Get more Mail & Guardian
Subscribe or Login

China adds fuel to refinery ire

China, which is criticised for its high levels of air pollution at home, could help to resolve South Africa’s oil-refinery pollution woes.

A $900-million bid by Sinopec, China’s largest oil refinery owner, for South Africa’s second-largest oil refinery, Chevron SA, has received the nod from the Competition Tribunal. This could mean that the country’s 820 Caltex’s red, green and white fuel stations could soon be clad in Sinopec’s red and white.

But the tribunal’s approval of Sinopec’s bid does not mean it is finalised. Chevron SA’s black economic empowerment shareholder, Off The Shelf Investments Fifty Six (OTS), which owns a 25% stake, has exercised its pre-emptive right to buy the other 75% of Chevron SA. OTS agreed to match Sinopec’s offer with financial backing from mining and commodities giant Glencore.

Sinopec wants to acquire 75% of Chevron SA’s assets in South Africa and Botswana, including a 100 000 barrel-a-day oil refinery in Cape Town, a lubricants plant in Durban and the fuel station network.

The tribunal’s regulatory approval is subject to a range of employment, investment and public interest conditions, one of which is an undertaking to upgrade and improve the oil refinery over the next five years.

Sinopec has made a commitment to spend R6-billion on upgrading the refinery to increase the output of locally refined oil products and to meet improved health and safety standards.

The government and the oil industry have been deadlocked over implementing policy governing the production of cleaner fuels, as both parties cannot agree on what type of cost-recovery mechanism can be implemented to pay for the $4.9-billion upgrades of old refineries.

The stand-off means that newer car models with cleaner technologies do not perform ideally on South African fuels. An exception is Sasol, which produces low-sulphur diesel (10 parts per million), which accords with the highest European Union standards.

The National Association of Automobile Manufacturers of South Africa (Naamsa) has complained that South Africa is 15 years behind the world in terms of clean fuel. In a statement released in October, it said the delay would stop the flow of new vehicle technology into the country.

“With the introduction of new technology, including new four-way catalytic converter-equipped vehicles in Europe during 2018, we now find, for the first time since the 1996 introduction of unleaded petrol in South Africa, that many regular petrol engine cars available in Europe will not be able to be marketed in South Africa,” said Stuart Rayner, the chairperson of the fuel and emissions working group of Naamsa.

Local manufacturing plants will have to “adapt vehicles for the lower fuel quality available in South Africa”, he said.

Regulations to introduce the Clean Fuels 2 programme were gazetted in June 2012 and were meant to come into effect in July 2017. They would have led to reduced sulphur levels in diesel and petrol but they have been postponed indefinitely.

In the past, the South African Petroleum Industry Association has warned that the continued uncertainty regarding the introduction of the clean fuels policy could wipe out South Africa’s oil refineries in five to 10 years. Without the necessary investment in clean fuel, local refineries face a threat from imports that meet the specifications.

Other conditions of the Sinopec deal are that the existing contracts of Chevron SA’s 10 branded marketers will not be changed in any way that will be to their detriment. The marketers are responsible for the wholesale distribution of Chevron SA’s products to petrol stations in rural and remote areas.

The public interest conditions agreed to with Economic Development Minister Ebrahim Patel include Sinopec opening its head office in South Africa and increasing the broad-based black economic empowerment shareholding of Chevron SA from 25% to 29%, and to retain it at no less than that.

Sinopec has also agreed to bear the full cost of rebranding some service stations. It has agreed not to retrench any staff and to honour all contractual obligations to Chevron SA’s retired employees.

Glencore cosies up to empowerment partner

A rival bid for Chevron SA could see the company’s assets being sold for $973-million to Anglo-Swiss multinational commodity trading and mining company, Glencore.

In October 2017, Glencore announced that it had entered into an agreement with Off The Shelf Investments Fifty Six (OTS) to acquire a 75% interest in Chevron SA, as well as a 100% interest in Chevron Botswana.

OTS is Chevron SA’s empowerment partner, holds a 25% stake in the company and has a pre-emptive right to purchase the rest of Chevron’s assets.

“The consideration will be payable in cash on closing and will be funded from Glencore’s own cash resources,” it said in a statement. “Glencore intends to manage its overall oil asset portfolio to ensure that, including this transaction, net additional capital investment is limited to less than $500-million over the next 12 months, consistent with Glencore’s conservative financial framework targets.”

The Competition Commission’s Sipho Ngwema confirmed that OTS had filed an acquisition transaction. — Tebogo Tshwane

Tebogo Tshwane is an Adamela Trust trainee financial reporter at the Mail & Guardian

Subscribe for R500/year

Thanks for enjoying the Mail & Guardian, we’re proud of our 36 year history, throughout which we have delivered to readers the most important, unbiased stories in South Africa. Good journalism costs, though, and right from our very first edition we’ve relied on reader subscriptions to protect our independence.

Digital subscribers get access to all of our award-winning journalism, including premium features, as well as exclusive events, newsletters, webinars and the cryptic crossword. Click here to find out how to join them and get a 57% discount in your first year.

Tebogo Tshwane
Tebogo Tshwane

Tebogo Tshwane is an Adamela Trust financial journalism trainee at the Mail & Guardian. She was previously a general news intern at Eyewitness News and a current affairs show presenter at the Voice of Wits FM. Tshwane is passionate about socioeconomic issues and understanding how macroeconomic activities affect ordinary people. She holds a journalism honours degree from Wits University. 

Related stories


If you’re reading this, you clearly have great taste

If you haven’t already, you can subscribe to the Mail & Guardian for less than the cost of a cup of coffee a week, and get more great reads.

Already a subscriber? Sign in here


Subscribers only

R350 social relief grant not enough to live on

Nearly half of the population in South Africa — one of the most unequal countries in the world — is considered chronically poor.

More top stories

Young and jobless? Apply for one of 287 000 education...

Education department urges young, jobless people to apply for teaching assistant vacancies

Officials implicated in arts council mismanagement will be brought to...

The National Arts Council vows that every cent from the sector’s Covid-19-relief programme will be disbursed to artists, after auditors uncover maladministration

Covid-19 vaccine mandates: a constitutional balancing act

South Africa’s laws allow the government to implement mandatory Covid vaccinations but, if it chooses this path, it must do so responsibly

Popularity will not guarantee mayoral selection — Ramaphosa

ANC president Cyril Ramaphosa has promised a more rigorous mayoral selection process, which will involve the party’s top six

press releases

Loading latest Press Releases…