This article was first published on Businesslive.co.za on 31 October 2022
Greens may make selling BPSA and its refinery difficult
Losing a private prosecution for building service stations without going through the hoops of our environmental legislation has made the prospect of BP’s plans to wind up its South African operation less than rosy.
It may shock South Africans to know that a major international oil company that has been in South Africa for almost a century is determined to get out as soon as possible, but all the signs of its drive to sell its South African assets have been there to see for some time – and common knowledge in the oil industry.
First, BPSA tried to dispose of its company pension fund, initially by migrating as many staff members as possible into a non-company provident fund. This would enable it to take for itself a share of what was expected to be a substantially increased "surplus" remaining in the pension fund after its final liquidation.
This ploy was highly successful except for those wise enough not to have taken up the offer (which happened to coincide with a “downsizing” operation that saw the staff numbers culled significantly). The resultant insecurity persuaded many to take the money and control it themselves. When word got around of the substantial pension fund surplus distributed to those that were not tempted, many regretted the decision to leave. But that made the corporate balance sheet tidier. So, part of the job done.
Next came the more difficult task of getting rid of the medical aid scheme. It was a compulsory monthly deduction for all staff on appointment for most of BPSA’s existence.
The BPSA medical aid scheme was and still is unique in that it promised the company would continue to subsidise medical aid contributions even post-retirement – should any staff member retire in good standing.
It was a promise sealed and re-stated again in 2002 in a solemn contract.
This contract meant a contingent company liability of considerable size. Its existence was to prove a factor that scared off prospective buyers, especially when the affected pensioners and staff took the company to court to stop a merger of the medical aid and its considerable resources with Momentum Health that would have limited the promise to only two years of retirement. The industry grapevine says that Momentum was made aware of the 2002 contract, one reason it withdrew from merger talks.
The intention seems now seems to be to close the BP Medical Aid Society as an alternative to the failed amalgamation with Momentum Health. Existing employee members of the Society are now actively encouraged by the company to opt out – thus killing the Society by a thousand cuts – as the Chinese saying might put it.
Ethical considerations aside, there is another hurdle BP has to jump over; the matter of disposing of the refinery in Durban that BP co-owns with Shell South Africa. This notwithstanding that BPSA received the nod from the South African competition authorities to sell its largest distribution depot in the Western Cape, at Millerton in Cape Town, to the Strategic Fuel Fund, a subsidiary of the Government's Central Energy Fund headed by a former senior employee of BPSA.
Sapref, built in 1965, is the largest conventional oil refinery in the country, providing some 35% of South Africa’s liquid fuel requirements. Unfortunately, it needs massive new investment to enable it to produce to the higher fuel standards now demanded by the European Union – a sum both BP and Shell have publicly stated they are unwilling to pay, probably because the South African vehicle market is minuscule compared to the investment required.
Should another green operation attempt a private prosecution to demand a clean-up of the Sapref site – or even be it merely hinted at – you might be inclined to bet that it will put off any sensible buyer.
But no, within days of Sapref’s owners deciding to in effect put the refinery into mothballs, our government officially declared its interest in buying it. No doubt knowing its deep knowledge of refinery economics and having a firm belief in the magic money tree’s abundance.
The government may also feel that it should – in the interest of national security – pay whatever it takes, safe in the knowledge that as government it could safely ignore environmental clean–up laws. After all, there was no environmental problem in buying BPSA's largest fuel depot in Millerton.
Indeed, the government can give a free environmental pass to any Sapref purchasers. No doubt BPSA and Shell management will be praying this will happen again. BP particularly, seeing as it is facing an expensive legal battle to get the recent decision of our courts overturned. The company was found guilty of building some service stations without the necessary legal environment safeguards. A decision they will no doubt appeal. And pray for success they must if they are ever to get rid of their South African assets.
They know it will be difficult and expensive. Not long ago BP sold off its Swaziland assets to Sasol, who extracted a heavy price for taking on actual and potential environmental liabilities before they would sign on the dotted line.
So maybe, just maybe, the real reason for closing up Sapref is to exert some not-so-subtle pressure on the government to come to the rescue. Hoping against hope that the prospective buyer – the Central Energy Fund, awash with taxpayers’ money – will get a free ride when it comes to cleaning up the Sapref site.
There is one thing still in the way of such a happy result (for BP and Shell management anyway). Owning Sapref may not turn out to be a pot of gold. Already, the higher liquid fuel specifications demanded by the EU and all new cars using internal combustion engines have to be imported. The government may find it has bought a giant fuel depot for such imports – not a functioning refinery after all.
As for making a profit out of Sapref, the chances are not very good, when looking at the records of State Owned Enterprises. And hovering over it all is the inconvenient presence of a green lobby quite capable of using the courts to muddy the waters of any sale, such is their hatred for all things petroleum.
Will BP managers let such things stand in their way? Not to judge from what the company has proved it is willing to do to its company medical aid scheme and the pensioners who depend on it, or how they closed down their company pension scheme.
Ethics, the law, and indeed the sanctity of the Law of Contract, are regarded as mere bumps on the road to BP managerial success and the lure of hefty bonuses for succeeding.