British Petroleum’s (BP) R265-million empowerment deal with the Mineworkers Investment Company (MIC) and Women’s Development Bank Investment Holdings (WDBIH) avoids instantly the new sin of being ”narrow-based”.
That is because both the MIC and the WDBIH are owned by charitable trusts and have the benefit of being unquestionably broad-based by design. The beneficiaries of their investment activities are ultimately miners and poor, rural women.
This deal follows one done in 2001 in which the MIC and the WDBIH bought 25% of BP Southern Africa (BPSA), out of which the new company, Masana Petroleum Solutions, is to be spun.
The MIC and the WDBIH will continue to own 25% of BPSA, which owns, among other things, 50% of the largest refinery in Southern Africa, Sapref, as well as having 780 service stations in Southern Africa.
BP has sold a total of 55% of its commercial and industrial business. Thirty- five percent goes to the MIC and to Women’s Development Fuel (WD Fuel), a subsidiary of the WDBIH.
Another 20% goes to staff, with 15% going to senior management.
Headlines indicated the new entity created in the deal, Masana, is 55% black-owned. That is a bit misleading.
Seventy percent, or 35 of the 50 staff, are black according to Keith Bryer of BPSA. So, using the ”flow-through” principle outlined in the recently published Codes of Good Practice issued in terms of the black economic empowerment (BEE) Act, only 70% of that 20%, or 14%, represents black ownership.
Hence the actual percentage of BEE ownership is 35% plus 14%, which is 49%, a few percentage points short of the 50% plus needed to be defined as a ”black enterprise” according to the BEE Codes of Good Practice.
But let’s not be overcritical. The company turns over R2,5-billion a year, and profits last year were R50-million and it is the agent for an established, international brand.
Moreover, since the oil industry charter, signed in 2000, only required 25% of the industry to be in black hands by 2010, BP has progressed faster than necessary.
The Petroleum and Liquid Fuels Charter was the first, and was for a while the government’s blueprint for empowerment, in the absence of any document setting out government strategy.
So why only the commercial arm? Paul Nkuna, chief executive of the MIC, laughs at the thought of buying a stake in the refinery business, noting one would need deep pockets for such a purchase.
”To go into such an entity you have to build resources somewhere else.”
This cuts across the MIC’s investment philosophy, which is to use the cash generated by the entity itself to participate in that entity. This is what Masana will do, and is the approach followed by the MIC in other investments.
All in all, it looks like a good deal (apart from being technically a foreign disinvestment) for the country and the joint- venture partners. The company is not being given away, though the price is clearly discounted. The equity stake is real, not an option to acquire at a later stage, though it has to be bought with a third-party loan.
BP has little to lose: it retains a stake in Masana, but its real hold on the company is that it makes the product that Masana sells.
Indeed, having bought into the spirit of BEE has material advantages for BP. The increased, unencumbered equity stake is a competitive advantage, insuring BP against demands for higher BEE equity in future. However, in the process a new black-owned and black-run fuel company is being created rather than being swallowed up by a big oil company.
Reg Rumney is director of the BusinessMap Foundation