Chinese get nod from government to buy Cape oil refinery

You may soon be filling up your car at a fuel station powered by a Chinese company.

The government has announced an agreement on the potential acquisition of control of Chevron South Africa by Chinese company Sinopec.

The transaction is now subject to final regulatory consideration and resolution of a Right of First Refusal by minority shareholders.

Government said Sinopec - one of China's largest state-owned companies - has undertaken to invest R6 billion in South Africa to upgrade and modernise the Cape Town-based oil refinery owned by Chevron South Africa‚ a subsidiary of US company Chevron‚ if it succeeds in its bid to acquire control of Chevron South Africa‚ and to use South Africa as its base to expand its African refining and downstream businesses.

This undertaking is part of a comprehensive agreement with the company on public interest issues‚ announced by Ebrahim Patel‚ Minister of Economic Development.

Chevron's South African assets include an oil-refinery in Cape Town with a name-plate capacity of 100‚000 barrels a day‚ a lubricants blending plant in Durban‚ storage tanks and distribution facilities as well as about 850 fuel service stations trading under the Caltex brand. The company employs about 1‚200 workers directly and it reports that it supports about 56‚000 jobs indirectly. Sinopec made an offer to buy the company's local assets for US $900 million.

The commitment by Sinopec to invest in the refinery capacity will enhance and increase effective output of locally refined oil products and improve health and safety standards in the refinery operation‚ according to the statement.

"The agreement also provides for Sinopec to increase the level of BEE ownership in the local company from 25% to 29%‚ which will include an employee ownership component. The Chinese investor committed to ensure that no jobs are lost as a result of the merger and that the company will retain at least its current aggregate level of employment for a five-year period‚" Minister Patel said.

Other public interest commitments made by Sinopec include the following:

• It will ensure that it maintains a large presence‚ well above the industry average‚ of locally owned and operated service stations in South Africa. "This will allow a broad-based South African benefit from the presence of the oil-major in the local economy."
• It will locate the African headquarters of the company in South Africa‚ and expand its operations elsewhere in the continent from the South African base‚ which can assist the local economy and provide opportunities for South Africans in the company's operations.
• It will set up a development fund of US $15 million‚ equal at the time of the agreement‚ to just over R200 million‚ to promote economic development in South Africa‚ particularly small businesses‚ black-owned companies and localisation efforts. This spending is in addition to the R6 billion capital investment commitment by Sinopec.
• It will increase the level of LPG (liquid petroleum gas) that is supplied to black-owned businesses; and
• It will procure non-oil products locally wherever feasible and it undertook that it will not reduce the current proportions of local procurement by Chevron South Africa.

If the Sinopec transaction is approved and implemented‚ this will be the single largest acquisition by a Chinese firm of control of a South African-based company.