The Competition Commission yesterday recommended that the Competition Tribunal approve Vitol's Vivo Energy purchase of South Africa's largest gas station chain. Engen, but with conditions, including that it has to invest a set amount over a period of five years in capital investments and production commitments.
Other measures included continuing to procure locally refined petroleum products for a long-term duration, increasing levels of localisation across the value chain, developing Historically Disadvantaged Persons-owned suppliers, establishing a new employee share ownership plan (ESOP) for the merged entity’s employees in South Africa, increasing the number of independently and HDP-owned retail stations and a moratorium on merger-specific retrenchments.
The deal was announced in February with Malaysian state energy company Petronas selling its 74% stake in Engen to Vivo, for an undisclosed amount.
The combined group will have more than 3900 service stations and more than two billion litres of storage capacity across 27 African countries.
In a statement yesterday, the Competition Commission spokesperson Siyabulela Makunga said the Commission found that the proposed transaction raised competition concerns that a significant customer foreclosure concern existed, particularly concerning local refineries as the Engen Group currently served as the primary customer for locally refined petroleum products.
The other concern was that the merger parties possess substantial storage tank capacity in Cape Town and Durban. This, coupled with the Vitol Group's import capabilities, raised concerns that the merger might lead to the further displacement of petroleum products refined in South Africa by imports, potentially having a profound negative impact on the petrochemical industry and remaining local refineries.
Furthermore, the Commission said the merger raised concerns related to potential anticompetitive information exchange in relation to the gas market.
With the proposed merger raised significant competition and public interest concerns, to mitigate this the merging parties agreed on measures to remedy the concerns.
Vitol is the primary acquiring firm. It was a newly incorporated entity, which currently controlled by Vitol Africa. The Vitol Group is a large global independent energy marketing and trading company.
Engen is controlled by Petronas Marketing International Sendirian Berhad, owned by the Malaysian government. Engen controls a number of firms in South Africa.
Engen Group used to refine petroleum products in South Africa through its Engen Refinery in Durban. However, the Enref facility was no longer operational due to fire damage that occurred in December 2020. Enref’s storage facilities were currently being used to store imported refined petroleum products as well as for the blending of certain refined products.
The Engen Group also owns and leases storage facilities across the country. Of relevance to the proposed transaction was that the Engen Group owned and leased storage facilities in Durban and Cape Town.
According to the Mordor Intelligence Petroleum Industry in South Africa-Market Analysis, the South Africa Refined Petroleum Products Market size was expected to grow from $8.2 billion (R155bn) in 2023 to $8.72bn by 2028, registering a CAGR of 1.23% during the forecast period.