Importing clean fuel could hurt economy
Chevron says move will make local refineries unviable
SHOULD the importation of clean fuels be allowed, South Africa runs the risk of making local refineries economically unviable, which could have a devastating effect on the economy and jeopardise jobs, says Chevron South Africa.
Chevron, trading under the Caltex brand in South Africa, said that during the debate on the State of the Nation address, no particular attention had been given to the petroleum sector. The sector faces important policy decisions in order to avoid long-term catastrophes in the local manufacturing sector, particularly in refineries.
Chevron said the National Energy Regulator of South Africa awarded Burgan Cape Terminals a licence to develop a liquid fuels storage and distribution facility in the Port of Cape Town in December.
This had come at a time when policy on clean fuels had been deferred, therefore limiting local refineries’ ability to produce a product that could be imported before local investment and jobs.
The firm said the main challenge with a facility such as Burgan was that it would ultimately make local refineries economically unviable. If Burgan imported an unlimited quantity of clean fuels, this would be at the expense of local production.
However, the chief executive of Burgan Cape Terminals, Muziwandile Mseleku, said this was a “red herring” in an attempt to prevent competitors from entering the Western Cape and to maintain Chevron’s almost complete control of the supply of fuel in the region. “The Chevron refinery is an integrated part of Chevron Downstream, which includes Chevron’s distribution business (retail stations). We believe Chevron Downstream is a highly profitable business as a result of the refinery and its supply dominance.”
Mseleku said Chevron’s concerns with reference to the importation of all fuel types were unfounded as companies that rented storage space from Burgan would mainly offtake their products from the Chevron Oil Refinery, which is the main supplier of fuel to the Western Cape.
But Chevron’s chairwoman, Nobuzwe Mbuyisa, who is also chairwoman of the South African Petroleum Industry Association (Sapia), said: “The devastating effect of developments with large import capabilities is a threat to current jobs in the refining industry nationally – ultimately a threat which the South African economy simply cannot afford.”
She said that according to Sapia’s 2013 annual report, it was estimated that more than 100 000 people were supported directly and indirectly by the South African petroleum industry.
“The concern here is not that the landlord (Burgan) will import clean fuels, but that its tenants (and traders) will end up flooding the market at the expense of local refineries’ production output. Imports should only be allowed when local production cannot meet market demand.”
She said if clean fuels were to be imported on a large scale prior to investing in local manufacturing, there could be a significant adverse economic and socio-economic impact on the South African economy, including the security of supply for petrol, diesel, jet fuel, LPG (liquefied petroleum gas) and bitumen, among others.
Mbuyisa said Eskom’s history had shown that where immediate decisions and appropriate actions had not taken place in time, there could be devastating effects.
Loane Sharp, economist at the Free Market Foundation, said it was important to ask who should benefit from laws and regulations.
“Economists disagree about many things, but they all agree that consumers should be the beneficiaries of policy. In general, what is good for business is all good for consumers. Here we have a case of local companies arguing to exclude foreign companies, but without explaining that foreign entry into the South African economy will lead to greater competition and therefore lower prices and higher quality.”
Sharp said unfortunately, government policy was not concerned with consumers and their welfare. Keeping foreigners out would reduce competition, inflate prices and disadvantage the consumer.