Oil giant Shell set to exit SA
BEE shareholders seek billions for their stake in one of SA’s biggest empowerment deals
● Global oil giant Shell is preparing to sell its interests in South Africa and exit the country, prompting a row over the value of its BEE partner’s stake in it.
Shell has been a household name in South Africa since 1902 and has about 500 branded outlets throughout the country. The Londonheadquartered oil giant is now locked in a battle with its BEE partner Thebe Investment over what Thebe says is a R3.7bn share of the multinational’s South African interests.
The Sunday Times understands that the 22-year relationship between Shell and Thebe, regarded as one of the most successful and transformative broad-based BEE associations in the country, has hit rock bottom after Thebe’s proposal in August 2022 to exercise its pull option and sell its 28% stake in Shell Downstream South Africa (SDSA).
The Sunday Times also understands Shell intends to divest its 72% stake in SDSA and has informed minerals & energy minister Gwede Mantashe and trade & industry minister Ebrahim Patel of its intentions.
The news coincides with BHP’s planned takeover of Anglo American minus its local platinum and iron ore assets, prompting speculation that the move was a vote of no confidence in the country's future.
With elections around the corner, the BHP story had turned into a political issue, with critics saying it showed South Africa was increasingly becoming unattractive to foreign investment.
However, BHP insists it is not a vote of no confidence, but is in line with the company’s focus on copper.
Likewise, Shell is understood to insist its selloff is for business reasons alone.
Shell’s move has caused discontent and left some shareholders in Thebe disgruntled. They have accused the oil giant of acting in bad faith. Insiders close to the impasse said the British-Dutch company had stalled Thebe’s pull notice for 21 months, leading to Thebe losing out on strategic energy and business services projects it was pursuing.
Thebe instructed audit firm PwC in 2022 to conduct a valuation of its shares in SDSA, and it arrived at a figure of $200m (R3.7bn).
“Thebe wrote them a three-page letter detailing that it needed the funds to grow its business, and it didn’t have to do that — it could have just written one line giving them a pull-option notice. But, needless to say, Thebe has missed those opportunities. Shell [failed to respond] to their view on the value for eight months. Instead, they reconstructed and changed all the numbers to come down to a zero value.
“In their annual financial statements of June 30 2022, there was value, but five weeks later ... the value changed to zero. There was a back and forth. They have been stringing Thebe along because they knew that they wanted to leave the country ... This was planned — no-one wakes up and decides they are selling and are leaving,” said a fedup shareholder.
Shell and Thebe entered into a partnership in 2002, with Thebe investing about $70m (R1.2bn) in shares in SDSA, which allowed it to achieve a level-1 BBBEE rating, retain its licence to operate, and maintain and gain clients in the private and public sectors.
At the centre of the dispute is the allegation that Shell responded to Thebe’s pull-option notice only in March 2023, and with a different opinion on the valuation done by PwC.
“The Shell view on valuation is totally unjust, unacceptable, [and] does not make sense ... Shell deal team insists on using completely different forecasts than those they themselves provided to Thebe. In determining its equity value, PwC and Thebe used what were then SDSA board-approved (and updated) plans and forecasts,” said the shareholder.
According to insiders, Shell insisted on using in its valuation new plans and forecasts developed in February and March 2023, which are different from those it had provided to Thebe before it decided to exercise its pull option.
The Sunday Times understands that Shell pushed for the impasse over the valuation of the shares to be referred to an independent audit firm that is not conflicted by way of past and present contractual relationships.
“But the strange thing is that Shell insisted on using KPMG to conduct such [valuation], because all the other blue-chip audit firms were conflicted. Yet Shell did not disclose to Thebe that it has some relationship with KPMG, which KPMG disclosed to Thebe. [On this basis], it stated that it couldn’t conduct the valuation. KPMG has more than 300 projects in progress for the [Shell Group], which is a material conflict that Shell hid and omitted. That omission is disingenuous at best and, at worst, amounts to [acting in] bad faith,” said another aggrieved shareholder.
According to insiders close to the dispute, Shell has since 2015 received close to $340m (R6.2bn) per annum in management fees, while Thebe has, in that same period, received about $2m (R37m) in dividends, which has caused a rift in the partnership.
When contacted for right of reply, Shell said it would not comment on speculation.
“As a matter of policy and principle, [SDSA] distances itself from speculation or rumours, particularly in relation to confidential shareholder agreements and relationships. Out of respect for our partners and these agreements, we are not able to provide any further comment. As a responsible company, we take our communication and stakeholder engagement commitments very seriously, and will always proactively communicate through the appropriate channels and forums as and when required to do so,” said spokesperson Pam Ntaka.
Attempts to get comment from Thebe’s CEO, Sizwe Mngcwango, went unanswered at the time of going to print.The Sunday Times also reached out to Mantashe’s and Patel’s offices to seek clarity but they had not replied by late yesterday.
The Sunday Times understands that over the past few months there have been robust and forthright conversations between Mngcwango and Shell group CEO Wael Sawan, but without any resolution.
Insiders close to Shell said the company’s exit from South Africa had nothing to do with the country’s government or looming elections, but was because of commercial reasons. One insider said Shell’s revenue streams had diminished over the past few years in South Africa and other regions.
South African Gas and Oil Association (Sagoa) chairperson Craig Morkel said that, with Sapref — jointly owned by Shell and BP, and the largest crude oil refinery in the country — having stopped operations more than a year ago, Shell’s exit made sense.
“With Sapref dead, they no longer have BFP [basic fuel price] minus their crude. If Sapref is gone, all you have is retail. Sure, you can bring your product in, but that’s lower margin,” said Morkel.
Shell’s move follows Air BP last year announcing its exit from South African airports.
Earlier this year, the Sunday Times reported Shell was facing a court battle with its franchisees, who accused it of using coercion, duress, harassment, threats and unfair tactics against business owners operating fuel stations across South Africa.
The Shell Retailer Council, which represents a number of Shell outlets, has approached the Johannesburg high court to interdict SDSA from using “draconian” and unfair tactics against its members. Franchisees also want the court to order Shell to halt what they say is a breach of the Consumer Protection Act 68 of 2008.