Afric Oil scores big

At the height of the recession Tseke Nkadimeng was tasked with switching off the lights at Afric Oil, South Africa’s first empowered oil company. He had other plans. This year, it’s planning to mark its twentieth anniversary.

“If Afric Oil had to die, then the dream of having black indigenous distributors would go away…. We didn’t really have any black independent distributor, which could sit at the table with the major companies and government, and represent the interests of black distributors in South Africa,” Nkadimeng, now Chief Executive of Afric Oil, recalled.

The company’s good reputation, dedicated staff and Engen’s willingness to provide support instilled confidence “that if we understand what the issues are, we are going to be able to come out,” he said.

Afric Oil’s journey, supported by parent company Pembani, appears to be marked by resilience and resolve. 2009 wasn’t the first time Pembani – whose founders include Phuthuma Nhleko, Wiseman Nkuhlu, Khaya Ngqula and the late Max Maisela – considered liquidating the oil company.

To get Afric Oil off the ground, Pembani’s founders used their homes as collateral and borrowed R2 million from FirstCorp Merchant Bank. Soon, the company signed a deal to convert and rebrand 50 Caltex outlets into Afric Oil service stations. As it turned out, most of the service stations weren’t profitable and this, in part, pushed Afric Oil to the verge of liquidation – for the first time. Eventually a settlement, which saw the outlets revert to Caltex, was reached.

With funds in hand, the company had another go at the retail space in 1998. “We did a leveraged buyout of Zenex because we realised that we didn’t have scale, we had dog service stations and such, but we were already in the industry,” Nhleko said in a commemorative book. The R400 million transaction saw the company takeover 200 service stations and grow its share of the South African market from 0.1% to 6%.

But Pembani had even bigger plans for Afric Oil. It traded its stake in Zenex for a 20% interest in Engen, which in turn acquired 45% of Afric Oil, allowing the company to operate in the wholesale sector. Pembani reclaimed 100% ownership of Afric Oil in 2010.

Today, Africa Oil operates only in the wholesale sector, supplying diesel, petrol, paraffin and lubricants to range of private and public companies. Through its network of 50 direct employees in South Africa, it distributes 30 million litres of petroleum products per month and has a monthly turnover in the region of R 300 million. It holds 1% of South Africa’s total petroleum market share and 2.5% of the diesel market, Nkadimeng said.

He counts winning a major Transnet fuel supply contract among the company’s more recent highlights. In 2013, Afric Oil and eight other black-owned companies in the energy sector were awarded a R15.5 billion contract to supply the parastatal with 222 million litres of fuel per year, over a five-year period. Another vote of confidence came in the form of the Public Investment Corporation acquiring a 29% stake in the company in 2014. “The largest financial services company in Africa has done a due diligence and they believe in our story….We’re a company with the right processes, governance, strategy and we can survive in this industry,” he said.

According to him, the company’s first 20 years can be described as a “building phase” in a monopolised, highly competitive industry with high barriers to entry. Having successfully established itself, the company is now looking to grow its market share, expand into other products such as gas and into other African markets. It has already set up operations in Namibia and Zimbabwe and is looking into opportunities in Zambia and the Democratic Republic of Congo (DRC). Given the company’s success in the highly regulated South African environment, it can advise on regulations, building trustworthy partnerships in fragmented industries in which the oil majors no longer operate and even take the place of those majors to “build a proper and world class oil industry in any African country”, he said. As its South African customers pursue growth north of the borders, it also plans to be able to supply them with products.

To mark Afric Oil’s 20-year anniversary, Nkadimeng, will share his outlook on the future of the oil and gas industry in South Africa and the rest of the continent at the Johannesburg Stock Exchange this month. Maurice Radebe, chair of the South African Petroleum Industry Association, and Phinda Madi, author of ‘Black Economic Empowerment: 20 years later – The baby and the bathwater’, will join him to discuss how the regulatory framework and infrastructure deficit impacts growth in the local oil sector and the development of black-owned companies.

“If you look at the figures, black economic empowerment (BEE) in the industry still has a long way to go,” he said noting that BEE hold less than 5% of total fuel market share in South Africa. Instead of counting on share schemes and debating issues likeonce empowered always empowered, “it’s about time that we start to manage and run our own businesses, and use them for our own purposes”, he said.

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