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SA needs to participate more in its oil and gas infrastructure

It’s hoped Afric Oil’s forum will lead to a roadmap for further investment and development – a vital cog to grow the economy.

South Africa’s first black-owned and operated fuel distributor celebrates its 20-year anniversary this year and, while happy to reflect on the past 20 years, the company is eager to shape the future of the industry in a much more significant way in the years ahead.

“We have stuck it out and grown ourselves to the position we find ourselves in today through hard work and determination, because we have only had larger and more resourceful competitors to deal with since we were founded,” says current Afric Oil CEO, Tseke Nkadimeng.

Worldwide Africa Investment Holdings (later renamed Pembani) was established by the mercurial Phuthuma Nhleko, who established Afric Oil after inking an empowerment deal with Caltex. As documented in Afric Oil’s corporate history ‘Afric Oil 20 years: African Voortrekkers’, the new group “hit the ground running. Being the first of its type, especially in terms of size and by way of being black (a cogent for scarce financial assets or poor access to cash) proved tough. Relying on competition, much larger and multinational, for survival was hardly ideal.”

The group built on its success to become the largest distributor of its type in South Africa, and, having assumed scale, it considered opportunities for vertical expansion that included acquiring and building a refinery, or extending its brand into a retail presence. The latter was achieved through the acquisition of Zenex, which was comprised of 200 service stations and gave the company exposure to 6% of the retail market.

Owing to financial constraints, Afric Oil could not pursue [previous CEO] Bheki Shongwe’s suggestion that the fuel group, or its parent company, should consider a refinery of its own as well as build up its storage capacity. This would have not only reduced dependence on competition, but also added another revenue source for the oil company.

“I believe that if we have our own refinery, we’ll start taking a bit of charge,” Shongwe asserted in the year 2000. “And if we build ours, it is going to be new technology and more efficient, therefore the cost of production would be lower.”

While the company continues to operate successfully it, along with other South African firms keen to invest in downstream oil and petroleum infrastructure, have been constrained by the hold the larger multinationals have on the country’s refinery and storage capacity.

The Sapref Refinery in Durban is jointly owned by Shell SA and BP Southern Africa and it leases the land it operates on from Transnet. Also in Durban is the Engen Refinery (Enref). The Natref (National Petroleum Refiners of South Africa) refinery in Sasolburg is jointly owned by Total and Sasol, while the Cape Town refinery is owned by Chevron. The corresponding storage facilities and distribution pipelines are owned by the multi-nationals (or ‘majors’) along with Transnet. There is thus no meaningful participation in the upstream and downstream infrastructure by privately-held South African companies.

The refineries located in Durban are the ones closest to Afric Oil’s largest customer base in Gauteng. The only feasible option in which to build and operate storage facilities of any scale is to have access to the land adjacent to the refineries, something which is not available at present.

But the inability to expand into storage and refining leaves the company in a vulnerable position: it still relies on its larger competitors for inventory – a situation that would be untenable in any other industry.

“Without access to land near, or adjacent to the refineries we are unable to build and operate storage facilities that would allow us to participate in this aspect of the infrastructure,” says Nkadimeng. “So it’s not so much a criticism as it is a question: We are a willing investor, but how can we participate?”

It is hoped that the forum Afric Oil is hosting on April 20 will provide a foundation for meaningful discussion and debate on the part of government, industry and the multinationals, that can provide a roadmap for further investment and development of the country’s oil and gas infrastructure – an absolute vital cog in the ability to grow the economy.

This article was sponsored by Afric Oil.

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