THE Department of Trade, Industry and Competition (DTIC) and Vivo Energy yesterday signed the public interest commitments agreed on as part of the transfer of ownership of the Engen business in South Africa.
The provisions of the agreement contain significant commitments that have been made conditions of the sale.
Engen’s largest shareholder, Petronas, sold its 74% share in Engen to Vivo Energy after the transaction went through competition processes and was recently approved by the Competition Tribunal.
Trade, Industry and Competition Minister Ebrahim Patel yesterday said the government considered the impact the transaction would have on jobs, suppliers of oil, procurement and empowerment in line with the provisions of the Competition Act.
“Two competitors who are also suppliers of product to Engen raised their own concerns regarding the impact on local refineries. Government engaged both the merger parties as well as the competitors to fully understand these implications and to consider ways to mitigate these,” Patel said.
“Today, the DTIC and Vivo Energy signed the Framework Agreement, confirming the public interest terms that Vivo/Engen will be implementing.”
The agreement committed Vito’s parent company, Vitol Emerald Bidco, to investing R9.85 billion over the next five years in its retail and fuel infrastructure, as well as in the development of renewable energy generation capacity.
This investment may increase by a further R4bn subject to the outcome of feasibility studies in areas such as marine infrastructure, as well sustainable and biofuel production, which could see the capital commitment increase to nearly R13.85bn over the five-year period.
In addition, Vitol committed to continue its off-take agreements for petrol, gasoline and diesel from Astron’s refinery in Cape Town and Sasol’s refineries in Sasolburg and Secunda, with an estimated R100bn of locally-refined product to be bought by Engen.
A further R240 million would be contributed to the Localisation Support Fund, bringing the total capital committed for localisation by partner firms to more than R800m, to be used for technical and market studies in support of localisation and export promotion.
On transformation, Vitol has committed to establish a worker ownership trust for the benefit of the 2 100 employees of Engen, which will hold an initial 5% stake in the company, rising to 9% over the next seven years.
The trust will be entitled to one nominated appointee to the board of Engen; and will further benefit from a minimum annual dividend over the next 5 years, irrespective of the profit performance of Engen, which will equate to R10 500 per annum per worker in the company.
Vitol has further committed to no merger-related retrenchments going forward; and to maintain aggregate employment for a period of no less than four years.
Vitol will also ensure that Vivo Energy will bring a number of managerial jobs to South Africa, and establish South Africa as the hub of its pan-African business.
Mark Harper, the director and co-founder at PetroConnect, said the reaction to the announcement that Engen and Vivo Energy have combined with Engen selling out completely can vary among different stakeholders, hence they had mixed reaction to this one.
Harper said that investors and shareholders would tend to react positively to the announcement as there would be definite synergies, increased market share, and enhanced profitability.
“Many are still trying to come to terms with the exit of Caltex and are adjusting to the new brand, Astron Energy. Just a few weeks ago, Shell announced their exit, and while the new partners may decide to keep the brand, it remains to be seen whether they will rebrand,” he said.
“Similarly, it remains unclear at this stage whether Vivo will rebrand. Additionally, BP has just sold its logistics business off to a UAE-based company.”
Harper said the buyout could allow Vivo to expand its market presence in South Africa leveraging their existing infrastructure and achieve cost savings and efficiency improvements by combining operations and streamlining the supply chain.
BUSINESS REPORT