Company commits to invest R6 billion in South Africa; move hailed as part of deeper and bolder economic inclusion measures - transaction is now subject to final regulatory consideration and resolution of a Right of First Refusal by minority shareholders

CAPE TOWN, South Africa, January 11, 2018/ -- Sinopec - one of China's largest state-owned companies - has undertaken to invest R6 billion in South Africa to upgrade and modernise the Cape Town-based oil refinery owned by Chevron South Africa, a subsidiary of US company Chevron, if it succeeds in its bid to acquire control of Chevron South Africa, and to use South Africa as its base to expand its African refining and downstream businesses.

This undertaking is part of a comprehensive agreement with the company on public interest issues, announced today by Ebrahim Patel, Minister of Economic Development.

Chevron's South African assets include an oil-refinery in Cape Town with a name-plate capacity of 100 000 barrels a day, a lubricants blending plant in Durban, storage tanks and distribution facilities as well as about 850 fuel service stations trading under the Caltex brand. The company employs about 1 200 workers directly and it reports that it supports about 56 000 jobs indirectly. Sinopec made an offer to buy the company's local assets for US $900 million.

The commitment by Sinopec to invest in the refinery capacity will enhance and increase effective output of locally-refined oil products and improve health and safety standards in the refinery operation.

"The agreement also provides for Sinopec to increase the level of BEE ownership in the local company from 25% to 29%, which will include an employee ownership component. The Chinese investor committed to ensure that no jobs are lost as a result of the merger and that the company will retain at least its current aggregate level of employment for a five-year period," Minister Patel said today.

Other public interest commitments made by Sinopec include the following

• It will ensure that it maintains a large presence, well above the industry average, of locally-owned and operated service stations in South Africa. This will allow a broad-based South African benefit from the presence of the oil-major in the local economy. 
• It will locate the African headquarters of the company in South Africa, and expand its operations elsewhere in the continent from the South African base, which can assist the local economy and provide opportunities for South Africans in the company's operations.
• It will set up a development fund of US $15 million, equal at the time of the agreement, to just over R200 million, to promote economic development in South Africa, particularly small businesses, black-owned companies and localisation efforts. This spending is in addition to the R6 billion capital investment commitment by Sinopec.
• It will increase the level of LPG (liquid petroleum gas) that is supplied to black-owned businesses; and
• It will procure non-oil products locally wherever feasible and it undertook that it will not reduce the current proportions of local procurement by Chevron South Africa. This is in line with government's greater focus on local industrialisation and the expansion of manufacturing and local productive services. 

One of the more innovative terms of the agreement provides for Sinopec, which has a large petrol service-station network in China, to use that retail network at service stations to support the export and sale of South African manufactured products to China.

The terms of the Agreement with the Economic Development Department addresses the public interest conditions that will be proposed to the Competition Tribunal for inclusion in any regulatory approval of the proposed transaction. The transaction itself is subject to such regulatory approval and finalization of the exercise of a Right of First Refusal (RoFR) invoked by the current minority shareholders. If the Sinopec transaction is approved and implemented, this will be the single largest acquisition by a Chinese firm of control of a South African-based company.

"Government will not choose to whom Chevron sells control of Chevron South Africa, but we will ensure that proper public interest conditions, in line with the Competition Act, should apply to whoever is the successful bidder," Minister Patel said.

"Job creation and improved investment in South Africa are critical as are deeper and bolder economic inclusion measures. We look to the oil industry as a whole to do more on all these metrics. We will also engage with the current minority shareholders to secure similar undertakings on jobs, investment, procurement and empowerment," he said.

"While the regulatory processes will need to be completed, the commitments by Sinopec shows a strong appetite by global investors to long-term investment in South Africa. Together with the Old Mutual transaction approved yesterday by the Competition Tribunal, this is a welcome and timely injection of confidence in our economy," Minister Patel said.

Note to editors: The Agreement referred to in the text above was signed by Sinopec, Chevron and the Economic Development Department. 

Distributed by APO Group on behalf of Republic of South Africa: Department of Government Communication and Information