KEITH BRYER: Greens may make selling BPSA and its refinery difficult

Losing a private prosecution for building service stations without going through the hoops of our environmental legislation has made the prospect of BP’s plans to wind up its SA operation less than rosy.

It may shock South Africans to know that a big international oil company that has been operating in SA for almost a century is determined to get out as soon as possible, but the signs of BP’s drive to sell its SA assets have been there to see for some time — and common knowledge in the oil industry.

First BP SA tried to dispose of its company pension fund, initially by migrating as many staff as possible into a noncompany provident fund. This would enable it to take for itself a share of what was expected to be a substantially increased “surplus” remaining in the pension fund after its final liquidation.

This ploy was successful — except for those wise enough not to have taken up the offer (which happened to coincide with a “downsizing” operation that saw staff numbers culled). The resultant insecurity persuaded many to take the money and control it themselves. When word got around of the substantial pension fund surplus distributed to those who were not tempted, many regretted the decision to leave. But that made the corporate balance sheet tidier. So, part of the job done.

Next came the more difficult task of getting rid of the medical aid scheme. It had been a compulsory monthly deduction for all staff on appointment for most of BP SA’s existence. The BP SA medical aid scheme was and still is unique in that it promised the company would continue to subsidise medical aid contributions even after retirement for any staff member who retired in good standing.

It was a promise sealed and restated again in 2002 in a solemn contract. This contract meant a contingent company liability of considerable size. Its existence was to prove a factor that scared off prospective buyers, especially when the affected pensioners and staff took the company to court to stop a merger of the medical aid and its considerable resources with Momentum Health, which would have limited the promise to only two years of retirement. The industry grapevine says Momentum was made aware of the 2002 contract, and this was one reason it withdrew from merger talks.

The intention now seems to be to close the BP Medical Aid Society as an alternative to the failed amalgamation with Momentum Health. Existing employee members of the society are encouraged by the company to opt out — thus killing the society by a thousand cuts.

Ethical considerations aside, there is another hurdle BP has to jump over; the matter of disposing of the refinery in Durban that it co-owns with Shell SA. This notwithstanding that BP SA received the nod from the SA competition authorities to sell its largest distribution depot in the Western Cape, at Millerton in Cape Town, to the Strategic Fuel Fund, a subsidiary of the Government's Central Energy Fund headed by a former senior employee of BP SA.

Sapref, built in 1965, is the largest conventional oil refinery in the country, providing about 35% of SA’s liquid fuel requirements. Unfortunately, it needs huge new investment to enable it to produce to the higher fuel standards now demanded by the EU — a sum both BP and Shell have publicly stated they are unwilling to pay, probably because the SA vehicle market is minuscule compared to the investment required.

Should another green operation attempt a private prosecution to demand a cleanup of the Sapref site — or even if it is merely hinted at — you might be inclined to bet that it will put off any sensible buyer. But no, within days of Sapref’s owners deciding to in effect put the refinery into mothballs, our government officially declared its interest in buying it. No doubt based on its deep knowledge of refinery economics and having a firm belief in the magic money tree’s abundance.

The government may also feel that it should — in the interest of national security — pay whatever it takes, safe in the knowledge that as the government it could safely ignore environmental cleanup laws. After all, there was no environmental problem in buying BP SA’s largest fuel depot in Millerton.

Indeed, the government can give a free environmental pass to any Sapref purchasers. No doubt BP SA and Shell management will be praying this will happen again. BP in particular, seeing as it is facing an expensive legal battle to get the recent decision of our courts overturned. The company was found guilty of building service stations without the necessary legal environment safeguards, a decision it will no doubt appeal. And pray for success they must if BP is ever to get rid of its SA assets.

They know it will be difficult and expensive. Not long ago BP sold off its Swaziland assets to Sasol, which extracted a heavy price for taking on actual and potential environmental liabilities before it would sign on the dotted line.

So maybe, just maybe, the real reason for closing Sapref is to exert some not-so-subtle pressure on the government to come to the rescue. Hoping against hope that the prospective buyer — the Central Energy Fund, awash with taxpayers’ money — will get a free ride when it comes to cleaning up the Sapref site.

There is one thing still in the way of such a happy result (for BP and Shell management anyway). Owning Sapref may not turn out to be a pot of gold. Already the higher liquid fuel specifications demanded by the EU mean all new cars using internal combustion engines have to be imported. The government may find it has bought a giant fuel depot for such imports — not a functioning refinery after all.

As for making a profit out of Sapref, the chances are not very good when looking at the track record of SA’s state-owned enterprises. And hovering over it all is the inconvenient presence of a green lobby that is capable of using the courts to muddy the waters of any sale, such is their hatred for all things petroleum.

Will BP managers let such things stand in their way? Not to judge from what the company has proved it is willing to do to its company medical aid scheme and the pensioners who depend on it, or how they closed down their company pension scheme.

Ethics, the law, and indeed the sanctity of the law of contract, are regarded as mere bumps on the road to BP managerial success and the lure of hefty bonuses for succeeding.

• Bryer, a retired BP SA executive, is a freelance journalist and communications consultant and contributing author for the Free Market Foundation. He writes in his personal capacity.