2005-11-03,+Fierce+rivalries,+Crotty,+Business+Report

= Fierce rivalries keep powerful oil players in check =

November 2, 2005

By Ann Crotty

What a relief. At last it was all over: 18 days of exposure to the oil industry. More detail had become available to the public in those 18 days than in the previous 50 years.

This was indeed an industry characterised by what the department of minerals and energy's Nhlanhla Gumede described as secrecy and private agreements between government and key industry players. And now, after 50 years of being starved, we were being force-fed a rich diet of all sorts of information.

It was difficult to decide which part of the evidence was the most fascinating. All the details about how the industry had developed into the complex regulatory nightmare that now exists were certainly fascinating.

So was the inside view of Sasol's take on the deal that was provided to us by BP. And then there was the stuff about the all-important logistical relationship between Sasol and Petronet.

In the category "fascinating but slightly disturbing", the winner has to be the information about how so many people were keen to assist the department in preparing its position on the merger.

Also fascinating but disturbing was the news that consumers are being forced to subsidise the black empowerment process in the oil industry.

This is based on Gumede's comments that deregulation of the industry would only take place after the oil companies had implemented their empowerment deals.

Gumede explained that the empowerment partners would need the benefit of the generous margins available in a regulated environment to pay for their share of the deals.

He indicated to the tribunal that full implementation and therefore deregulation was likely to be way beyond 2010. According to Sasol's evidence, deregulation could result in a 27c a litre reduction in the price of petrol products.

The absence of this 27c saving, which comprises a reduction in the basic fuel price and in wholesale and retail margins, suggests that consumers are paying about R594 million a year towards the cost of empowerment in this industry.

This is a cost that is generally carried by the shareholders of companies. It is the first known instance of customers, most of whom are comparatively poor, carrying the cost of empowerment on behalf of rich shareholders. The Byzantine-type structure and regulation of the oil industry can only be explained by reference to the desperate and justifiable paranoia that accompanied apartheid.

And it has to be pointed out that given it achieved its objective of securing the country's oil supplies, it was highly successful. The cost was, of course, high fuel prices.

The undoubted beneficiaries of all of this were all the oil companies, not just Sasol. They were guaranteed returns on their investments, which compensated them generously for dealing in South Africa.

Here we are 11 years later and the system prevails. And judging by Gumede's remark it is likely to be with us for at least another five years.

That is a huge burden for government to impose on consumers. At the very least it gives each one of us the right to demand that empowerment advances the interests of all South Africans and not just those of a handful of shareholders.

But to get back to the 18-day hearing - and the 1.4 million pages of evidence. I should confess that I attended only 14 days and have read only about 1 000 pages of evidence.

Over the coming months I will attempt to read another 1 000 or so pages of the more critical stuff. As for my attendance - work pressure and the fact that I have an aversion to blood sports, even the intellectual kind, restricted this.

By day four it did seem that Sasol-Engen was getting badly bruised by Shell, BP, Caltex and Total, whose razor-sharp legal teams were painting a truly grim picture of life under the Uhambo regime. By day 12 I wanted to jump up and beg them to desist. It was four against one and the Sasol-Engen team seemed to have nowhere to hide.

Even the suggestion that Uhambo would push prices down in order to gain market share was quickly dismissed as little more than predatory pricing that would result in higher prices in the longer term.

But on and on it went and by the end of day 18 it was truly comforting to realise there was a nine-day break before we'd all have to get together again to hear the closing arguments.

While I felt sorry for Sasol, it did seem apparent that if consumers are to hope for any relief we need to have a deregulated industry in which each powerful player is kept in its place by the threat of the other five ganging up on it.

Ironically, this means that if the deal goes through, the 18-day hearing will prove to have been the last time Sasol-Engen will be subjected to any disciplining action by the others.

Coverage of the hearing has generated a new form of "hate mail". I have to say, if I wasn't the object of the vitriol, I would be extremely effusive about the obvious talents of the anonymous sonnet-writing engineer.

Three quatrains and a couplet in iambic pentameter - how Shakespearean. As it is, I can only manage to be effusive. It deserves to be published. If only we had a name.

From: http://www.busrep.co.za/index.php?fSectionId=553&fArticleId=2976307