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[2014] ZACT 66
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Engen Holdings (Pty) Ltd v South African Oil Refinery (Pty) Ltd (019398) [2014] ZACT 66 (18 November 2014)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case No: 019398
In the matter
between:
Engen
Holdings (Pty)
Ltd
......................................................................................
Primary
Acquiring Firm
And
South
African Oil Refinery (Pty)
Ltd
.........................................................................
Primary
Target Firm
Panel: Yasmin Carrim
(Presiding Member),
Fiona Tregenna
(Tribunal Member)
Andreas Wessels
(Tribunal Member)
Heard on: 29 October
2014
Order issued on : 29
October 2014
Reasons issued on :
18 November 2014
Reasons for
Decision
Approval
[1] On 29 October
2014 the Competition Tribunal (“Tribunal”)
unconditionally approved the large merger between Engen
Holdings
(Pty) Ltd (“Engen”) and South African Oil Refinery (Pty)
Ltd (“SAFOR”). The reasons for approving
the proposed
transaction follow.
Parties to
transaction
[2] The primary
acquiring firm is Engen which is a wholly owned subsidiary of Engen
Limited (“Engen Limited”) and the
holding company of the
various subsidiary and associate companies constituting the Engen
group of companies (“Engen Group”).
Engen Limited is
controlled by PETRONAS International Corporation Limited (“PICL”).
PICL is controlled by Petroliam
Nasional Berhad (“PETRONAS”),
the Malaysian National oil company wholly owned by the Government of
Malaysia. The Engen
Group’s main activities consist of
refining, marketing and distributing of petroleum products, as well
as the provision of
convenience services through a network of retail
service stations.
[3] The primary
target firm is SAFOR, which does not directly or indirectly control
any other firm. SAFOR is a base oil refinery
that Engen Group
operates under contract to process Engen Group owned crude-based
feedstock into Group I base oils for and on behalf
of SAFOR’s
shareholders. The SAFOR base oil refinery is located in Durban
immediately adjacent to, and is inter-linked with
Engen Group’s
ENREF refinery.
[4]
The procedure normally entails Engen preparing the feedstock and
providing it to SAFOR, who in turn supplies the Engen Group
with any
hydrocarbons retained and being converted into base oils. SAFOR then
processes Engen’s crude-based feedstock into
Group I base oils
for and on behalf of SAFOR’s shareholders
1
.
Proposed
transaction
[5] In terms of the
Sale of Shares Agreements, Engen intends to acquire 100% of the
issued share capital in SAFOR. Engen currently
owns 47% of the issued
share capital in SAFOR, with Chevron South Africa (Pty) Ltd
(“Chevron”) owning 34% and Total
South Africa (Pty)
Ltd(
l
Total”) owning the balance of 19%. Engen will
acquire Chevron’s 34% interest and Total’s 19% interest
in SAFOR.
Post-merger Engen will exercise sole control over SAFOR.
[6]
Due to diminishing demand and because Group I base oils can be more
economically imported than manufactured, the SAFOR Base
I oil
refinery no longer offers an attractive return on investment. As a
result, the shareholders of SAFOR elected to cease base
oil
production, as the cost of local production exceeded import cost.
2
[7] Engen’s
rationale for wanting to acquire the 100% issued share capital in
SAFOR is because it’s chemical and solvents’
income
stream is dependent on the sale of bitumen and solvents obtained from
SAFOR’s activities.
Competition
assessment
[8] The Commission
submitted that the proposed transactions does not raise any
horizontal or vertical overlaps as Engen does not
directly or
indirectly offer any products or services that are interchangeable
with those provided by SAFOR. In South Africa there
are only two
processing facilities through which Group I base oils could be
obtained, namely SAFOR and SAMCO. SAMCO is a joint
venture between
Shell and BP located at the SAPREF refinery in Durban. Therefore no
foreclosure concerns arise as a result of the
proposed transaction as
SAMCO also produces Base I oils.
Public Interest
[9] As of 31 July
2014, SAFOR stopped the production of Group I base oils. The merging
parties submit that although SAFOR comprises
of three units, namely
the PDA, Furfural and Methyl- Ethyl-Ketone De-Waxing, only the PDA
unit is currently operational. The units
that were shut down are
those that were responsible for the production of Group I base oils.
As a result thereof, the closure of
the two production units will
result in negative impact on employment.
[10] SAFOR currently
has 45 employees. Absent the proposed transaction, 43 employees will
be retrenched, as two employees will be
required to maintain the
facilities. However, if the proposed transaction is approved, at
least 27 jobs will be saved by retaining
the staff required to
operate portions of SAFOR.
[11]
During the hearing, the merging parties re-assured us that of the 18
employees that might be retrenched, 17 of these employees
might be
employed at the ENREF refinery, and therefore would not have to be
relocated anywhere else.
3
During the hearing, the Commission also re-assured us that they were
satisfied with the fact that the SAFOR closure unit was not
related
to the proposed transaction
4
[12] The Commission
submitted that CEPPWAWU (Chemical, Energy, Paper, Printing, Wood and
Allied workers Union), which represents
employees at Engen was
consulted and did not raise any concerns in relation to the proposed
transaction. The Commission came to
a conclusion that the proposed
transaction does not raise significant employment concerns, nor does
it raise any other public interest
concerns.
CONCLUSION
[13] We agree with
the Commission that the proposed transaction is unlikely to
substantially prevent or lessen competition and thus
aoorove the
transaction without conditions.
18
November 2014
DATE
Ms
Yasmin Carrim
Prof. Fiona
Tregenna and Mr Andreas Wessels concurring.
Tribunal
Researcher:
Caroline
Sserufusa
For the merging
parties: Rudolph Labuschagne for Bowman Gilfillan
For the Commission:
Zanele Hadebe
1
In
terms of the SAFOR Shareholders Agreement entered into between Engen,
Total and Chevron, SAFOR processes feedstock into Group
I base oils
on behalf of its shareholders. See pages 54-56 of the merger record.
2
See
pages 58-59 of the merger record.
3
See
page 10 of the Transcript of the hearing.
4
See
page 5 of the Transcript of the hearing.