South Africa has chosen Gazprombank, a state-owned Russian bank, as its preferred partner for a $265 million project to revive a mothballed gas refinery on the country's southern coast.
This announcement marks a significant win for Russia in its efforts to solidify its economic and political ties with South Africa, a long-standing partner in the geopolitical BRICS bloc.
According to South African media outlet amaBhungane, 19 out of 20 bidders for the project had been disqualified due to its unusually stringent technical criteria. One of them is penalties for companies not majority-owned by an oil or gas-producing state.
The Gazprombank is still under U.S. sanctions, but the BRICS partnerships have facilitated trade beyond the Western reach. While the specific currency remains undisclosed, many speculate the two countries will ditch the U.S. dollar due to the sanctions and finalize the deal in local currencies instead.
Amid suspicions of favoritism towards Gazprombank due to the unusual bidding technicalities, South African cabinet minister Khumbudzo Ntshavheni defended the deal. She said Monday that the deal "is driven by our partnership in BRICS."
"There would be no point being in BRICS if South Africa did not partner with BRICS countries in trade and investment. It's part of making sure that we build a resilient economy that is not susceptible to only one side of the global balance of powers," she said.
Under the new deal, Gazprombank will become the investment partner for a 45,000-barrel-a-day gas-to-liquids refinery at Mossel Bay, South Africa. South Africa's state-owned oil company, PetroSA, recommended the deal after a second legal consultation to ensure the low risk of sanctions from the West following the agreement.
The Mossel Bay refinery has been dormant for the past three years, but it has the potential to become a critical player in South Africa's burgeoning gas sector. The refinery was established in 1989, serving as a strategic response by South Africa's apartheid government to circumvent a United Nations oil embargo.
This revival comes in the wake of TotalEnergies' major offshore gas discoveries in 2019 and 2020, propelling South Africa towards a potentially significant role in the global gas market.
In order to boost the economic relationship between the two countries further, South Africa will also reportedly announce a new plan to purchase 2,500 megawatts of nuclear energy from Russia's nuclear agency, Rosatom. The renewed agreement will follow a previous deal under former president Jacob Zuma that was ultimately hampered by a court challenge in 2017.
Other recent BRICS deals
The possibility of utilizing local currencies aligns with a growing trend within the BRICS bloc. Just last week, the United Arab Emirates, another BRICS member, initiated talks with 15 countries, advocating for local currency settlements in their oil trades instead of the U.S. dollar. The move signifies a broader de-dollarization effort to reduce reliance on the dollar and promote financial autonomy within the BRICS bloc.
The UAE had earlier taken another step towards de-dollarization by settling a landmark oil deal with fellow BRICS member India in September 2023. Over 1 million barrels of oil were shipped from the UAE to India, with payment completed using Indian rupees.
Another major oil producer, Saudi Arabia, has also signaled its openness to diversifying oil trade settlements by accepting local currencies alongside the U.S. dollar. This move is the Kingdom's strategic aim to broaden its reserve base and reduce its reliance on the greenback, further amplifying the de-dollarization trend within the BRICS bloc.