EDITORIAL: Sinopec’s deal with Chevron is a big win for SA
Last week’s announcement that China Petrochemical Corporation (Sinopec) would buy 75% of US oil major Chevron’s South African business comes after a fairly dramatic year-long process during which a couple of the unsuccessful bidders made the news for the wrong reasons.
First, the leaders of SA’s Strategic Fuel Fund had to resign after they announced the fund’s intention to make a bid for the Chevron assets with what the Department of Energy described as "complete disregard for governance processes". Then another set of bidders ended up in a New York court when Swiss-based oil trader Gunvor sued private equity house Cerberus for failing to pay its share of the costs incurred in their failed joint $650m bid for the Chevron SA assets. Along the way, it emerged that Sasol had tried its hand, as did another big global oil trader, Vitol.
Chevron, which sells fuel under the Caltex brand name in SA, finally opted to take Sinopec’s $900m offer for its South African and Botswana assets. It is a highly significant deal for both parties and one SA should welcome.
It is the largest global acquisition for Sinopec, a state-owned oil and petrochemical company that is number four on the Fortune Global 500 list and is the world’s second-largest oil refiner. The South African deal puts Sinopec in the ranks of international oil companies such as Exxon Mobil or Royal Dutch Shell, says the Financial Times.
For SA, the deal will be the largest acquisition by a Chinese company since the Industrial and Commercial Bank of China bought into Standard Bank for $5.5bn in 2007, and it has the advantage of being a sale by one multinational to another – probably the first time control of a company in so strategic a sector has transferred between two multinationals.
This means no funds flow out of SA, as they would have if a domestic company had bought the stake. More important, though, is that the Sinopec deal can bring capital, technology and expertise to the South African fuel industry at a critical time. SA’s refineries have to upgrade to "Clean Fuels 2" and, although the move has been delayed because of a deadlock between industry and the government on how the sizeable costs will be recovered, it cannot be delayed forever.
In its announcement last week, Sinopec made it clear it is more than willing and able to do and pay for what is required, highlighting its "vast experience designing and implementing effective solutions to upgrade legacy systems and facilities". It has also committed to maintaining the local workforce and the black economic empowerment partners, as well as keeping the Caltex brand for five to six years and to "contribute to the development of the indigenous oil industry".
Chevron SA has the largest share of SA’s downstream fuel market after Engen, with a refinery in Cape Town, a lubricants plant in Durban and 820 Caltex-branded service stations countrywide. Together with the Botswana operations, it will provide a significant platform from which Sinopec can pursue its South African and southern African expansion ambitions.
The deal is subject to approval by SA’s competition regulators and although there clearly are no considerations in this regard, foreign buyers such as Walmart and AB InBev have in the past been given the runaround on public interest issues by the Competition Commission and Economic Development Minister Ebrahim Patel.
We trust pragmatism will prevail this time around. This is particularly so given SA’s professed commitment to its ties with the Brics countries and its keen interest in cementing relations with China.
Whether and how smoothly Sinopec’s bid goes through the regulatory hoops will be a test case of whether SA genuinely welcomes foreign direct investment by China.