Centre for Environmental Rights – Advancing Environmental Rights in South Africa

On 26 July 2024, the CER attended Renergen’s 2024 Annual General Meeting (AGM) in Sandton Johannesburg and raised key questions about the financial, environmental, and social sustainability of the company’s gas projects, in particular, its Tetra4 gas production company.  

During the AGM, it became clear that shareholders were concerned about the financial viability of the company, questioning the operational underperformance related to helium production as well as an alarming loss in market value over the last year. However, the CEO, who also chaired the AGM, was quite defensive and overly optimistic about a wide range of issues, which in our view, failed to meaningfully address the serious concerns being raised by shareholders.  

During the question-and-answer session, we enquired about an appeal, filed by fence-line communities, against an environmental authorisation for the expansion of Renergen’s Tetra4 project, pointing out that the expansion is currently suspended due to the appeal. We highlighted that the appeal raised important issues related to environmental, social and climate risks of the project but that there were also external risks related to the lack of pipeline and associated infrastructure, which could take many years to build. We indicated that these issues could lead to further costly delays for the company and its shareholders. In addition, we cited the International Energy Agency’s latest report on gas demand declining from 2030.  

The CEO did not appear to acknowledge or appreciate these risks but instead referred to the gas demand in South Africa, underplaying the impact of the delays, asserting that the expansion will soon get underway.  

We responded with reference to the Presidential Climate Commission’s electricity planning recommendations, which has found that that gas-to-power is not necessary at any significant scale, if at all, to ensure secure and reliable electricity.  

It should be noted that in the week following the AGM, the Minister of Environmental Affairs, Forestry and Fisheries, decided to remit Tetra4’s application for an environmental authorisation back to the Mineral and Petroleum Resources Department, in order to address shortcomings in the application. This will compound the costly delays related to the expansion of the project, as the company was directed by the Minister to undertake a more detailed climate change impact assessment and a more detailed assessment of the project’s groundwater impacts. The latter assessment must use data available to the company – not mere desktop simulation. New assessments must be incorporated into a revised environmental impact assessment report that is subject to public participation with interested and affected parties.    

“From our interactions at the AGM it is clear that Renergen’s senior management do not appreciate the immense risks associated with its gas extraction projects, including the quite significant risk of stranded assets. Their responses are not aligned with the environmental, climate and economic reality which they are facing and raises questions about their willingness to address the environmental and social impacts of its own activities and therefore their ability to respond to shareholder concerns,” says CER’s Leanne Govindsamy.  

When questioned about how the company could justify a 58% annual increase in the CEO’s total annual guaranteed package, a 32% increase in the package of other executive directors, and a 36% annual increase in total Board fees despite continuous declining financial results and operational underperformance, the CEO cited the need to retain expertise within the company as well as the costs involved in his relocation to the United States, as being key drivers for the decision.  

Even more concerning was the statement from CEO Stefano Marani about the much-needed NASDAQ IPO and the underperformance of Renergen’s stock on the JSE. Marani remarked that the South African market did not understand the long-term nature of gas exploration and extraction, whereas the American markets were more sophisticated and better attuned to them, and thus would react favourably to the planned IPO. Perhaps Renergen’s CEO overlooked the JSE’s long track record with mining listings, which involve similar long period of exploration and extraction, or the fact that the JSE is one of three main resource intensive exchanges in the world, while also being strictly regulated. 

Renergen’s financial health and performance came under scrutiny during the AGM, as concerned shareholders did not see clear solutions or timelines to address the material uncertainty related to going concern mentioned in the 2024 audit, and which only added to the nervousness over the company’s consecutive losses and unmet production targets. “Considering the historical operational and financial underperformance, shareholders and financiers should be deeply concerned about their investments and the company’s risk profile” said Armando Ayala-Robles, Senior Climate Finance Researcher at the Centre for Environmental Rights. 

Notes:  

**Tetra4 is the first commercial producer of Liquefied Natural Gas (LNG) and liquid helium in South Africa and holds the only onshore petroleum production right in South Africa and has applied to expand its production operations to involve up to 300 new production wells, ~480km of gas transmission pipelines and associated infrastructure, 

**Fence-line communities are very concerned about the proposed project’s risks which include groundwater contamination from radium and uranium; and health impacts which could result from such contamination as well as water impacts, given South Africa’s scarce water resources. Moreover, communities are concerned about a failure to consider climate change as well as inadequate public participation and resultant impacts on the agricultural and tourism sectors. (The CER lodged an appeal against the granting of the environmental authorisation on bebehalf of the Mining and Environmental Justice Community Network of South Africa (MEJCON-SA) and Mining Affected Communities United in Action (MACUA), which appeal was decided on in August 2024. The DFFE Minister took a decision to remit Tetra4’s application back to Mineral and Petroleum Resources Department, due to deficiencies in the application. The Minister upheld the appeal on two grounds and directed the company to undertake new assessments of climate and groundwater impacts and then consult with interested and affected parties on those reports.  For more information on the challenges to Renergen’s proposed gas production expansion see – https://cer.org.za/programmes/mining/litigation/mejcon-sa-macuas-legal-challenge-to-proposed-gas-production-expansion 

**Beyond its environmental impact, the justification for gas extraction in South Africa is flawed on several fronts. The notion that gas will benefit local communities is largely a fallacy. The reality is that gas projects, such as the Virginia Gas Project, are primarily geared towards producing liquefied natural gas (LNG) for export, rather than for domestic use. Companies like Renergen underestimate their environmental and social impact on local communities who reap few, if any, benefits or new lasting jobs.    

**The reality of the risks facing the company are to be contrasted with its overly optimistic annual reporting. During financial 2023, Renergen continued to operate at a loss, losing half its market value in the last year. The company has struggled to achieve its Phase 1 LNG and helium production targets and as at 29 February 2024, Renergen had not yet succeeded in producing Grade-A quality helium. LNG production is less than 20% of target production rates. Despite these losses and inability to reach targets, the group is seeking funding for its phase 2 expansion.