South Africa: Thebe Takes Stake in Sapref Refinery

The deal, for an undisclosed amount, is a reminder of how far Thebe has come. The group entered the energy industry in 1997 when it established Tepco, a company that marketed and distributed petroleum and petroleum products. “That business grew. But if you just buy and sell products, margins are thin. On the other hand, margins on the manufacturing side are high,” Thebe chairman Vusi Khanyile says.

In 2000, Tepco signed an agreement with Shell SA to process imported crude oil at the Sapref refinery in Durban.  During this period, Tepco and Shell saw their love affair blossom. Later, circumstances in the sector drew them even closer together. Tepco found itself in a capital-intensive environment, with low growth rates and falling profit margins.

Shell had to get black investors on board to meet conditions in the liquid-fuels industry’s empowerment charter.
The charter required a 25% ownership and participation by historically disadvantaged South Africans. “With the charter in the picture, it became natural Thebe and Shell would be in that relationship,” Khanyile says. Thebe sold Tepco to Shell in 2002 in return for a 25% stake in the oil group’s downstream business.

This included petrol stations, aviation fuel, bunker fuel for ships, lubricants and liquefied petroleum gas. Thebe believes that giving up Tepco in return for equity in a large organisation with global operations was the right move for Thebe. Khanyile did not want to speculate about what would have happened to Tepco had Thebe retained control of it. “That is hypothetical. There are people who say Tepco would have become even bigger. That assumes that things would have been smooth,” he says.

Leaving Tepco on its own had become an unattractive option for Thebe. Doing so would have called for costly investments in infrastructure, systems and technology. Shell SA is a 50% shareholder in Sapref, with BP holding the other 50%. Shell will transfer its stake in Sapref to a new joint venture with Thebe, called Shell SA Refining.

Khanyile says the group’s acquisition of 25% of Shell’s stake — giving it 12,5% of the company — gives it entry into the manufacturing business, an area it has always been interested in but could not enter. “Owning a refinery is expensive,” Khanyile says. “Now we are getting involved in all the points in the value chain . We get exposed to the risks associated with manufacturing. But we will also share in the returns.” He says the group’s immediate task is to get up to speed with the risks of refining.

Thebe is one of the pioneers in black economic empowerment, especially in the liquid- fuels sector. Khanyile is not fazed that the group has dipped its fingers into every black economic empowerment pie in town. “We were there before the floodgates opened,” he says. Khanyile’s feelings about the group’s performance in the liquid fuel front in the past 10 years? “I am happy,” he says.

This week, Shell vice-president for downstream businesses in Africa Xavier le Mintier said: “Our 10-year relationship is built on honesty, integrity and respect”.

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