A least one shilling from every litre of diesel, super or paraffin sold in Kenya will now end up in the bank accounts of French oil multinational Total Outre Mer SA. This is the new reality after the oil giant’s bid to acquire a company representing the interests of India’s richest man, Mukesh Ambani, in Kenya got a nod from a government authority in Nairobi.
Total Kenya, the Kenyan subsidiary of Total Outre Mer S.A, last week got approval from the Competition Authority of Kenya to acquire the entire stake of Gulf African Petroleum Corporation (Gapco) in a deal that will deepen Total’s dominance in Kenya’s retail petroleum industry.
Gapco, which the French multinational is set to take over is majority owned by Indian billionaire Mukesh Ambani through Reliance Industries. Negotiations for the merger and acquisition deal have been a closely guarded affair.
The acquisition, once approved by Kenya’s capital Markets Authority and Total Kenya shareholders, will give the oil giant dominance it requires to control oil imports, storage and marketing business in the country.
Total is already the leading marketer of petroleum products (diesel, petrol and kerosene) and cooking gas with an impressive retail network spanning the entire country.
According to data from the Petroleum Institute of East Africa, the firm had a 13.4 per cent market share second to Kenolkobil which has a slight lead at 13.8 per cent as of September 2016. In the cooking gas category, the firm is the market leader with a share of 23.9 per cent.
It is also a major player in the import of petroleum products, and between January and September, the firm imported 18 per cent of the products brought in under the Open Tender System (OTS).
Under OTS, which is supervised by the Ministry of Energy and Petroleum, oil marketing companies competitively bid to import products on behalf of the industry and the firm with the lowest bid is given the job. Bidding to import on behalf of the industry is done on an as-needed basis and complements imports by individual marketers.
Growing market share
It is here that Gapco, which is little known outside the oil industry, has excelled. The firm is the leading importer of petroleum products and as of September last year, the firm had a market share of 20 per cent. It also has two huge storage terminals for storage of its products as well as leasing to fellow industry players. The terminals have a capacity of 125 million tonnes, in comparison to Total’s storage capacity of 52 million tonnes.
The acquisition of Gapco will mean that there is potential for Total to control the import business by a share of as much as 38 per cent.
In the approval, CAK realises the possibility of Total emerging as a dominant player and puts a rider to the acquisition that would require the firm to share the storage facilities on a commercial basis with the industry.
“CAK has authorised the proposed acquisition of 100 per cent of the issued share capital in Gulf African Petroleum by Total Outre Mer S.A. on condition that Total Outre-Mer S. A. comply with the following… conditions,” said Wangombe Kariuki director general CAK in a Kenya Gazette notice Friday.
“The merging parties shall respect all hospitality agreements that Gulf African Petroleum Corporation has entered into with third parties on or before the 21st July, 2016 in relation to Mombasa Terminal.”
“For three years after the date of completion of the transaction, the merging parties shall maintain the present policy of making hospitality at Mombasa Terminal Two to third parties.”
The competition watchdog also requires Total to retain Gapco’s employees for at least for 12 months for those on contractors and two years for permanent employees. The requirement comes after complaints by Gapco employees said the deal had been reached without consultations with the workers who feared they would be laid off once it was concluded.
CAK’s approval relates to Gapco’s assets in Kenya which include two storage terminals in Mombasa and nine petrol stations in the country.
The French firm had also bid to buy Gapco’s assets in other East African countries, which has already gotten approval from the Common Market for Eastern and Southern Africa (Comesa) Commission. The deal is however subject to approvals from Tanzania and Uganda, for assets that are in the respective countries. There are 67 stations in Tanzania and 32 in Uganda.
“The acquisition of these assets, which are complementary to Total’s existing operations in Kenya, Uganda and Tanzania, will strengthen Total’s logistics in the region and significantly accelerate the growth of our service station network, particularly in Tanzania, while leveraging the Total brand,” said Total in a statement after it announced plans to buy Gapco. (Money&Markets)