves that the group is in a sound financial position and that it has access to sufficient borrowing facilities to meet its foreseeable cash requirements. The directors are not aware of any new material changes that may adversely impact the group. In spite of diminished reserves at PetroSA there is no intention to cease trading. There are long-term sustainability plans under development for the GTL plant and related offshore assets. The purchased product trading and PetroSA Ghana activities are unaffected and continue to expand. The directors are also not aware of any material non-compliance with statutory or regulatory requirements or of any pending changes to legislation which may affect the group

40. Events after the reporting period

The directors are not aware of any material event which occurred after the reporting date and up to the date of this report.

41. Unauthorised, irregular, fruitless and wasteful expenditure

Fruitless expenditure

Opening balance 19 198 67 644 3 183 3 183

Expenditure relating to current year 3 330 8 071 18 -

Discovered during the current year but relating to prior year 1 401 285 - -

Less: Amounts expensed (31) - - -

Less: Amounts recovered (520) - - -

Less amounts condoned (2 268) (56 802) - -

21 110 19 198 3 201 3 183

Figures in Rand thousandGroup Company

2015 2014Restated

20152014

Restated



(CONTINUED)


2015 2014Restated

20152014

Restated

41. Unauthorised, irregular, fruitless and wasteful expenditure (continued)

PetroSA

The late uplift of product incurred non-performance penalties of R1,3 million.

During the year, several items to the value of R0,1 million were misplaced and have not been recovered. It has been presumed that these items have been stolen.

Unfair labour practice during the recruitment process resulted in a settlement claim of R0,14 million being paid to an unsuccessful candidate. Disciplinary action was taken and the employee involved received a written warning.

PetroSA Equatorial Guinea failed to deduct employees tax from severance packages paid to employees which resulted in fruitless and wasteful expenditure of R0,3 million.

CEF

Interest and penalties were incurred during the financial year due to late payments of PAYE to SARS.

Details of fruitless expenditure – current year of the group

The directors are not aware of any material event which occurred after the reporting date and up to the date of this report.

Details of fruitless expenditure – current year of the group

Disciplinary steps taken/criminal proceedings

Non-performance penalties Mitigating controls put in place 1 302

Misplaced/stolen items Mitigating controls put in place 110

Items individually <R50 000 None, administrative problem 90

SARS penalties and interest Administrative problem 1 402

Contract cancellation fees None, administrative problem 135

Overpayment of retrenchment package Administrative problem-PetroSA Equatorial Guinea 291

3 330

Irregular expenditure

Opening balance 2 524 023 919 986 5 351 1 285

Irregular expenditure current year 20 275 1 605 395 2 495 4 066

Amounts condoned (18 066) (1 358) - -

2 526 232 2 524 023 7 846 5 351


41. Unauthorised, irregular, fruitless and wasteful expenditure (continued)

Details on irregular expenditure

Contravention of company policy 20 235 - 2 495 -

Contravention of PPPFA 40 - - -

20 275 - 2 495 -



2015 2014Restated

20152014

Restated

Contravention of company policy and PPPFA

The use of suppliers was not in terms of the procurement procedure. Disciplinary proceedings were initiated to prevent further irregular expenditure incurred in contravention of company policy.

42. Interest in joint operating agreements

The group’s proportionate share in the assets and liabilities of unincorporated joint ventures, which are included in the financial statements are as follows:

As at 31 March 2014, PetroSA along with the other current joint venture partners, namely Forest Oil and Anschutz, had withdrawn from Block 2C. A simultaneous application for a new exploration right over Block 2C was made, with Anadarko as operator, with an equity split of 35% for PetroSA and 65% for Anadarko.

Percentage Holding / Tracts

201524%

Block 2A35%

Block 2C50%

Block 3A/4A20%

Block 5/6/740%

Block 1

Partners Sunbird 76% Anadarko 65% Sasol 50% Anadarko 80% Cairn 60%

Nature of project Exploration Exploration Exploration Exploration Exploration

Percentage Holding / Tracts

201424%

Block 2A24%

Block 2C10%

Namibia 171150%

Block 3A/4A20%

Block 5/6/740%

Block 1

Partners

Sunbird 76% Anadarko 65% Nakor 70%Energulf 10%

Kunene Energy 3%Namcor 7%

Sasol 50% Anadarko 80% Cairn 60%

Nature of project Exploration Exploration Exploration Exploration Exploration Exploration



(CONTINUED)

NOTES


NOTESNOTES

NOTES


NOTESNOTES

CEF SOC Ltd

Tel: 010 201 4700Fax: 010 201 4820

Physical AddressCEF House, Block C,

Upper Grayston Office Park152 Ann Crescent, Strathavon,

Sandton, 2031JohannesburgSouth Africa

Postal AddressPO Box 786141

Sandton2146

RP260/2015 ISBN: 978-0-621-43896-3

3695 | IWW

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