The proposed R15-billion merger between Sasol, Petronas of Malaysia and Engen may be good for the country, but it has reportedly alarmed other oil majors and fuel retailers.
Last week the petrochemical giants released long-awaited details of their proposed merger to create Uhambo Oil, a liquid fuels monolith with operations in 14 sub-Saharan African countries. It is still to be scrutinised by the Competition Commission.
An analyst who has researched competition in the industry, pointed out that Sasol already controls South Africa’s inland supply of fuel. As the merger would give it access to Engen’s large retail network, it was in a position to undercut competitors in the commercial market, including in the supply of petrol to car-hire companies and diesel to trucking firms.
Other big oil companies are said to be seeking an assurance that Sasol will continue supplying them inland at competitive prices.
Claudia Mpeta, spokesperson for Shell, said the company’s scenario planning over the past three years had taken the possibility of the merger into account. She emphasised that Shell will continue to engage industry and lobby the government to ensure fairness in the regulatory environment.
Experts who spoke to the Mail & Guardian broadly concurred that economies of scale and location advantage are among the deal’s chief benefits.
At the same time, they said the company would have to show retailers it was sensitive to their concerns, which range from exclusion from the empowerment component of the deal to whether Zenex, one of four brands brought under one umbrella, will survive. The others are Sasol, Engen and Exel.
The leading empowerment players in the deal are Worldwide African Investment Holdings, 20% shareholders in Engen since 1995, and Tshwarisano LFB Investments. The latter, comprising Sasol’s long-standing empowerment partner in the form of Exel shareholders, is led by former justice and constitutional development minister Penuell Maduna.
Peter Morgan, CEO of the Fuel Retailers Association, had praise and scepticism in equal measure for the deal.
“On the refining side,” he said, “the idea of people sharing assets to make them more efficient has our support.”
But Morgan is scathing about.
His chief concern is the exclusion of existing service station owners from the empowerment component of the deal.
He was also worried about the contracts fuel retailers currently have with Sasol and Engen. Because they will now be in a relationship with a new entity, their contracts could be unfavourably altered.
“At worst, we would like to leave petrol station owners in the same position,” he said, noting that where possible the association would look to improve contract terms.
Morgan added, however, that the formation of the new company was an opportunity to resolve the “one-sided” nature of supplier contracts with oil companies. Problems ranged from being required to pay cash on delivery for fuel supplies, suppliers dictating when and how much fuel a petrol station received and being “thrown out of business” for breaches, such as an attendant’s failure to wear complete uniform.
Some of the issues would be dealt with by the Petroleum Amendment Act, which introduces an arbitrator in cases of “unfair and unreasonable treatment”.
The Act also seeks to rationalise the 4 600-station industry, which the government considers 30% overtraded. The Act will introduce a 10-year period of “managed liberalisation” culminating in a possibility of petrol prices being set in the open market.
There are also concerns about the future of Sasol’s empowerment arm, Exel, and Engen’s Zenex. The fear is that the brands may disappear.
Exel has been increasingly dwarfed by Sasol’s own service station roll-out, which will be accelerated by this week’s agreement. As for Zenex, it is mentioned, at best, as an afterthought in the merger announcement.
Looking at the big picture, economist Tony Twine describes the deal as having a “perfect strategic fit” for the South African components of the deal, Sasol and Engen.
For the first time, Sasol will have access to petrochemicals produced from crude oil, and not as by-products of synthetic fuel production. These include sulphur, carbon black and some lubricants. It will also gain access to a retail network that includes penetration beyond the Natref footprint of the Highveld to coastal areas.
Twine points out that Sasol has the ability to meet 40% of South Africa’s automotive fuel needs, but has an inadequate distribution network. Engen, with 40% of the retail market share, has the outlets, but without the production capacity.
In addition, Uhambo’s access to both crude oil refineries and Sasol’s coal-to-liquid fuel process means the company can use synthetic fuel in times of rising oil prices and, when oil prices are weak, rely more heavily on refining crude oil.
How it works
The complex Sasol-Petronas merger involves three big players and two empowerment partners.
Joining forces with Petronas International Corporation, a subsidiary of Malaysian state oil company Petronas, are Worldwide African Investments Holdings, through its subsidiary Afric Energy Resources; Sasol; Sasol’s empowerment partner Tshwarisano LFB Investments; and Engen, including its subsidiary, Zenex.
Petronas has an 80% stake in Engen, while Worldwide holds 20%. On completion of the deal, Engen will be renamed Uhambo Oil.
The key features of the deal are:
It brings together the liquid fuels businesses of Sasol and Engen through Uhambo. Sasol and Petronas will hold 37,5% each, while Tshwarisano and Worldwide will hold 12,5% each.
The business embraces liquid fuels refining, marketing and distribution, and will produce 13-million cubic metres of petrol, diesel and kerosene a year.
Uhambo will take over the Enref oil refinery in Durban, as well as Sasol’s 60% share in the Natref refinery in Sasolburg.
The company will have 1 600 service stations across the Engen, Zenex, Sasol and Exel brands. Engen alone has 1 250 service stations and 40% of the retail market.
Based on Engen’s and Sasol’s unpublished results for 2004, the venture would have recorded ˆ sales of R33-billion and earnings of R1,2-billion. — Thebe Mabanga