SAFLII [Home] [Databases] [WorldLII] [Search] [Feedback]

South Africa: Competition Tribunal

You are here:  SAFLII >> Databases >> South Africa: Competition Tribunal >> 2002 >> [2002] ZACT 13

[Database Search] [Name Search] [Recent Decisions] [Noteup] [Help]

Shell South Africa (Pty) Ltd and Tepco Petroleum (Pty) Ltd (66/LM/Oct01) [2002] ZACT 13 (22 February 2002)

.RTF of original document

COMPETITION TRIBUNAL                                        
REPUBLIC OF SOUTH AFRICA
                                            

Case No: 66/LM/Oct01


In the large merger between:


Shell South Africa (Pty) Ltd

and                                

Tepco Petroleum (Pty) Ltd




Reasons for Decision



Approval

1.      
The Competition Tribunal issued a Merger Clearance Certificate on 8 February 2002 approving the merger without conditions. The reasons for our decision are set out below.


Background

Recommendation by the Competition Commission

2.      
The Competition Commission recommended that the merger be approved on the following conditions;

a)      
Tepco continue to exist in the market jointly controlled/owned by Thebe and Shell South Africa;
b)      
That the Tepco brand be maintained as a viable brand in the market place; and
c)      
Any agreement, including a shareholders agreement, between the parties pursuant to these conditions must be submitted to the Commission for its approval prior to the implementation thereof by the parties.



The transaction

3.      
Thebe Investment Corporation (Pty) Ltd (“Thebe”) is selling its subsidiary Tepco Petroleum (Pty) Ltd (“Tepco”), after acquiring the shares of the minority shareholders in Tepco, to Shell South Africa (Pty) Ltd (“SSA”).

4.      
Prior to the transaction SSA will be restructured into two companies, Shell South Africa Energy (Pty) Ltd, responsible for the refinery, chemicals, renewables, gas and power, exploration and production businesses, and SSA, responsible for retail marketing, the marketing distribution network, commercial fuels, liquefied petroleum gas, aviation, marine, lubricants and bitumen.

5.      
SSA will change its name to Shell South Africa Marketing (Pty) Ltd (“Shell SA Marketing”) after the merger. At the same time Thebe will acquire between 17,5% and 25% of the issued share capital of Shell SA Marketing.

6.      
According to the parties Tepco will become a wholly owned subsidiary of Shell SA Marketing and will for the foreseeable future remain a separate brand, distinct from Shell, and will still be managed by the current management which is predominantly black. Shell SA Marketing will retain the Tepco brand and develop it in the market for as long as it remains viable and profitable. In terms of the shareholders agreement Shell shall appoint three of the four directors to the Board of Shell SA Marketing, including the Chairman and the Managing Director of the Company, and Thebe one.


The parties

7.      
Thebe is a broad-based black empowerment investment holding company, which was established primarily to use economic market mechanisms and opportunities to benefit previously disadvantaged people and communities. Thebe is controlled by the Batho-Batho Trust, which holds 73.67% of the issued shares in Thebe. Old Mutual holds 8.77%, Sanlam 8.77% and Investec 8.77%.

8.      
The objective of the Trust is to hold the shares in Thebe and to derive income from dividends declared by Thebe, its subsidiaries and associated companies. The income derived from Thebe is to be utilized for the sole benefit of previously disadvantaged people or communities behind them.

9.      
Thebe holds 85% of the issued share capital in Tepco. Mvelaphanda Holdings (Pty) Ltd, Stelma Trust and Malan-Kinders Trust hold the remaining 15%. Tepco currently employs 38 people, 80% of whom are historically disadvantaged communities including three of its five senior managers. Tepco’s principal business activity is the marketing and distribution of petroleum products.

10.     
SSA is a member of the Royal Dutch Shell Group of Companies, which is involved in oil and gas activities around the world. SSA’s main business in South Africa is the manufacturing and sale of petroleum products, which it conducts directly through SSA or indirectly through subsidiaries.


Rationale for transaction

11.     
According to the parties the oil industry is a mature market with a low growth rate as well as low profit margins. Structural barriers to entry are high which makes it difficult for new players that do not have the same resources as the multi-national oil companies (including access to the upstream portion of the supply chain) to penetrate the market. For these reasons Tepco has incurred a net loss exposing its shareholders to increased risk in the event of Tepco being liquidated. In the absence of alternative funding solutions, and in order to remain a player in the industry Thebe decided to sell Tepco to SSA.

12.     
The major oil companies and other stakeholders in the petroleum industry have adopted the “Charter: For the South African Petroleum and Liquid Fuels Industry on Empowering Historically Disadvantaged South Africans in the Petroleum and Liquid fuels Industry” (“the Charter”) on 2 November 2000. The Charter states that it is the intention of the participating parties to bring about a 25% ownership and control by historically disadvantaged South Africans of all facets of the industry over a ten year period.

13.     
This transaction will assist Shell in laying the foundation for the involvement of previously disadvantaged persons in the company and is the overriding reason for Shell’s decision to purchase Tepco.


The South African oil industry

14.     
The oil industry is a high volume, low margin, capital-intensive and, in South Africa, highly regulated industry. Shell, BP, Caltex, Engen, Total and Sasol are all crude refiners. They are also distributors of the final product marketed under their respective and well-known brand names. These companies, including Tepco, constitute the South African Petroleum Industry Association (“SAPIA”).

15.     
Price control, especially retail price maintenance, and import control are the cornerstone of the regulatory dispensation of the South African liquid fuels industry. Maximum prices are set for petrol, diesel and paraffin from which dealers are allowed to discount.

16.     
Government is currently in the process of reviewing the current regulatory framework and both the Department of Trade and Industry (“DTI”) and the Department of Mineral and Energy Affairs (“DMEA”) have reiterated their support for measures that will increase the level of competition in the domestic market. The DMEA, a driving force behind the Charter, together with stakeholders in the liquid fuels industry have also set themselves goals to achieve Black Economic Empowerment in the sector.


Evaluating the merger

The Relevant market

17.     
The supply chain in the petroleum products industry can be divided into upstream activities, covering oil exploration, extraction and transportation and downstream activities consisting of refining, marketing and distribution. SSA and Tepco are players in the downstream activities where both SSA and Tepco have operations that overlap in the marketing and distribution of petroleum products. Tepco does not operate in the refining part of the value chain while SSA does

18.     
SSA and Tepco supply products to both the retail market, i.e. products that are sold to consumers through retail franchise networks such as petrol stations, and to the commercial market, i.e. business to business, which buys in bulk on either tender/contract basis or at individual negotiated prices. The commercial division is a major part of its business - it only owns fourteen stations that sell to the retail market.

19.     
The geographic market for the retailing of petrol is sub-national. Data is only available at the level of the magisterial district. With regard to the commercial segment we define the geographic market as national in light of the hospitality arrangements between the market participants.

20.     
Within these two market segments both merging parties operate in the relevant product markets set out in the following two tables:


The Retail Market segment

PRODUCT MARKET KEY CUSTOMER GROUPS SHELL SA TEPCO

Petrol

Fuel stations selling to the public
x
x

Diesel
Fuel stations selling to the public
x
x
The Commercial market segment

PRODUCT MARKET KEY CUSTOMER GROUPS SHELL SA TEPCO
Petrol
•        
Parastatals
•        
Commercial/passenger transport
•        
Agriculture
•        
Manufacturing
•        
Construction
•        
Mining
•        
Local Municipalities
•        
Resellers
x

x
x
x
x
x
x
x
 x



x

x
x
x

Diesel

•        
Parastatals
•        
Transport
•        
Agriculture
•        
Manufacturing
•        
Construction
•        
Mining
•        
Local Municipalities
•        
Resellers

x
x
x
x
x
x
x
x
x
x

x
x

x
x

Illuminating paraffin
•        
Resellers

x
x




Effect of merger on competition

Market Shares

21.     
Percentage market shares of each of the participants on a national level for overlapping product markets, based on 2000 sales data are:



Market segments

Products
SSA
BP
Caltex
Engen
Sasol
Total
 Afric Oil
Exel
Tepco
 Merged Entity


RETAIL
Petrol
18.2
16.1
18.7
27.1
6.4
12.3
-
1.1
0.2
18.4

Diesel
25.3
15.3
12.8
31.7
0.8
13.0
-
1.0
0.1
25.4




COMMERCIAL
Petrol
13.7
14.7
7..9
22.6
2.4
24.1
0.3
11.7
2.7
16.4

Diesel
16.2
15.3
16.8
27.0
0.6
14.0
0.2
6.1
3.7
19.9

Paraffin
19.2