In an update to earlier reports by Emerging Markets Business, Shell is not exiting its entire South African operation but only divesting its "non-core" downstream retail business, including over 600 fuel stations. This strategic shift follows a prolonged dispute with its BEE partner. Shell will retain its upstream sector, focusing on crude oil and natural gas extraction in the region. Dr. Neil T. Stacey suggests that the move is part of a long-considered strategy due to the challenging operational environment in South Africa, marked by security issues and regulatory complexities.
Earlier this week, Emerging Markets Business wrote how Shell was reportedly "planning to exit South Africa, a move that could put thousands of jobs at risk". A number of media outlets in South Africa reported that the exit rumors follow a dispute with its BEE partner which had reportedly hit "rock bottom."
This story made waves in South Africa given how long Shell has operated in South Africa, since 1902, and the number of jobs it provides in the country through its various businesses including the more than 600 domestic fuel stations.
Here is an update highlighting some of what we've learned since the original publishing on May 6, 2024. The most important development is that we now know Shell is not disposing of the entire business, only the "non-core" retail business which includes the fuel stations. This is what is known as the downstream side of the energy business. Shell's upstream business in South Africa includes crude oil and natural gas exploration and extraction. Shell intends to retain the upstream business in South Africa.
It should be noted that Shell is presently halted from exploring for energy on the Wild Coast of the country due to a court order.
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Citizen Journalist on X Weigh In
Dr Neil T Stacey weighed in on X (formerly Twitter) and his opinions carry weight if his claims are accurate of spending time at a Shell-funded lab during his studies, and spending ample time with Shell executives in their boardrooms in South Africa. He claims to have friends at Shell as engineers still who presumably he consulted prior to making the posts.
In short, Dr Stacey claims that Shell exiting South Africa is nothing new and had been in the works, or at least under contemplation, for at least a decade.
He also undercuts subsequent stories that discounted the divestiture as routine. Those reports cited the facts that not all assets in South Africa were being sold, and that since Shell was selling assets in other countries too that this was part of a grander reshuffling.
Perhaps his most useful commentary is that describing possible motives for the divestiture. Dr Stacey points to a culture at Shell not suitable to operate in a country as dysfunctional, broken, and corrupt as South Africa has become in recent decades.
"The stuff that goes on in the SA fuel sector is INSANE. Hot-tapping of major pipelines is a routine occurrence. Major storage vessels have been punctured to steal fuel, causing massive spills. I've heard of facilities paying protection money to syndicates for their trucks to pass. He continues, "[n]ot to mention, Shell had a gigantic sales slump when there were calls for a national boycott because of offshore gas prospecting on a much smaller scale than their main rival. There's legislation mandating biofuel blending but no mechanism for getting the subsidy for it."
The series of Tweets ends with a statement that "there's some other murky stuff that no-one will talk about."
More on the BEE Shakedown
Thebe, Shell's BEE partner, expressed its desire to sell its 28% share in Shell's South African downstream business in 2022. This business includes the country's refining capacity and over 600 petrol stations.
A key asset in this downstream business is Sapref, the largest refinery in South Africa, located in the east coast port city of Durban. However, Sapref has not been operational since 2022 following a spending freeze by Shell and BP, the other owner, and subsequent severe damage from flooding. Before these issues, Sapref's refining capacity was 180,000 barrels per day, supplying about 35% of South Africa's refined capacity.
With Sapref's closure, Sasol's Nref has become the largest refinery in the country. The departure of Shell from South Africa presents an opportunity for Sasol to expand its dominance. Interestingly, Nref is the world's largest carbon emitter by volume, indicating the scale of its operation.
Shell Downstream South Africa ("SDSA") was formed after Shell South Africa and Thebe Investment Corporation ("TIC") merged Shell South Africa Marketing and Shell South Africa Refining businesses a decade ago. Thebe received a 28% stake, effectively for free, presumably to help Shell navigate South Africa's complex political landscape.
Many observers of South Africa argue that BEE only benefits privileged black elites in South Africa, doing little to help the poor. The black elites who benefit rarely provide significant value in exchange for shares.
Thebe might have expected a large reward for divesting based on the rising valuation of Shell's London-listed business. However, Shell's downstream business in South Africa is not as valuable as its global valuation of over $233 billion. The issue for Thebe is that the downstream business has been a financial burden for Shell in the country.
Thebe's confrontational approach with Shell could be related to its recent sale of a majority stake (70%+ stake) to Batho Batho Trust, which has deep ties with South Africa's ruling party, the ANC. The trust was established by Nelson Mandela and Walter Sisulu in 1992, with a principal aim to benefit the ANC, though not explicitly stated in the trust's documents.
The ANC received nearly 22 million rands in donations during the last municipal elections in 2021, 66% of which came from the Batho Batho Trust.
South Africa is a country where the government (i.e., the ANC) sets the price of fuel. The conflicts are clear.
