THE Strategic Fuel Fund (SFF), government’s custodian of strategic fuel stocks, on Wednesday made the announcement that it has offered to buy Chevron SA’s assets, which include its Cape Town refinery, Durban lubricants plant and network of 845 Caltex retail fuel stations.
The statement came as a surprise as Chevron is in the midst of process of negotiations with prospective buyers in a deal expected to value $1bn, according to news agency Bloomberg.
It is also surprising as the transaction would vastly alter the profile and business of the fund, which since its inception in 1964 has been to stockpile strategic reserves in case of a supply shock. The purchase would make the government a major player in the entire downstream fuel value chain from the refining of crude oil to the storage, marketing and sale of finished products at fuel stations.
The fund said that it had expressed its interest in bidding for Chevron’s SA and southern African assets shortly after the company announced its intention to sell six months ago. These assets were important for job creation as well as security of fuel supply, it said.
It was for these reasons that the "SFF has decided to participate in the sale and expressed interest in the acquisition of the Chevron assets. Further to this expression of interest, on 24 June 2016, SFF has forwarded a commercial offer to Chevron and its financial advisers, in relation to the purchase of the 75% interest on offer," the statement continued.
In December, the SFF stunned the country when it sold SA’s entire fuel stockpile in a closed tender at rock-bottom prices. The sale of 10,000 barrels realised $280m for the fund, equating to an average price of $28 a barrel. When the sale took place, the Brent oil price ranged between $37.22 and $44.44. The price has since risen to about $50 a barrel.
Apart from the price, the transaction was also controversial as it was done without the permission of the finance minister, whose consent is necessary when a state-owned company sells or acquires an asset.
The bid for Chevron brings to fruition a long-held ambition by Energy Minister Tina Joemat-Pettersson to bring the government into the downstream fuel sector.
In 2013 PetroSA, which is a sister company to the SFF and, like it, is wholly owned by the Central Energy Fund, made several attempts to purchase the refining and retail assets of Engen, owned by Malaysian state-owned company Petronas. The deal eventually derailed when PetroSA was unable to come up with the cash.
That the Treasury refused to support the Petronas-PetroSA transaction — arguing that government had no business owning retail fuel stations — was strongly believed by insiders to be one of the reasons why Pravin Gordhan was not reappointed by President Jacob Zuma as finance minister in May 2014. Now, Gordhan is likely to again face the same difficult choice, as his permission will be required under the Public Finance Management Act, for the Chevron transaction to go ahead.
The Treasury said it was unable to comment on whether the SFF had asked for Treasury approval of the transaction. The Central Energy Fund did not respond to queries on whether it had been apprised ahead of the offer. SFF CEO Sibusiso Gamede refused to elaborate on the fund’s e-mailed statement. The statement also says that "in order to avoid any misunderstanding in relation to the fairness or transparency of the process, SFF have also clarified its position to Chevron and its advisers as regards the status of SFF crude storage and supply assets which historically have been associated with Chevron’s refinery".
The intrigue around the sale of the strategic stocks is yet to be fully unravelled and both Gamede and Joemat-Pettersson have refused to clarify their contradictory statements. In May, Gamede said that the stocks would be repurchased again when the oil price was favourable, while Joemat-Pettersson said new stock had already been bought.
Chevron has estimated that the Cape Town refinery will require an investment of $1bn in order to be compliant with new clean fuel standards. It has been unwilling to make the investment opting rather to sell its SA operations last January.
With Bloomberg
