THE creation of a huge South African oil company is firmly back on the agenda of those in government quietly plotting a new-look oil industry.
The scheme originally involved a link-up between Engen, Sasol Oil, and the state’s bag of oil assets, but government sources said this week that Total SA could also be part of it.The idea of a “South African National Oil Company” (Sanoco) has popped up several times over the past year as a possible key feature of a revamped oil industry. But its government backers have never discussed it openly.
“They have flouted the so-called transparency of the new government and kept their plans to their dark, smoke-filled rooms. Is it because they are afraid this massive plan has no industrial merit?” asked one industry commentator. And the companies involved have either refused to comment or expressed reservations.The plan, hatched in the Trade and Industry Department, was initially dismissed by stock exchange analysts and most senior oil company officials as being rooted in impractical, misplaced nationalism.The scheme then gained more credibility, with others in government — including the Finance Department — planning reforms of an industry geared to sanctions-busting and keeping foreign oil companies happy. Some deregulation of the intricate rules which guarantee oil companies their margins and keep out new players is likely.
So those who believe South Africa cannot be left to the mercy of the international oil majors in a deregulated market say it is the answer. “There is a strong rationale for having a large, maverick player in the industry,” said one of the scheme’s government backers this week.
But last August they had to put their plans on ice just as the first phase of the scheme was about to fall into place. Sasol Oil and Engen appeared poised to merge, then Total SA, which jointly owns the Natref oil refinery with Sasol, spoiled the party.
The French-owned company said Sasol’s quiet reshuffling of its stake in the refinery ahead of the merger had given it a pre-emptive right, so it and Sasol put the matter up for arbitration in London.
Last week Sasol said it and Total SA had resolved the matter, but were tight-lipped on the terms of the agreement. Government sources have confirmed analysts’ speculation that Total SA was pacified by being included. The sources said the resolution of the dispute had resuscitated their plans.
Neither Engen nor Sasol would confirm whether they had restarted merger talks, but one analyst said: “You can bet they have.”The merger would be particularly beneficial to Sasol as it would give it an entry into the retail market. At present, in exchange for the oil companies guaranteeing to buy Sasol’s synthetic fuel, Sasol stays out of retailing.
Asked about the status of talks, Sasol communications manager Alfonso Niemand said that after settling the dispute with Total, Sasol was “considering its options”.
Engen company secretary Douglas Evans said the logic for Engen’s involvement with Sasol Oil remained, but the company would have to “review where matters lie” eight months on. Senior Total officials could not be reached for comment.
Other oil industry players have either rubbished Sanoco or expressed concern that such a big player would be a threat in a deregulated market. They are particularly keen to know the state’s role in the proposed company — not surprising considering their long-standing opposition to the subsidies handed to Sasol and Mossgas.
They also want to know what the state’s stake in such a company would be. Indirectly, government has a 23% stake in Sasol. And the scheme’s planners hope to include the state oil companies housed in the Central Energy Fund (CEF), although they say these are not central to their plans. The CEF companies include Mossgas, which could be sold this year, and the state oil trading company, the Strategic Fuel Fund.
The government officials behind the scheme appear unfazed by the opposition, which includes some of the senior officials of the very companies they want to merge.
One said this week that even if the companies’ managements were wary, there was a lot of “commonality” among their shareholders. Gencor is a major Engen shareholder and Rembrandt is a big Total SA shareholder.
But this determination is perceived as government meddling by industry players who want a much reduced state presence. This suggests Sanoco’s pushers could face an uphill struggle exposing their plans to the cold light of day.Corporate SA sees growthSimon Segal
THE rationalisation, restructuring and financing of corporate South Africa is gaining momentum. Last year, R19,7-billion was raised in new capital from the Johannesburg Stock Exchange (R10-billion in 1994), surpassing the 1992 record of R12,3-billion.Of the capital raised, R6,8-billion was through rights issues (R2,9-billion in 1994), R5,4-billion through scrip dividends (R2,3-billion) and R1,7- billion through share issues for cash (R3- billion).The JSE saw 27 new listings and 28 delistings, leaving the number of listed companies at 639, with a market capitalisation of R1 022-billion at the end of 1995 (R1 129- billion this week). Outside the JSE, the value and number of mergers and acquisitions (M&A) in South Africa rose sharply in 1995.
A feature of this corporate restructuring is the increasing number of firms unbundling — Anglo’s JCI, Rand Mines and M-Net’s delinking of Multichoice were the principal deals in 1995.Certainly many of these M&A deals do improve efficiency and performance by adding not only economies of scale but by rationalising existing assets — but not all do. Robin McGregor, publisher of Who Owns Whom, feels the corporate restructuring “could aggravate the economy’s lack of competitiveness, which is already alarming”.McGregor is not alone in believing some of the blame lies with the high levels of concentration in the economy. The figures McGregor uses are from his 1992 survey, which found JSE-listed firms accounted for half South Africa’s gross domestic product. “This would not have changed much,” he says.At the end of 1995, McGregor found Anglo accounted for 37,1% of the JSE’s market capitalisation, Sanlam 12,4%, Old Mutual 11,2%, Rembrandt 7,8% and Liberty 7,3%.Ernst & Young, the auditor, identifies 323 deals worth R43,4- billion (only 184 of the deals disclosed values) last year, against 152 deals in 1994 valued at R30,5-billion, R8,1-billion in 1993 from 184 deals, R13,4-billion in 1992 from 193 deals and R12,5-billion from 226 deals in 1991.
In 1995, five deals accounted for 60% of R26,3-billion in total value. The largest, R8,7-billion, was the merger of the tobacco interests of Remgro and Swiss-based Richemont, controlled by the Rupert and Hertzog families.