Johannesburg - One of the objectives of Uhambo, the entity to be created through the merger of Sasol Oil and Engen, was to "actively lobby the postponement of deregulation" of the oil industry, according to documents from a Sasol/Engen presentation that were made available to the competition tribunal.
In its reasons for prohibiting the merger, the tribunal said that for Sasol the "overriding intent" of the merger "is the maintenance of an administered price, which has been set at a level, the import-parity level, that is manifestly supra-competitive in a competitively structured market".
The tribunal noted that Sasol was so intent on maintaining the administered price (the basic fuel price) at the import-parity price level that, according to internal documents, it proposed depriving the local market of refined oil so that the country would be forced to import supplies.
"Ironically, a company established precisely in order to reduce ... South Africa's dependence on foreign sources of fuel, identified the following opportunity in order to maintain import-parity pricing for fuel - take over the least economical coastal refinery and run it at its cost break-even point. This moves South Africa to be a net importer of liquid fuels."
The tribunal noted that Sasol was effectively proposing to short the national market by acquiring and then reducing the output of a low-margin coastal refinery. In this way Sasol could "legitimise" the import-parity pricing structure that generated superprofits for its shareholders.
As Sasol and Engen contemplate their options in the wake of the tribunal's prohibition, there is growing speculation that Engen's parent, Petronas, does not have the stomach for continued critical public scrutiny.
And on Friday industry sources said that in view of the tribunal's cogent and extensively argued reasons for prohibiting the transaction, it was likely that the only merger that had any chance of securing the approval of the competition authorities would be one between Total, which has just 7 or 8 percent of the retail market, and Sasol.
A merger with Total would not give Sasol the sort of power it needs to dictate terms to the local oil cartel, but would help it on its way to establishing a reasonable footprint in the retail market.
Sasol Oil and Engen have another 18 working days in which to decide whether to appeal the tribunal's prohibition.
They can appeal the prohibition or take the tribunal on review. In an appeal, the merging parties would attempt to persuade the competition appeal court that the facts warrant a different interpretation.
A review would be an attempt to persuade the court that there was some procedural unfairness in the tribunal's handling of the case.
Either process is likely to be long and could promote as much controversy as the tribunal's hearing did. In terms of the Competition Act, the intervening parties, in this case Shell, BP, Caltex and Total, do not have the right to intervene in an appeal but the court has the authority to grant them that right.