Vitol, Engen merger will affect petroleum refineries
JOHANNESBURG - The merged entity between Vitol Emerald Bidco and South Africa’s biggest filling station operator, Engen, will affect production and supply of refined petroleum products from local refineries, the Competition Commission said at a hearing of the Competition Tribunal yesterday.
The Competition Tribunal is holding hearings into Vitol’s acquisition of Engen this week after granting intervention rights to Sasol South Africa, Astron Energy South Africa and the National Union of Metalworkers of South Africa (NUMSA).
Yesterday, the Competition Commission said in its presentation to the hearing that, it had ‘found evidence that the merger was likely to result in the foreclosure of local production due to the loss of a significant customer’ who is Engen.
Conditions
The commission wants the merger between the two energy groups to be passed ‘subject to competition and public interest’ conditions. These include sorting out the impact of the merger on the potential loss of local production of petroleum products from South African refinery facilities.
“Engen is a significant customer of local refineries; considering the volumes, the commission is of the view that Engen is a significant customer of local refineries. The commission found that from the sheer size of Engen local refineries may not be able to absorb the volumes,” said the commission.
It also said that there has been a decline in neighbouring countries’ reliance on South Africa for the supply of refined petroleum products. South African refineries were highly dependent on Engen as a customer, it added.
The Competition Commission also believes that there are possible future constraints to the importation of petroleum products as Engen in its present status is already utilising its share of berthing rights in Durban, although it has the possibility of approaching other users currently not fully utilising their shares.
The current congestion at South African ports was also cited as a constraint to the importation and supply of petroleum products.
In South Africa, the Dutch-Swiss-owned Vitol is engaged in the importation of crude oil and wholesale supply of refined petroleum products to the major oil marketing companies and independent wholesalers/ resellers.
Engen also imports, supplies and distributes refined petroleum products to the retail market in South Africa.
Import
The Competition Commission has not found any evidence that the merger will affect the market share structure of the petroleum import and supply industry nor was there any indication of broader overlap in storage facilities for petroleum products.
“The commission is of the view that there is no overlap in terms of storage facilities. The acquiring firm does not own any storage facilities. However, Vitol does lease storage facilities, which are not of its own.”
However, Vitol only owns one storage facility in Cape Town where Engen also has a facility that it uses for in-house purposes. The commission admitted that there was a slight overlap in storage facilities in relation to Cape Town.
The commission had received concerns from other market players about the merger’s potential to foreclose customers for competitors. The concerns were premised on Engen’s stature and the ultimate bigger size post the merger which could impact on importation of petroleum products by other importers and resellers.
“If the merged entity will be able to foreclose using imports, then the merger has competition effects which need to be taken into account.
Products
The commission did not find evidence that the merged entity will be better placed than rivals to import refined products to contest. There is no evidence that there is any advantage enjoyed by the entity than the rest,” said the commission.
Moreover, Vitol was not a bigger player in the global market for refined products.
The commission is of the view that ‘it is unlikely that a foreign firm will have the ability to close out competitors of Engen as there are other global players’ whom local wholesalers can turn to.
Vitol agreed to purchase a 74 per cent stake in Engen South Africa after valuing the company at about $2 billion (R37billion).