Run on numbers: Is fossil fuel that dirty and undesirable, or could it be local policies?

Thebe Investments and Shell are in a stampede to get to the exit door first as both rush to abandon ship. Picture: Independent Newspapers.

Thebe Investments and Shell are in a stampede to get to the exit door first as both rush to abandon ship. Picture: Independent Newspapers.

Published May 18, 2024


1. As of May 2024, Shell has a market cap of $232.16 billion. This makes Shell the world's 47th most valuable company by market cap. The market capitalisation, commonly called a market cap, is the total market value of a publicly traded company's outstanding shares and is commonly used to measure how much a company is worth.

Royal Dutch Shell is one of the world's largest mineral oil and natural gas companies. The group is active in more than 140 countries. Shell employs around 83 000 people worldwide. Shell Downstream SA (SDSA) was formed after Shell South Africa and Black empowerment company, Thebe Investment Corporation, agreed a decade ago to merge their Shell South Africa Marketing and Shell South Refining businesses. Thebe held a 28% equity stake. The fact that out of 140 countries, Shell choose to leave South Africa requires a serious look at our policies that affect investment.

According to the Shell web page: “Powering progress sets out our strategy to become a net-zero emissions energy business by 2050, generating value for our shareholders, our customers and wider society. It is designed to integrate sustainability with our business strategy.” The company also states: “We have worked to embed this sustainability commitment into our strategy, our business processes, and decision-making. We aim to provide more and cleaner energy solutions in a responsible manner – in a way that balances short- and long-term interests, and that integrates economic, environmental, and social considerations.”

2. Thebe Investment Corporation says it pulled out of its involvement with oil company Shell two years ago, but there is a dispute between the parties about the value of shares sold back to the petroleum giant. Thebe confirmed there was a dispute about how Thebe's shares should be valued. Thebe acquired 28% shares in Shell Downstream South Africa in 2002 through debt funding and own cash resources. The oil giant has about five hundred outlets in South Africa since it started operating in the country in 1902.

The Thebe Investment Corporation, which is 50% owned by the Batho Batho Trust (BBT) and 50% owned by management, is to restructure its shareholding to increase the trust's stake to about 70%. The BBT, set up by Nelson Mandela and Walter Sisulu in 1992, is principally a trust to benefit the ANC, although this is not explicitly stated in the trust deed. Also in 1992, the BBT funded the founding of Thebe with R100 000 seed capital to create an investment vehicle to provide income for the trust. Since party donations were first disclosed, the BBT has typically donated the maximum amount of R15 million every year to the ANC. According to My Vote Counts, the ANC scored R52.5m in energy-related funding from Chancellor House and Batho Batho Trust, which has a majority stake in Shell’s local BEE partner, Thebe Investment Corporation. The Energy and mining sectors are the largest source of donations to political parties. These sectors are well known for cumbersome regulations. A total of 74% of donations go to the ANC. The BBT is run independently of the ANC by a board of trustees headed by Kenny Fihla.

It submitted a stake valuation based on figures Shell had provided and valued its stake at $200m (R3.7bn). This is an exceptionally large amount for Shell to fork out while they are also abandoning the downstream business. Any payout can only be based on future earnings, and this is where it becomes muddled. Any investor taking over from Shell in a dwindling fuel market will not want to start without a black partner and with an R3,7bn penalty. The concept of once empowered always empowered will be assessed. (The High Court of South Africa – Gauteng Division, Pretoria – handed down its judgment in the matter between the Chamber of Mines of South Africa v Minister of Mineral Resources and director-general, Department of Mineral Resources [case no.41661/2015].) The judgment stated. “In other words, the mining right holder has no obligation to ‘top-up’ the reduction in the 26% HDSA ownership.” This case is related to mining rights, and any new investor in Shell Downstream is well advised to get legal assurances.

3. One of SDSA’s main assets and South Africa’s largest refinery, Sapref, in the east coast port city of Durban, has not been operating since 2022 when Shell and its refinery joint venture partner, BP decided on a spending freeze and halt to the refinery’s operations. Flooding along the coast that killed nearly 400 people that same year severely damaged the plant, which at that stage provided around 35% of South Africa’s refining capacity.

Shell, which has been present in South Africa for more than a century, is still exploring the country’s offshore opportunities, incurring opposition from environmental campaigners who have launched court action. However, the company does not have a clean ethical record. According to a fact sheet, Total-Shell-Offshore-Exploration-Scoping-Report, published by Natural Justice: “Total and Shell’s global legacy of environmental harm and corruption... In 2021, a Dutch court ordered Shell to engage in extensive clean-up efforts and compensate affected communities in Nigeria, where hundreds of oil spills, each year have led to significant environmental degradation. Shell settled with another Nigerian community for around $111m for damages resulting from Shell’s oil spills. Meanwhile, Shell’s Nigerian assets are currently frozen pending the outcome of Shell’s appeal against a 2020 Nigerian court decision ordering Shell to pay $1.92bn to 88 Nigerian communities affected by Shell’s oil spills. Meanwhile, Total Energies faced a 2021 inquiry into a five-year-long oil spill that poisoned water in the Lagos area, as well as backlash from another community in the Rivers State of Nigeria for over 60 years of environmental harm. Total is currently facing civil charges in France arising from its operations in Uganda and Tanzania for failure to comply with the company’s legal obligations to prevent human rights violations and environmental harm.”

Shell’s oil exploration business has faced multiple challenges in South Africa, where the company has relinquished licenses over legislative uncertainty.

There has been opposition to Shell’s planned seismic survey on the Wild Coast, but Mineral Resources and Energy Minister Gwede Mantashe called objections to developments in the upstream petroleum industry a “special type” of apartheid and colonialism. Mantashe gives himself away, as it reminds one of “The lady doth protest too much, methinks”, a line from Shakespeare’s Hamlet. It would be interesting to see the documentation of the prospecting rights and the BBEEE partnership requirement and the ultimate beneficiaries, but despite calls for accountability and transparency, we all know how that will end and it is not with broad-based citizens.

4. The exit door is situated right next to the entrance door to investment in South Africa, which is open 24/7. Amazon steps in.

PWC South Africa shared its fourth South Africa Economic Outlook report for 2024. “It would come as a welcome surprise to many South Africans to learn that, despite the country’s many challenges, our economy still attracted R100bn in FDI inflows in 2023 – equal to 1.4% of GDP. In fact, while some might expect South Africa’s investment outflows to be larger than inflows, the country has seen a net FDI inflow (inflows minus outflows) in every year since the global financial crisis.”

As of May 2024, Amazon has a market cap of $1.952 trillion. This makes Amazon the world's fifth most valuable company by market cap, according to our data., Inc., doing business as Amazon, is an American multinational technology company engaged in e-commerce, cloud computing, online advertising, digital streaming, and artificial intelligence.

Naspers owns Takealot, South Africa’s top online retailer, and has been expanding its services to include one-hour delivery for items ranging from phone chargers to toys, in anticipation of Amazon’s arrival.

E-commerce only makes up about 4% of South African retail, presenting the opportunity to grow the market three to five times faster than in peer countries, Takealot chief executive officer Mamongae Mahlare said last year. Online sales worldwide have reached 16% of total sales. In Africa, we have a lot of growth ahead to catch up, and it is little wonder that Amazon has entered the market. Online retail sales in South Africa grew 30% to R55bn ($3bn) in 2022, according to a study by market research firm Worldwide Worx.

5. The dispute between Thebe Investment and Shell highlights the role BEE regulations and the role beneficiaries of such BEE deals play. It would be interesting to receive information on the BEE requirements that Amazon has to comply with. We will then understand who will leave South Africa and who will enter. Minister Mantashe has offered a warning that he intends to punish Shell. South Africa’s energy ministry signalled it may grant fewer oil exploration permits to Shell Plc over the company’s plans to exit the nation’s fuel-supply business. Hopefully, he realises that other investors will carefully consider his utterances before they commit investment, as the same fate may befall them. The many petrol attendants at Shell garages will be wondering how it came about that a BEE deal passed them by as they fear losing their jobs, while the select few beneficiaries of the BEE Trust demand their R3,7 billion stake.

To resolve the impasse, it seems logical that Shell obtains a buyer for the entire operation and that the spoils are then divided on a pro-rata basis, 72%:28%. It would only be reasonable to compensate the workers first for potential job losses and uncertainty regarding the new employer.

* Kruger is an independent analyst.

** The views expressed here are not necessarily those of Personal Finance or Independent Newspapers.