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Gloves off on Chevron's Cape dominancy

Cape Town - Burgan Cape Terminals, which seeks to build a new petrol and diesel storage facility at the Cape Town harbour, has officially laid a complaint with the competition commission against its competitor Chevron South Africa for “exclusionary” - and possibly exploitative - conduct.

According to Burgan spokesperson Dani Cohen, the complaint was laid on behalf of Burgan by Petra Krusche, director of Werksmans attorneys in terms of the Competition Act of 1998. It asks the commission to investigate the conduct of “a dominant firm”, Chevron South Africa.

Burgan said its “suspicion” was that Chevron was using and had used “dilatory and exclusionary tactics in the regulatory processes to foil or hamper credible competition in the oil market in the Western Cape to cement its decades-long advantage”.

Instead of seeking extra protection against imports - regulated by the National Energy Regulator of South Africa (Nersa) - it had “attempted to block” the proposed Burgan terminal at the regulator’s hearings for its licence as well as before the environmental affairs department.

In addition, Chevron reported it engaged with the Transnet National Ports Authority after it allocated a tender for the storage facility to Burgan “questioning the need for (its) development” while “full well-knowing” that oil infrastructure shortcomings in the Western Cape had been identified as a risk to the security of fuel supplies in the region.

Burgan also alleged that Chevron determined the berthing schedule to feed into the pipeline to the Chevron plant exposing competitors “to extra demurrage as vessels have to wait for Chevron’s business to be completed before they can discharge coastal supplies and imports”.

Burgan, a 30% black empowered company, describes itself as “a potential new entrant in the South African oil storage industry and a venture between two BEE companies, Thebe Energy, Jicaro and VTTI, an international Netherlands-based firm that builds, owns and operates oil storage facilities around the world".

In early December it received Nersa's nod to erect a storage and distribution terminal at the port of Cape Town, but it still requires the approval of the department of environmental affairs and development planning, which has been provided a final environmental impact assessment report.

Krusche argued that in each of the regulatory processes Chevron objected to the Burgan Terminal on socio-economic grounds. “In sum, Chevron argued that increased petroleum products imports from other countries into the Western Cape would inevitably follow on the installation of the Burgan terminal”.

She noted that Chevron also argued that the increased imports would in turn compromise the production of Chevref,  - based at Milnerton in Cape Town, which would consequently "have to retrench a significant number of employees”.

Burgan’s opinion was that Chevron’s concerns were exaggerated and unfounded. “It believes that Chevron’s concern’s regarding its profitability, the potential closure of Chevref (which includes a refinery and storage facilities)  and the impact on employment in the region, are merely a cover for its exclusionary stratagem to protect its near-monopoly control of oil infrastructure and its influence on the downstream petroleum products wholesale, commercial and retail markets in the Western Cape and the other benefits derived from its strong position from the prospect of the competition offered by Burgan, a new entrant, in respect of oil infrastructure and related services in the region.”

Burgan argued that Chevron’s dominance in the oil supply market is “indisputable”. Krusche said: “Accordingly, except for the coastal supplies and products produced by PetroSA (the state national oil company) in limited quantities, all oil companies in the Western Cape rely on Chevref’s production.” Chevron also held “the highest market share in the downstream, marketing and distribution markets”, argued Burgan.

Chevron also owns and operates the only fuel distribution system tanks, loading facilities and pipelines connected to the liquid fuel berths in the port of Cape Town, noted Burgan. “The Chevron pipeline is connected to Engen and BP storage tanks and Chevron’s own storage at Chevref”. This oil infrastructure “must” be used by Chevron’s competitors “and can be termed an essential facility to the Western Cape oil industry”.

Burgan argued that Chevron holds a market share “in excess of 90% of fuel supply to the Western Cape and controls most of the available and essential oil infrastructure and the provision of access thereto and services to its competitors in the region”.

Burgan dismissed the Chevron argument that it would source its products from abroad. “The (proposed) Burgan terminal is not relevant to the question of imports, that remains the decision of the regulator.”

The terminal, Burgan said, will provide oil infrastructure in addition “and as an alternative to and in competition” with Chevron’s oil infrastructure. In future oil companies would have the choice to receive petroleum products into the Burgan terminal or into Chevron’s oil infrastructure and store (that) in the Burgan terminal.

Burgan noted that existing petroleum product import regulations ensured that local refiners, such as Chevref, were protected from imports “because imports are only permitted in cases of short or no production by local refineries”. In addition, Burgan argued that the supply of domestic fuel in the Western Cape “is cheaper” than imports.

At the Nersa hearing in November, Chevron regional strategy manager Steve Hegarty said while his company does not oppose the establishment of extra storage capacity in the Western Cape, “our concern is with the use of such a facility for unnecessary fuel imports that would harm our refinery”. He said net after tax earnings currently of some $15m a year would turn into a $2m loss “after the construction of the Burgan facility”.

Chevron South Africa CEO Stephen King said if the refinery were to close, 500 direct and 13 000 indirect jobs would be lost.

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