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Cape Town - Chevron carried out a turbocharged attack on its potential competitor in the petrol and diesel storage business in the Western Cape on Tuesday, saying that a new Cape Town harbour facility by Burgan would close down its local refinery, cause the wholesale loss of jobs and rob the South African economy of R18bn a year.
Burgan Cape Terminals is seeking a licence from Nersa for construction and operation of a petrol and diesel storage plant in the Cape Town harbour, estimated to cost about R650m. It proposes starting the build programme early next year and to be up and running in mid-2016.
Regional strategy manager of Chevron Steve Hegarty told a Nersa hearing at a Cape Town hotel that while Chevron is not against the establishment of extra storage capacity, “our concern is with the use of such a facility for unnecessary fuel imports that would harm our refinery”. The Chevron refinery is in Milnerton.
Hegarty reported that Chevron has a capital spend of $30m a year associated with its Cape Town operation. After correcting for depreciation and taxes, the net after tax earnings was $15m a year “today” but this would decline to a $2m loss “after the construction of the Burgan facility”.
“That would render the refinery economically unsustainable should (the Burgan storage facility) be used to facilitate imports,” he said. An independent company, PetroLogistics, has done a study indicating that the Chevron refinery facility “cannot sustain” an estimated loss of between $22m to $24m a year. “It will become loss making and leading to ultimate closure.”
Hegarty said should the refinery close, this would "severely impact the security of supply (of fuel) in the Western Cape. We would have to import all the fuel demand in the Western Cape but we would also lose the production of speciality products… LPG production… that the refinery also produces. The loss of bitumen production would have a severe cost implication for local road builders.”
He believed about R1.5bn in added value would be lost to the SA economy because of the move to imported fuel products. “We need to be very clear on the true purpose of the Burgan facility. Is it really to provide much-needed independent storage to new entrants as Burgan claims, or is Burgan developing a large import terminal that is aligned to the business interest of their owners?”
Chevron said Burgan is 70% owned by VTTI which had its roots in Vitol, the largest world fuel trader. “It would seem to us... that this is a clear effort by Vitol to build an import terminal into which they will ship imported products from... large Asian, Indian and Middle Eastern mega-refineries. They would displace products manufactured at existing South African refineries with a consequent negative impact on the national economy and jobs.”
Dr Stephen King, CEO of Chevron South Africa, said: “We strongly object to this application.” He said about 500 direct jobs would be lost if the Chevron refinery was forced to close. An additional 1 3000 indirect jobs would also be affected. He believed the impact on the economy would be about R18bn a year, about 0.6% of GDP and that "R350m in direct income tax revenues would also be lost”.
Chevron manufactures both fuels and lubricants in South Africa, an industry it says will be endangered by imported fuels from Burgan.
Burgan earlier argued that the storage facilities would allow not only for racial transformation of the industry but also fuel necessary competition in a market where Chevron enjoys a virtual monopoly.
Burgan has a 30% black empowerment ownership.
Burgan Cape Terminals is seeking a licence from Nersa for construction and operation of a petrol and diesel storage plant in the Cape Town harbour, estimated to cost about R650m. It proposes starting the build programme early next year and to be up and running in mid-2016.
Regional strategy manager of Chevron Steve Hegarty told a Nersa hearing at a Cape Town hotel that while Chevron is not against the establishment of extra storage capacity, “our concern is with the use of such a facility for unnecessary fuel imports that would harm our refinery”. The Chevron refinery is in Milnerton.
Hegarty reported that Chevron has a capital spend of $30m a year associated with its Cape Town operation. After correcting for depreciation and taxes, the net after tax earnings was $15m a year “today” but this would decline to a $2m loss “after the construction of the Burgan facility”.
“That would render the refinery economically unsustainable should (the Burgan storage facility) be used to facilitate imports,” he said. An independent company, PetroLogistics, has done a study indicating that the Chevron refinery facility “cannot sustain” an estimated loss of between $22m to $24m a year. “It will become loss making and leading to ultimate closure.”
Hegarty said should the refinery close, this would "severely impact the security of supply (of fuel) in the Western Cape. We would have to import all the fuel demand in the Western Cape but we would also lose the production of speciality products… LPG production… that the refinery also produces. The loss of bitumen production would have a severe cost implication for local road builders.”
He believed about R1.5bn in added value would be lost to the SA economy because of the move to imported fuel products. “We need to be very clear on the true purpose of the Burgan facility. Is it really to provide much-needed independent storage to new entrants as Burgan claims, or is Burgan developing a large import terminal that is aligned to the business interest of their owners?”
Chevron said Burgan is 70% owned by VTTI which had its roots in Vitol, the largest world fuel trader. “It would seem to us... that this is a clear effort by Vitol to build an import terminal into which they will ship imported products from... large Asian, Indian and Middle Eastern mega-refineries. They would displace products manufactured at existing South African refineries with a consequent negative impact on the national economy and jobs.”
Dr Stephen King, CEO of Chevron South Africa, said: “We strongly object to this application.” He said about 500 direct jobs would be lost if the Chevron refinery was forced to close. An additional 1 3000 indirect jobs would also be affected. He believed the impact on the economy would be about R18bn a year, about 0.6% of GDP and that "R350m in direct income tax revenues would also be lost”.
Chevron manufactures both fuels and lubricants in South Africa, an industry it says will be endangered by imported fuels from Burgan.
Burgan earlier argued that the storage facilities would allow not only for racial transformation of the industry but also fuel necessary competition in a market where Chevron enjoys a virtual monopoly.
Burgan has a 30% black empowerment ownership.
