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3 reasons Shell is leaving South Africa

There are three possible reasons for Shell’s impending exit from South Africa, including a dispute with its BEE partner, its global strategy, and a lack of profits due to fuel retailer regulations, according to the South African Federation of Trade Unions (Saftu).

Shell last week made headlines when it confirmed that it is divesting all its shareholdings in Shell Downstream South Africa (SDSA) and will be selling its 600-plus service stations and forecourts.

While it is abandoning the downstream business, the energy giant intends to keep participating in upstream operations.

It is currently embroiled in a legal fight to reclaim exploration rights allowing it to search for oil and gas in South Africa and its surrounding waters following a 2022 decision by the Makhanda high court that revoked these powers.

Reason #1 – The BEE dispute

The alleged dispute between Shell and its BEE partner Thebe Investments Corporation (TIC) is considered the least probable cause for the petrochemical firm’s exit from the South African market, said Saftu spokesperson Trevor Faku on Newzroom Afrika.

Early reports on the debacle suggested that TIC intended to cash out its 28% stake in SDSA which in turn prompted Shell to re-evaluate its domestic operations altogether.

However, TIC has since clarified that Shell already divulged its intention to leave South Africa around two years ago and the recent scuffle between the two entities is merely over a disagreement on the value of TIC’s shares, said Faku.

Reason #2 – The global strategy

A more compelling reason Shell is abandoning South Africa is to achieve its overall sustainability targets regarding carbon emissions.

The local market’s slow adoption of electric vehicles (EVs) and government’s sluggishness in introducing incentives for EV manufacturing means the country will largely remain reliant on fossil fuels for the foreseeable future.

Faku explains that this leaves few eco-friendly avenues to explore that will positively impact Shell’s emission goals – such as EV charging infrastructure – forcing it to withdraw from the country completely if it wants to reduce its carbon footprint.

It has made similar moves in countries such as Malaysia and Nigeria where EV penetration rates are equally low.

Reason #3 – The return on investments

The third probable cause for the divestment, which experts like Faku believe is the true reason, is due to local fuel retailer regulations hampering profitability.

As it stands, petrol prices are regulated by national government. This means that each element of the petrol price as well as the final price at the pumps must be approved by the Minister of Energy.

Additionally, the petrol price at all retail service stations in a specific pricing zone must be similar and no discounting is allowed.

Meanwhile, diesel is not regulated in South Africa but occupies a smaller share of a very competitive market, consequently, filling stations still try to keep their rates as low as possible to attract customers.

The combination of these factors has the potential to undermine profits and result in a meagre return on investment that may not be worth the hassle of continuing the downstream business.

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