2005-11-18,+Tribunal+smells+a+Rat+Plan,+Ann+Crotty,+plus+two+from+BRep

47 SAUER STREET

= After Sasol price testimony, tribunal smells a Rat Plan =

By Ann Crotty**
 * Business Report, October 17, 2005

"That WAS confidential." You could sense everyone shaking themselves out of their Friday afternoon torpor. Apparently the fact that it cost Sasol R4.66 a litre to transport petrol between depots and service stations, compared with Engen's cost of R3.28, was confidential.

Was this the crucial piece of evidence we needed? Now that we all knew this, would we be able to make sense of the industry?

It was day eight of the competition tribunal hearing into the proposed merger between Sasol's liquid fuels business and Engen, and you could feel that almost everyone in the room was taking strain.

The initial exciting pace that had been established as each of the parties presented its case, and that had been sustained by the disclosure that Sasol had scripted the government's dramatically revised position on the merger, had been slowed somewhat by a few days of economic analysis of the industry.

And it almost ground to a halt when the statisticians took over, determined to interrogate claims about every litre of petrol that moved between Durban and Johannesburg.

With each day came the certainty that a hearing that was initially booked to take three weeks was likely to run closer to six weeks.

To their considerable credit, the three members of the tribunal remained aloof from the jaded body language of the highly paid hangers-on scattered around the room; they sat up straight and looked as though they were fascinated with every detail of the proceedings.

Equally as impressive was that even on day eight, tribunal chairman David Lewis seemed determined to find some evidence of a "market" at work in this industry.

But by Friday afternoon Lewis did reveal signs of exasperation, as he likened the workings of the retail end of the industry to Gosplan circa 1926.

This was an allusion to the highly inefficient central planning agency of the Soviet Union, which was responsible for drawing up and auditing successive five-year plans for various sectors of that economy.

Nobody attempted to dispute this description, although one subsequent suggestion was that the more accurate name was the Rat Plan, which was short for Service Station Rationalisation Plan.

The Rat Plan, as it is referred to in the industry, is part of the department of mineral and energy's plan to deregulate the petrol price that was outlined in the department's 1999 white paper.

After eight days of hearings I am, of course, in terms of normal journalistic standards, an authority on the industry.

And to maintain this position of authority, it is important that I do not attempt to make sense of the industry, because outside of a Gosplan frame of mind, it appears not to make any sense.

If you suspect this statement may just be more journalistic hyperbole, get hold of a copy of a document entitled Fuel Prices in South Africa - How it (sic) is Calculated.

The seven-page document describes the 16 different bits and bobs, including taxes, that go into pricing a litre of petrol at your service station. The largest of the 16 bits is the import parity pricing bit, which the document describes as "an arm's-length market-related approach used by most countries worldwide and is a system that benefits the consumer". What remains a little unclear, however, is how this benefit arises unless the consumer owns shares in Sasol.

Meanwhile, perhaps Lewis has inadvertently touched on the solution: allow the merger, then nationalise the whole thing à la Gosplan.

From: http://www.busrep.co.za/index.php?fArticleId=2949199&fSectionId=556&fSetId=662

= A third of petrol stations should shut, tribunal told =

By Ann Crotty**
 * Business Report, October 17, 2005

Johannesburg - One-third of the petrol stations in South Africa should be closed, according to one study that was referred to in the competition tribunal's hearing into the proposed merger between Sasol's liquid fuels business and Engen, which has an extensive retail network.

On Friday, economist Stephan Malherbe of Genesis Analytics, who was giving evidence on behalf of Sasol, told the tribunal that the process by which petrol was priced in this country had resulted in overinvestment in petrol stations and had possibly added to the price of petrol.

In terms of the highly contrived process by which petrol was priced in this country, oil companies were guaranteed a 15 percent return on their marketing assets, which included the investment in service stations. This 15 percent return was referred to as the M-Par mechanism.

Malherbe told the tribunal: "Through the M-Par mechanism the industry gets a guaranteed return from new service stations regardless of any benefit to consumers from the new stations." The obligation to guarantee the return on an increasing asset base would result in increases in the petrol price.

Malherbe had earlier claimed that the merger between Sasol and Engen would curtail investment in hundreds of additional service stations, as the merger provided Sasol with a retail network for the sale of the petrol it produced.

In the absence of the merger, Sasol would invest in the development of its own extensive service station network. On this point Malherbe said: "Not building more service stations would be a good thing."

This comment prompted tribunal chairman David Lewis to question why the additional service stations would not result in increased competition for the consumer's business, which might result in some stations reducing the price of petrol.

Malherbe said that in terms of current legislation, the pump price of petrol was set by the government and could not be altered by individual service stations. There are plans to deregulate the industry and the pricing mechanism within the next few years.

Malherbe told the tribunal the merger would bring about general cost savings of approximately R600 million a year, of which about R245 million would be "annual competition-related efficiencies".

Malherbe also referred to the benefits of the better balance of supply of refined product (Sasol) and end distribution (Engen). He added: "Balance is desirable as it reduces dependence on either other purchasers of fuels (a business risk carried by Sasol) or on other refiners of fuels (a business risk carried by Engen)."

From: http://www.busrep.co.za/index.php?fArticleId=2949169

= Competition commission was fooled, says Masana =


 * Business Report, October 13, 2005

By Ingrid Salgado**

Cape Town - Masana Petroleum Solutions, a black-owned fuel company, has alleged that Sasol fooled the competition commission as well as Petronet on issues relating to the proposed merger of its liquid fuels business with Engen's.

Sizwe Mncwango, Masana's managing director, said: "One thing you can't take away from Sasol is they are exceptionally brilliant at telling their story. If people are not aware, Sasol can prey on their ignorance."

In an interview yesterday, Mncwango charged Sasol with:

· Allowing the commission to believe that Total South Africa had increased its stake in the Natref refinery to 50 percent from 36.4 percent after buying a portion of Sasol's share. In fact, Total rejected the deal over price concerns; and

· Recently negotiating a 17-year deal with Petronet to release additional capacity for the petrochemicals group, even though other oil companies needed this capacity to deliver refined product to the inland market.

He was puzzled at the lack of action by Petronet against Sasol for on occasion reversing the flow of the pipeline and sending refined product from Sasolburg back to Bethlehem.

Petronet owns the pipeline that transports liquid fuels from refineries in Durban to Gauteng via Sasolburg.

Masana is due to testify at the competition tribunal, whose hearing on the merger, to be known as Uhambo Oil, is in its second week.

The competition commission has recommended that the deal be approved with the proviso that Uhambo continues supplying other oil companies in the inland market on the same terms and conditions as Sasol does, at least until new pipeline capacity comes on stream.

The commission's estimated shortfall of refined product in inland areas, of 1.2 billion litres, was in fact substantially higher, Mncwango said. The inland market was worth more than 10 billion litres a year, but the pipeline could supply a maximum of 3.6 billion litres a year. "On the rest, Sasol will dictate."

The merger could mean that the only way for a black economic empowerment company such as Masana to survive would be to associate with Sasol - "and that's not on", he said.

Masana is owned by consortiums led by the Mineworkers' Investment Company and Women's Development Businesses (35 percent), BP South Africa (45 percent) and management and staff (20 percent).

From: http://www.busrep.co.za/index.php?fSectionId=&fArticleId=2943996