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What really happened between Shell and its BEE partner

Petrochemical giant Shell made headlines in May when it announced that it would be exiting the South African market and selling its 72% stake in Shell Downstream South Africa which owns and operates approximately 600 service stations across the country.

Initial reports claimed that the departure was due to a quarrel between Shell and its B-BBEE partner, Thebe Investments Corporation (TIC), over the value of the latter’s shares in SDSA.

However, TIC Chief Investment Officer Rapulane Mabelane has since come forward to clarify the situation, stating that the disagreement has been going on for years and has nothing to do with Shell’s divestment in its downstream operations.

A dirty exit

Thebe first invested in Shell in 2002, purchasing a 25% stake in what was then known as Shell SA Marketing (SSAM) and merging its own petroleum company, Tepco Petroleum, with Shell as part of the consolidation.

Following a successful relationship of six years, Shell approached TIC in 2008 requesting it to partner together once more in the energy firm’s petroleum refining operations, with TIC subsequently taking another 25% shareholding in Shell SA Refinery (SSAR).

Mabelane explains that TIC used assets and cash that it had on book, as well as bank loans, to fund this purchase at full market value without any discounts or special agreements.

While he didn’t divulge specific figures, Mabelane told 702 that TIC’s total investment into Shell at this point amounted to “tens of millions of dollars.”

“To put it bluntly, the investment by Thebe into Shell was not a freebie,” he said.

Come 2015, Shell informed TIC that it wanted to merge SSAM and SSAR to form one business unit which we know today as Shell Downstream South Africa (SDSA), which TIC agreed to.

As a result, TIC’s 25% stake in SSAM and SSAR, respectively, morphed into a 28% stake in SDSA.

As part of the negotiations, Shell and TIC agreed there would be an exit mechanism out of the partnership – also known as a put option – should one of the entities decide it wants to part ways.

At the time, a formula to calculate the value of this put option was included in the contract.

In 2022, Thebe celebrated its 30th anniversary and in doing so, it re-evaluated its investments and the future of its operations, said Mabelane.

“We in line with our own view of where we think the world is going then decided that we were going to reconfigure our portfolio, that we want to rotate our capital, and reinvest it in what we deem to be economies of the future,” he said.

“And that is what informed our desire [to sell our shares in SDSA], and eventually our intention, which we then communicated to Shell.”

TIC issued this notice to Shell in August 2022, subsequently, a dispute arose between the two parties over a disagreement on the fair value of TIC’s shares.

“We’re saying the value of our investment is worth X, and Shell is saying the value of our investment is worth Y,” said Mabelane.

Now almost two years later, TIC and Shell have taken the matter to the council for arbitration, and several “legal processes” are underway to determine whose valuation is correct.

While the exercise has been civilised and the stakeholders regularly discuss the matter, no agreement has been reached yet.

Mabelane emphasised, however, that TIC opted to divest in SDSA not because it lost faith in the business, but to allow it to push capital into new emerging technologies with more growth potential.

Shell’s own statement regarding its departure from South Africa suggests that it came to the same conclusion.

“The dispute between Thebe and Shell is not the reason why Shell is exiting the downstream businesses in South Africa,” concluded Mabelane.

“Secondly, Thebe is not the reason why Shell is exiting the downstream businesses. Thirdly, Shell is not exiting the downstream businesses, as far as I know from their own statement, because of transformation or because they don’t believe in BEE.”

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