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SA set to award defence contract... Foreign investment into SA tops the lis... Excluded groups want their share of bl... |
Excluded groups want their share of black goldLooks at empowerment in the oil industry
DEREGULATION of South Africa's tightly held oil industry, while touted by many as the way out of its woes, does not bode well for black economic empowerment in the industry. Flinging open the fuel lines to allow greater competition could kill black economic empowerment in SA's white-dominated oil industry, which recorded a turnover of R37.5-billion last year, industry analysts say. This has spurred calls by black oil companies for government intervention to ensure meaningful black participation in the oil industry before its deregulation within the next five years. Current policy has done little to stimulate black ownership, leaving the oil industry behind most other sectors in terms of empowerment. Black oil companies increased their share of the SA petrol market by a mere 0.56% to 4.19% this year and by 2.28% to 7.98% of the SA diesel market. The National Black Fuel Retailers Association (Nabfra) says entry is still difficult for black companies. It says based on present barriers to entry, it will take a long time before they reach critical mass. Black groups feel that before the industry moves into free-market thinking through deregulation, there needs to be an established black presence in the marketplace, says Nabfra. As a result, black empowerment groups have asked for a brake to be put on deregulation until they have at least 20% to 25% market share. Investec Securities analyst Keld Rasmussen agrees that in the deregulated environment it will be hard for black oil companies to get more involved than they are now. SA's black oil companies are Afric Oil, Exel, Tepco and Zenex. "Its a scale-sensitive business and any black investment company with the kind of money needed to invest in the oil industry ordinarily ends up putting it into other industries, such as financial services, IT and telecommunications," he says. Rasmussen says black-owned oil companies collectively hold under 4% of the SA market, and they would each need at least 15% to survive. SA's top oil companies are proof, with Engen claiming an average market share of 25%, Shell 19%, Caltex 17.5% and BP 16.5%. "The only chance for black economic empowerment in the industry is through foreign partnerships," says Rasmussen. "Essentially all our oil companies are foreign-owned." Worldwide Africa Investments, which owns two of SA's four black oil companies, is currently negotiating with Malaysian state-owned oil company Petronas to acquire a minimum 30% share of Engen and to consolidate its interests within Engen. Petronas increased its stake in Engen to 90% last month, leading to the buyout of the remaining minorities and the delisting of Engen. Worldwide has a 50% stake in Zenex and a majority stake in Afric Oil, giving it control of about 200 of the country's service stations. Concluding the deal with Petronas will give Worldwide access to the refining and exploration sectors of the oil industry while also opening a gateway to the rest of Africa. This breaks new ground for black oil companies in SA, which up to now have been confined to the retail sector of the industry, while established major companies - mostly multinationals - have dominated refining, wholesaling, retailing and exploration. Worldwide is expected to bring other empowerment companies into the deal. Analysts say it is wise for foreign multinationals to do a deal with an empowerment partner. With the deregulation of the South African industry in prospect in 2002, a black local partner would give any foreign multinational a head start on other international companies. It may also give the company the muscle needed to get a preferential stake in Mossgas and Soekor if and when these groups are privatised. However, given the snail's pace at which the industry has begun to face change, these state assets could be put to use as vehicles for empowerment. In addition, other measures could be taken, such as the negotiated, commercial transfer of assets from established companies, where there is greater potential for far-reaching deals, says Fred Phaswana, chairman of the SA Petroleum Industry Association (Sapia). Government has indicated in the draft white paper on energy policy, which it hopes to transform into law early next year, that "special measures should be taken by the state to ensure that during the transitional period to a deregulated oil industry, newly established previously disadvantaged participants become fully competitive in a deregulated environment". The government's plan to fast-track empowerment includes establishing a state oil company - likely to be formed out of a restructuring of the government's existing oil assets such as Mossgas, Soekor and the Central Energy Fund. But this has been slammed by Sapia, which feels that the subsidisation required to support such a company could be better used and that the future of the oil industry depends on less government intervention. Analysts too have called the plan a "dumb idea". "The industry does not need state involvement," says Rasmussen, who feels that the industry's deregulation will start only once all state subsidisation comes to an end. Analysts were also sceptical about government's interest in constructing a fifth oil refinery, ostensibly with a view to making SA the refining centre of sub-Saharan Africa - in spite of Mozambiqan and Namibian plans to establish their own refiners to feed the SA market. A new refinery would cost SA about R10-billion to build. Most of the country's major refineries believe that a new refinery would remain unfeasible without government subsidies up to 2010, when existing refineries are expected to reach total capacity of 800 000 barrels a day. ING Barings oil industry analyst Gerhard Engelbrecht says there is no economic reason for a greenfield refinery if deregulation is forthcoming. "From demand, SA will need more fuel than we can produce within five years," says Engelbrecht. "The opening of the industry will see fuel imported for cheaper than it costs local refineries to produce." Sapia says it would oppose any plans to impose a levy on imported crude oil and adds that black empowerment companies should be given first option to import fuels. Dominiq Sewela, MD of Exel and a representative of black empowerment groups in the oil sector, agrees. He says black-owned oil companies should be given access to oil refining - and the government-controlled refining margin - without having to go the long route of actually owning refining assets. They should simply import crude oil and reach a processing agreement with an existing refiner, he says. "Until this happens, we will be marginalised forever. We will never gain a foothold," says Sewela. The industry has accepted that transition cannot take place overnight and that it will have to be phased in to avoid a massive loss of jobs and disruption in the sector. This is the fourth year of a "semi-hiatus" as the government considers how to change its liquid fuels policy after years of secrecy and sanctions. "We hope in the interests of all parties that this is the last inhibiting year," says Phaswana. Deregulation of the industry is inevitable, but the players want a clearer idea of the rules of the game during the transition. Of serious concern to the industry is that its returns have shrunk from 10.3% between 1990 and 1993 to 7.3% since then. Major petroleum product sales in SA also declined by 2.7% in the third quarter of 1998, compared with growth of 5.7% for the equivalent period of 1997 over 1996. "Our ultimate goal is the same no matter where in the world we find ourselves. We want an industry that is economically successful and a creator of wealth for the nation. There is of course no alternative," says Phaswana. Top of page
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