Business Day (Johannesburg)

7 April 2009

South Africa: Engen Seeks Black Partner for a Further Five Percent Stake

Johannesburg — PETRONAS, the Malaysian owner of local petroleum products retailer Engen, is searching for a black economic empowerment partner to increase black ownership in Engen from 20% to 25%, says Petronas CEO and president Tan Sri Hassan Marican.

The petroleum and liquid fuels charter requires oil companies to transfer 25% of ownership to black economic empowerment entities by next year. Empowerment group Worldwide African Investment Holdings owns a 20% stake at Engen, with Petronas the majority shareholder.

Marican says Petronas has been looking for potential partners to comply with the industry charter. The current economic environment has delayed the search. He says the company is not interested in partners who want quick returns.

Several entities have expressed interest in taking up the 5% stake. These, Marican says, include current partners Worldwide.

Worldwide, however, does not have pre-emptive right to such a deal, he says.

Petronas does not have a lot of time to finalise the deal. Or so it seems. "We still have time. And we do not foresee the government saying you have not complied, so you will be punished. This is not small money. There must be flexibility if you are going to have proper implementation of the (black economic empowerment) policy," he says. Marican would not confirm how much the deal would be worth, except to say "it is in the billions of rands".

He says any party interested in the deal should take into account that there would be further expansion and investment.

Owners of oil refineries in SA, including Engen, have been criticised for lack of investment in their facilities.

The construction of state-owned PetroSA's 400000-barrel -a-day refinery at Coega, near Port Elizabeth, has heightened fears that it would affect existing refineries.

PetroSA has not ruled out forging partnerships with coastal refineries, according to PetroSA vice-president of new ventures: midstream, Joern Falbe.

Marican says Petronas has had preliminary discussions with PetroSA about a possible partnership, "but we have not come to any conclusions.... We are looking into it. We have a good relationship with PetroSA."

Commenting on global economic conditions, Marican says: "The downturn has resulted in demand destruction. The demand for petroleum products globally has gone down. There has been shrinkage in the demand for crude oil." He says the US has led the fall in demand.

With latest forecasts pointing to reduced demand, oil companies are reining in capital expenditure and have postponed investments to boost capacity.

The risk with such a move, says Marican, is that when demand bounces back , there will be a rise in the oil price. "It is a kind of a vicious circle," he says.

No one can forecast the movement of the oil price, he says. That is why the industry did not celebrate when the price peaked at more than $147 a barrel in July last year. "We knew it was not going to last," Marican says.

But he says Petronas, which operates in more than 30 countries, has not cut back on capital expenditure. "We have maintained the same levels we used to spend. We are not cash-constrained. We need to invest in order to sustain and grow production," Marican says.

Ten years ago, the international oil price was about $10 a barrel "and the industry survived. No company lost money. Today the price has fallen to about $49 a barrel and we are all panicking. We never planned to invest at $10 a barrel and never planned to invest at $147 a barrel," Marican says.

This, he says, shows that the industry is agile enough to adjust regardless of the oil price level. "We know it takes many years to get to the high peak. But in less than six months, (prices) came down to $34 a barrel."

Marican has strong opinions on the role of speculators in the drop in oil prices. He says speculators drove up the rise in commodities of the past few years. The availability of funds gave the speculators a field day. He doubts that the world will see similar levels of speculation in future.

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