Fill up with Penuell, Khaya and Phuthuma. This week, the Mail & Guardian reveals for the first time the big empowerment stakes at issue in the Uhambo deal — the proposed merger of Engen and Sasol’s fuels business — which show that the benefits to accrue to Penuell Maduna, Khaya Ngqula and Phuthuma Nhleko will make them industry giants.
But, as the Competition Tribunal hearing into whether the deal should go ahead has heard, it will also mean that the deregulation of the fuel price will be put off for at least a decade in order to facilitate empowerment.
With the exception of a tweak here and there, the regulatory system put in place to supply apartheid South Africa’s fuel needs remains entrenched more than a decade into democracy.
This complex system is based on:
generous protection for homegrown synthetic fuels;
sweeteners for the multi-national conventional industry;
import control;
encouraging over-investment in service stations;
inflation-busting guaranteed returns;
exemption from competition law; and
the use of non-transparent pricing formulas that are often incomprehensible to outsiders.
Senior department official Nhlanhla Gumede told the tribunal last week that the slow pace of implementing empowerment meant that deregulation would begin in 2010 at the -earliest.
Gumede was suspended after it was revealed that BP and Sasol had been allowed too much influence over him.
Sasol has suggested in evidence to the tribunal that deregulation could make a difference of 27c a litre, a public saving of about R540-million a year.
So, if everyone pays more in the meantime, who benefits? The proposed Uhambo deal-makers do.
There are two empowerment parties in Uhambo: Tshwarisano, which is led by former energy and justice minister Maduna, and Afric Energy Resources, a 100% subsidiary of Worldwide Africa Investments, led by Ngqula and Nhleko, of SAA and MTN respectively.
Both parties are allocated a 12,5% stake — worth about R1,5-billion each — of the R12-billion Uhambo.
Worldwide
Worldwide has four principal shareholders: Khatuma, which holds 31% and which in turn is owned by Ngqula (37%), Nhleko (37%) and Standard Bank (26%), which said it took shares to secure loans.
Worldwide’s other investors are Mutual, Sanlam and a black economic empowerment (BEE) consortium that holds 10%.
This values Ngqula and Nhleko’s individual stake in Uhambo at R172-million each.
Worldwide MD Zellah Fuphe said the company was formed in 1994 and acquired a controlling stake in Zenex in 1995. In 1999, it acquired a stake in Engen, which is 90% owned by Malaysian fuel giant Petronas.
Fuphe says the current level of black shareholding in the company is 48,4%.
“Efforts are currently under way to increase the level of black shareholding to above 50%.” This process is to be concluded by year-end.
Fuphe said that Worldwide is establishing the Worldwide Development Trust to benefit historically disadvantaged South Africans.
“The trust will be allocated a 2,5% stake in all future transactions.
“Worldwide will raise the necessary funding for the trust and facilitate its immediate receipt of dividends, irrespective of whether the trust’s portion of the debt has been amortised.”
Worldwide was facilitating the participation of Uhambo employees in the shareholding of the company through the Uhambo Employee Share Trust.
“This will reduce Worldwide’s stake in Uhambo to 12% as opposed to the originally agreed 12,5%.”
Tshwarisano
Tshwarisano will take up the other 12,5% Uhambo stake. Companies associated with Maduna (17,9%), Reuel Khoza (7,7%) and Hixonia Nyasulu (5,1%) hold 30%. Maduna’s stake is worth R268-million.
A consortium that owns the Excel network of service stations holds 47% of Tshwarisano, while various broad-based groupings have a 23% stake.
Maduna has said that the consortium has three million direct and indirect beneficiaries.
Sasol spokesperson Johann van Rheede said there are three groupings within Tshwarisano: the promoters (Maduna, Khoza and Nyasulu), the trust grouping (27%) and the former Excel shareholder grouping (42,3%).
“The allocation of the shares is relatively balanced between the three main groupings and each group brings certain distinct benefits to the transaction with its own numbers of broad-based beneficiaries,” said Van Rheede.
Maduna told the M&G that as a co-leader of the empowerment consortium he was entitled to get a larger slice of the share allocation than the ordinary member.
Tshwarisano’s purchase of 12,5% of Uhambo is made possible through Sasol providing R945-million in assistance. This is R450-million for financing facilitation, R170-million as a guarantee, R80-million for transaction costs, R200-million “for synergies not included” and R45-million for two additional trusts which benefit the severely underprivileged and Uhambo employees and their families.
Deregulation
Clearly, the big winners from delayed fuel-market reform are Maduna, Ngqula and Nhleko. It is hard to know from publicly available information how many BEE beneficiaries there are within Worldwide, but the shareholding appears to be dominated by just two people, Ngqula and Nhleko.
A large chunk of Tshwarisano’s BEE shareholding is broad-based, with perhaps as many as three million people benefiting from holdings in the Excel and trust groupings.
Their stake works out at about R350 each, Maduna’s R268-million. Maduna’s cut is therefore worth 750 000 times that of the ordinary beneficiary.
Sasol’s Ernst Oberholster told the tribunal that deregulation could save 27c a litre. This is a 5c a litre saving on the basic fuel price with savings of 11c each on the wholesale and retail margins.
A Sasol source acknowledges that this is an estimate based on speculation rather than empiricism.
Another way to do this calculation would be to compare the profitability of South African fuel companies with that of their international peers, the difference being an estimate of what increased competition and/or less generous regulation could mean in the South African market.
The comparison with Fortune 500 companies published two weeks ago by the M&G shows that Sasol’s R9,5-billion in after-tax profits, expressed as a percentage of turnover or sales, is 13,8%. This is nearly twice the median 7,4% earned by 32 of its peers, including BP, Exxon Mobil, Total and Chevron.
Comparing profits internationally suggests that potential cost savings from market reforms run to billions of rands annually, not the hundreds of millions mooted by Sasol.