2005-10-31,+Plan+to+create+oil+giant+fuels+controversy,+Bain,+Stimes

Plan to create oil giant fuels controversy

 * The Competition Tribunal will soon decide if Sasol and Petronas can go ahead with merger plans, writes Julie Bain**

Sunday Times, Business, Johannesburg, 30 October 2005

THE Competition Tribunal hearing into the creation of Uhambo — a fuel company that would control 48% of South Africa’s refining capacity and be the country’s largest liquid fuel distributor, with 34% of the market — is scheduled to come to an end on Tuesday.

This will be followed by closing arguments and the Tribunal must give its decision 10 days after that.

Sasol and Petronas, which you will know for its Engen stations, want to merge Sasol’s local oil refining and distribution businesses with Engen to create Uhambo.

Each would own 37.5% of the new company. The rest would be held by empowerment group Tshwarisano LFB Investment, andWorldwide African Investment Holdings, if the deal is approved.

The merger has been opposed by BP and its empowerment partner Masana, Chevron Corporation (Caltex), Shell and Total. They all run petrol stations and some have refineries on the coast.

Their reason for opposing Uhambo is that only one of the three pipelines from Durban to Gauteng, the country’s most lucrative liquid fuel market, is being used to transport fuel.

But the fuel that can be transported to Gauteng through the pipeline is not enough to meet the demands of Uhambo and its competitors.

To make matters worse for Uhambo’s rivals, some of them buy part of their liquid fuels from Sasol’s fuel plant in Secunda, and from Sasol’s Natref refinery in Sasolburg.

Those opposed to Uhambo’s formation are worried that as the pipeline does not transport enough fuel, Uhambo may give priority to Sasol and Engen petrol stations, and then sell to them whatever is left over.

This would leave BP and the others without a reliable source of fuel to meet the demand of their petrol stations.

They are also concerned that Uhambo will push up the selling prices of the fuel, to the other companies.

Earlier this year the Competition Commission advised the tribunal to approve the Uhambo joint venture — provided that the new company, on “commercially, financially and technically reasonable terms”, supplies their rivals with the liquid fuels they require.

Uhambo would not be allowed to discriminate against any oil company.

There are also plans to build another pipeline from the coast to Gauteng. This is where the imported crude oil lands and some of it is refined.

The commission stated that if Uhambo gets the go-ahead, it will have to continue supplying its competitors until the new pipeline is built.

The bottom line is that those opposed to the Uhambo venture fear that the new company will have such a grip on the Gauteng market, that they may have to pull out of the province.

This would limit competition and possibly leave Uhambo to price fuel as it sees fit.

However, because the state determines all the fuel prices on a monthly basis, the petrol price could only be pushed up to its cap.

Consumers of diesel and other liquid fuels like paraffin could face increases, as these prices are not regulated and would be determined by Uhambo.

Moreover, some reports have suggested that if government regulation were to end, the price of fuel might drop.

However, the state said earlier this month that deregulation would not happen for some time.

“In my opinion the SA business environment is already highly concentrated with large companies,” said Azar Jammine, the chief economist at Econometrix in Johannesburg.

“This makes life difficult for small companies and this tends to hinder economic growth.”

If the situation emerged where Uhambo would not sell the fuel or offered to sell it at price the other companies were not willing to pay, the Uhambo rivals could import more crude oil and refine it themselves. But the crunch remains getting it to Gauteng.

It has been suggested that if the merger goes ahead, the tribunal could place further conditions on Uhambo, designed to reduce the new company’s dominance of the local fuel market.

Sasol could be told to sell its stake in the Natref refinery or it is possible that its Secunda refinery could be excluded from the new company. The refinery would then have to sell its fuel to all the players in the retail market — including Uhambo — on a “willing seller, willing buyer” basis.

A third possibility is Sasol could be told to give up another pipeline it uses to transport gas to Durban.

Instead this could be used by other oil companies to bring liquid fuel inland.

The advocate for the Sasol and Petronas (Engen) during the opening of the tribunal said it believed that the opposing parties’ objections were based on fears of an efficient competitor.

“In substance it is an objection to the creation of a balanced and efficient competitor being put together from two unbalanced entities.

It is in effect an objection to protect competitors and not to protect competition.”

From: http://www.sundaytimes.co.za/articles/article-business.aspx?ID=ST6A149214