Shell closes sale of Africa assets for Sh190 billion

The agreement is being concluded against the backdrop of hard bargaining by the firm’s 2,500 employees who want their terms of service protected against erosion by the new owners.

Insiders, who are not authorised to speak on the matter, said the deal worth $2.4 billion will see the consortium of Rotterdam-based Vitol and Helios create one of the continent’s largest distributors of petroleum and lubricants.

The two have since July last year been negotiating with Shell to clinch the deal that is billed as Africa’s largest private equity act outside South Africa.

Top Shell officials are expected to announce closure of the deal at a press briefing this afternoon where they will also sign the final agreement.

Mr Jimmy Mugerwa, Shell’s Kenya country chairman, declined to divulge how the firm had navigated the negotiations that have been fraught with challenges, including a court injunction prohibiting the sale of the Kenya business as a going concern.

“The employees issue relates to Kenya and two other African countries and that is why we have been struggling to complete the deal,” the source said. “Price controls may be another sticking point for interested parties in some countries.”

Senior Shell Plc, Helios and Vitol officials are in Nairobi to sign the agreement and announce the deal at a press conference on Thursday afternoon.

Mr David Holden, the vice president for strategy and marketing, sales and operations and Mr Patrick Carre, the general manager for portfolio and products at Shell Lubricants, will represent the oil giant at the Nairobi event while Mr Paul Greenslade, the executive director and Mr Javed Ahmed, a senior vice president are in for Vitol. Mr Alykhan Nathoo, a partner at Helios Investment Partners, will represent the private equity firm.

“We have been invited to a web cast and we believe this is the sale agreement signing announcement,” said a source close to the transaction. “Senior Vitol and Helios senior managers are in town and will be at the press briefing,” our source said adding that the parties are expected to announce the immediate takeover of the company by new share holders.

Mr Mugerwa declined to discuss the fate of Shell employees, customers or even the structure of the deal saying the information will be available on Thursday afternoon.

Vitol, which is making an entry into the fuel distribution and marketing segment of the oil business, and Helios are expected to become the new majority shareholders with Shell as a minority partner in all the 19 markets.

“Helios and Vitol do not have a marketing brand making it critical to have Shell on board for continued use of the trademark,” said our source.

Prices and Monopolies Commissioner, Mr Wang’ombe Kariuki said the parties had not made a formal application to Treasury as required by law for new market entrants.

“We are aware of the transactions but we are yet to receive an application,” said Mr Kariuki.

“To approve the deal, we will map the company’s assets to determine the level of market concentration in particular market segments,” he said. “We will look at the case and decide its compliance with the Restrictive Trade Practices and Monopolies Act.”

Shell’s exit is expected to cause a major realignment in Kenya’s petroleum market but the government could also flex its muscles and buy some of the assets to shore up Nock.

The partnership is also solid in view of the two new shareholders’ other business interest in Africa.

Shell has indicated that it intends to retain upstream operations in Africa.

East Africa has recently become a major oil exploration frontier with the discovery of huge deposits in Uganda making it a core area where Shell might want a presence.

Shell is also present in upstream operations in Madagascar, Ethiopia, Egypt and Ghana, Vitol and Helios’ interest in the deal is said to be hinged on acquiring a large footprint that will enable them to buy oil on concessionary terms across the continent.

Terminal storage

The business on sale includes 1,300 retail sites, retail sales of around 3,500,000 cubic metres, and 1,200,000 cubic metres of terminal storage.

Conclusion of the sale marks the beginning of an era when Sub-Saharan Africa’s financiers and entrepreneurs are increasingly winning the confidence of deal makers in global financial markets.

Four Western oil marketers, including Agip, BP, Chevron (Caltex) and Mobil have left Kenya in the past decade as competition from independent operators intensified thinning out profit margins.

Vitol is the world’s largest independent energy trader alongside UK’s Glencore Energy and Trafigura.

The firm mainly trades in crude oil, oil products, natural gas, coal, power and carbon credits.

Vitol trades with all the world’s major oil companies, including the integrated oil majors, independent refiners and traders.

The firm trades over 5.5 million barrels of crude oil and oil products per day and has been doing business in Africa for more than 40 years.

In addition to its trading business, and its 50 per cent share in the storage and terminals business, Shell owns 11 terminals around the world, including a state-of-the-art storage terminal in Kipevu, Mombasa.

In Kenya, Shell was a major beneficiary of the collapse two years ago of the oil marketer Triton.

It has exploration and production interests in Ghana, Cameroon, Philippines, Kazakhstan, Russia and Azerbaijan.

Vitol is not a network company and has no known experience in downstream marketing. Its interest in the deal is therefore being linked to the on-shore terminals for trading.

In the long term, analysts expect the firm to break up the company’s assets and sell them as individual units/activities.

Labour unrest

While the deal has generated some interest around the world, in Africa, it has been the subject of labour unrest.

Shell’s Kenya workers have sued their employer seeking to be paid more generously than what is on offer.

They are also seeking to block full-scale transfer of the company’s shares.

Since news of the impending divestiture leaked at the beginning of last year, Shell’s employees have kept the management on its toes with sustained demands for a handsome compensation package.

The Kenyan unit has about 250 workers who are seeking the right stay on with the new owners or quitting.

They want the new owners to back up each option with a comprehensive package whose details, they insist, should be communicated before the deal is signed.

Different terms

The employees fear that the deal might leave them working under different terms or without adequate terminal compensation and are demanding that Shell offers them the option of bailing out as was the case during Total’s takeover of Chevron’s assets in Kenya.

In Ghana, there have been threats of a strike over the same issue, and in Senegal and Morocco, workers have taken to the streets protesting against the sale.