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August 28, 2018

Volume 3 Issue 3

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Glencore, Sinopec Vie for Chevron Assets

The South African Competition Commission last week qualified a bid by a group backed by Swiss mining company Glencore to acquire 75 percent of Chevron’s downstream operations in South Africa and all of its operations in Botswana. Chevron is now free to choose between that offer and another that was previously qualified from Sinopec.

News wires have reported the Glencore-backed bid to be in the range of $900 million to $973 million. Sinopec’s $900 million bid was approved by the commission in January.

Chevron’s South African assets include a lubricant blending plant in Durban and a fuel refinery in Cape Town, along with fuels marketing, distribution and wholesaling.

Sinopec originally reached a deal in March of 2017 to buy those operations. In October, however, Swiss mining company Glencore said it would finance a purchase of the same assets by a South African investment firm – Off the Shelf Investments 56 (RF) Pty.

Off the Shelf Investments 56 is owned by African Legend Energy Holdings, a Johannesburg-based investment firm, and had rights to to also be considered under South African laws that aim to empower black-owned enterprises. Off the Shelf already owns the other 25 percent stake in Chevron South Africa.

According to the commission, the Sinopec offer includes a promise to invest of 6 billion rand (U.S. $423.9 million) over a five-year period to develop a refinery in Western Cape.

The commission noted in its Aug. 23 news release that the purchase proposed by Off the Shelf-Glencore raises “public interest concerns in the form of impact on employment, impact on industrial sector or region and the impact on the ability of small businesses to become competitive.” To alleviate those concerns, the commission noted the transaction is subject to the following conditions:

  • preservation of jobs post-merger;
  • continuation with Chevron South Africa’s retirees’ medical aid subsidy;
  • establishment of a development fund focused on the development of small businesses and black-owned businesses;
  • continuation of Chevron South Africa’s branded marketer program on terms no less favorable to the company’s branded marketers;
  • funding commitment by Off the Shelf of certain rebranding-related costs post-merger;
  • maintenance of a certain level of Broad-Based Black Economic Empowerment shareholding in Chevron post-merger;
  • and commitment to making a significant investment to deal with refinery capacity and related matters.

Sipho Ngwema, head of communications at the Competition Commission of South Africa, told Lube Report in a phone interview that the commission conditionally approved both proposed deals because they met the requisite considerations for the acquisition of Chevron’s assets.

“The duty of the commission is not to choose a partner for CSA but to consider the merits of each proposed transaction,” said Ngwema. He added that the onus is on Chevron to choose its preferred bidder and that “the company, guided by its own issues, will then conclude with whomever it wishes to bring on board. From our side, both transactions do pass the necessary competition considerations subject to the issues we have raised.”

Stakeholders in the South African lubricant segment agree the proposed sale would not have negative impacts on the local lubricant market.

Lubabalo Bethela, business development executive for Orbichem South Africa, noted that Chevron has limited base oil production capacity in South Africa. “Currently, Chevron is a net importer of base stocks, and those are Group II base oils, currently being distributed by Umongo Petroleum,” Bethela told Lube Report. “That goes into Chevron’s internal blending operation and also is distributed by Umongo to independent manufacturers of lubes.”

Patrick Swan, principal consultant at Aswan Consulting and formerly president of the South African Institute of Tribology, also said the sale could be positive for the local lubricant market.

“The big thing as I understand is that they will continue to get technology from Chevron,” Swan said in a phone interview. “So they are not just out by themselves, which is a major thing. It can be a boost particularly if Sinopec puts more money into South Africa. Why would a company like Sinopec want to invest in Chevron South Africa? It is because they want a footprint in Africa, and South Africa is a good place to start. So I think they will put in a lot of money, which can be good for the industry in general. On the other hand, if they go with the mining house Glencore, it does not have any lubricant experience so this will be their first entry into the lubricant industry. That means they will want to consolidate, which will also be a positive development for the industry.”