China adds fuel to refinery ire
A Sinopec bid for Chevron SA has been approved, which could bring high-quality petrol and diesel
China, which is criticised for its high levels of air pollution at home, could help to resolve South Africa’s oil-refinery pollution woes. A $900-million bid by Sinopec, China’s largest oil refinery owner, for South Africa’s second-largest oil refinery, Chevron SA, has received the nod from the Competition Tribunal. This could mean that the country’s 820 Caltex’s red, green and white fuel stations could soon be clad in Sinopec’s red and white.
But the tribunal’s approval of Sinopec’s bid does not mean it is finalised. Chevron SA’s black economic empowerment shareholder, Off The Shelf Investments Fifty Six (OTS), which owns a 25% stake, has exercised its pre-emptive right to buy the other 75% of Chevron SA. OTS agreed to match Sinopec’s offer with financial backing from mining and commodities giant Glencore.
Sinopec wants to acquire 75% of Chevron SA’s assets in South Africa and Botswana, including a 100000 barrel-a-day oil refinery in Cape Town, a lubricants plant in Durban and the fuel station network.
The tribunal’s regulatory approval is subject to a range of employment, investment and public interest conditions, one of which is an undertaking to upgrade and improve the oil refinery over the next five years.
Sinopec has made a commitment to spend R6-billion on upgrading the refinery to increase the output of locally refined oil products and to meet improved health and safety standards.
The government and the oil industry have been deadlocked over implementing policy governing the production of cleaner fuels, as both parties cannot agree on what type of cost-recovery mechanism can be implemented to pay for the $4.9-billion upgrades of old refineries.
The stand-off means that newer car models with cleaner technologies do not perform ideally on South African fuels. An exception is Sasol, which produces low-sulphur diesel (10 parts per million), which accords with the highest European Union standards.
The National Association of Automobile Manufacturers of South Africa (Naamsa) has complained that South Africa is 15 years behind the world in terms of clean fuel. In a statement released in October, it said the delay would stop the flow of new vehicle technology into the country.
“With the introduction of new technology, including new four-way catalytic converter-equipped vehicles in Europe during 2018, we now find, for the first time since the 1996 introduction of unleaded petrol in South Africa, that many regular petrol engine cars available in Europe will not be able to be marketed in South Africa,” said Stuart Rayner, the chairperson of the fuel and emissions working group of Naamsa.
Local manufacturing plants will have to “adapt vehicles for the lower fuel quality available in South Africa”, he said.
Regulations to introduce the Clean Fuels 2 programme were gazetted in June 2012 and were meant to come into effect in July 2017. They would have led to reduced sulphur levels in diesel and petrol but they have been postponed indefinitely.
In the past, the South African Petroleum Industry Association has warned that the continued uncertainty regarding the introduction of the clean fuels policy could wipe out South Africa’s oil refineries in five to 10 years. Without the necessary investment in clean fuel, local refineries face a threat from imports that meet the specifications.
Other conditions of the Sinopec deal are that the existing contracts of Chevron SA’s 10 branded marketers will not be changed in any way that will be to their detriment. The marketers are responsible for the wholesale distribution of Chevron SA’s products to petrol stations in rural and remote areas.
The public interest conditions agreed to with Economic Development Minister Ebrahim Patel include Sinopec opening its head office in South Africa and increasing the broad-based black economic empowerment shareholding of Chevron SA from 25% to 29%, and to retain it at no less than that.
Sinopec has also agreed to bear the full cost of rebranding some service stations. It has agreed not to retrench any staff and to honour all contractual obligations to Chevron SA’s retired employees.