Sasol’s black economic empowerment deal, announced in June, marks the end of a phase in the Liquid Fuels Charter. All the major oil firms are “empowered” in the sense of having structured financial transactions that should see black people owning 25% of the liquid fuels industry by 2010.
Before the Competition Tribunal judgement on Sasol’s previously proposed BEE deal, I used to think the trade-off for empowerment in the liquid fuels industry was preservation of a cosy cartel.
Pick ‘n Pay founder Raymond Ackerman reflected this view in his 2001 autobiography, Hearing Grasshoppers Jump.
Reminiscing about his 1975 fight to offer cut-price petrol at his stores, he wrote: “In 1975, government action was designed to protect the interests of the large petrol companies, precisely as it still is.
“The only difference now is that emerging black oil entrepreneurs want their slice of the cake too. What remains the same, however, is who pays through the nose for petroleum products.”
The Liquid Fuels Empowerment Charter, signed in 2000, was groundbreaking. The alacrity with which the industry agreed to sail into unknown waters was astonishing.
This is an industry dominated by foreign investors used to having wholly-owned subsidiaries. Sasol remains the only major South African fuel business.
In other industries, such as broadcasting, the state had encouraged transformation through its licensing power. The oil companies are already established. On the other hand, the fuel industry is heavily regulated, and the oil majors are vulnerable in being few and visible.
The obvious and unstated bargain would be: set aside shares in the industry for empowerment, and we won’t rock the fuel boat.
However, deregulation is on the way, BEE or no BEE, though it will be slow in coming — 2010 at the earliest.
The Competition Tribunal judgement, delivered earlier this year, prevented Sasol’s original deal, proposed in 2004, whereby BEE consortium Tshwarisano would have held 12,5% of the new Uhambo liquid fuels business, created by the merger of Sasol and Engen’s liquid fuels business.
The tribunal decided that the creation of Uhambo was an undesirable further concentration of power in the fuel industry. It set out its reasons in a lengthy judgement, available on the tribunal website, fascinating in its detailed examination of the fuel industry in South Africa.
“The merger is Sasol’s attempt to put the genie back in the bottle, to reconstitute the (oil industry) cartel but under Uhambo’s leadership.”
Broadly speaking, competition law allows BEE, as a “public interest” issue, to be weighed against competition considerations in deciding whether to allow a merger or acquisition.
In Uhambo’s case, the tribunal noted the BEE deal was not dependent on the merger, and would have to go ahead anyway. It was not persuaded that the interests of the BEE parties trumped the broader national interest.
The tribunal stated: “We are effectively being asked to accept a direct trade-off between our competition finding, on the one hand, and the cost of empowerment financing, on the other.”
The tribunal did not accept the trade-off.
Hence, Sasol has gone ahead with a new deal, which is similar except for the Uhambo merger. This deal transfers 25% of Sasol’s liquid fuels business to Tshwarisano, which is still headlined by former Cabinet minister Penuell Maduna, business-person Hixonia Nyasulu and Eskom chairperson Reuel Khoza.
The three promoters, as they are called, together still have 30% of the consortium that will own 25% of Sasol’s liquid fuels business. Broad-based groupings get the remaining 70%.
According to Sasol, “the direct beneficiaries of Tshwarisano number many hundreds of thousands of historically disadvantaged South Africans. More than 50% are women. We are pleased to announce that indirect beneficiaries number an estimated three-million people.”
It also says that the shareholdings will be unencumbered (real, as soon as possible), so that benefits flow to those beneficiaries “within a reasonable time period”.
One hopes so. The disappointment of members of such broad-based groupings who see little or nothing from these deals will more than anything else discredit BEE.
Political pressure to do broad-based deals has been intense. However, I subscribe to the view that BEE should be about redistributing opportunities for black business not redistribution of wealth.
If there are, say, 500 000 beneficiaries of the Tshwarisano deal, that 70% translates into a little more than R2 000 per person.
Maduna himself looks forward to the day when he is not called on to empower his grandfather’s church to do a business deal, he tells me.
He would like to be accepted as a businessperson, rather than a black businessperson.
“That moment will come.”
For that to happen, deregulation — or rather, an intelligent slimming down of regulations — must create more opportunities for new businesses to be created, especially, but not only, black-owned businesses.
A good example of this is wireless broadband provider iBurst, a BEE company that even the limited deregulation of the South African telecommunications market has allowed to flourish.