Shell East African exit attracts Asian and North African firms

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An announcement by Royal Dutch Shell PLC, the number one oil company in Europe, and a parent group of Shell Uganda, that it was pulling out of Uganda, Kenya and nineteen other African countries has led to a scramble for the company’s the assets.

Shell is pulling out of Uganda, Kenya and other countries due to poor earnings and a slow economic recovery. The company announced that it was putting 35 per cent of its current retail markets under review. “Shell’s program of downstream asset sales will continue through planned exits from 15 percent of our world-wide refining capacity and 35 per cent of our current retail markets, which equates to about 5 per cent of Shell-branded retail sites around the world,” said Royal Dutch Shell’s Downstream Director Mark Williams.

Shell Uganda country manager, Ivan Kyayonka has said the firm is working towards the sale of its oil-product retail business which is valued at between 1.2 US billion dollars and 1.5 US billion dollars. “We are expressing a desire to dispose off all our downstream business in 21 countries, including Uganda. We are going to start discussions with potential buyers”, said Kyayonka.

Shell’s move towards upstream activities that relate to oil exploration and production and departure from low-margin downstream market, ie; dealing in petroleum products and refining crude oil, corresponds with a recent trend among multi-nationals. Analysts believe that the move is to help the company concentrate on higher earning projects like the Perdido mega project, the deepest ever oil field in the Gulf of Mexico. Shell owns 35 per cent of the Perdido oil development.

“This decision is part of our drive to refocus our global downstream footprint into fewer, larger markets,” Xavier le Mintier, executive vice president of Shell Oil Products Africa said last week.

Shell has over 100 petrol stations in Uganda and a big depot in the outskirts of Kampala, the capital. So far, it has been the biggest fuel distributing company in Uganda. In Kenya, Shell’s assets include 121 retail service stations among many others. French oil giant, Total, meanwhile, is the second biggest company dealing in fuel in Uganda. It has over 170 service stations, among other retail businesses, and a market share of 23.4% in Kenya.

Meanwhile, workers at Shell are worried over pending job losses. One of them, Bob Ayabwe who works at a petrol station in Kampala said, “We are worried over our jobs. So far my manager has not told me and my colleagues about our fate.” In Kenya, Shell workers, late last week staged a two-day go slow demanding high compensation packages over fears of pending job losses.

But according to Xavier Le Mintier, executive vice-president of Shell Oil Products Africa, “Early indications suggest there are a number of potential buyers interested in acquiring the businesses… We will now enter into a round of negotiations, with a view to securing the optimum outcome for our shareholders, customers and staff.”

“The businesses under review in Africa are profitable and professionally run. They have strong positions in their respective markets and offer ample scope for growth to owners willing to invest in them,” said Le Mintier.

An official in the same company, said that over 100 companies and businessmen have shown interest in buying the assets. North African company OiLibya, which increased its presence in the eastern African region after taking over Exxon Mobil in Kenya and snapping up Shell’s downstream market in Ethiopia, Sudan and Djibouti, is reportedly ready to buy Shell’s African operations for about US $2 billion.

Morocco Oil, Engen Petroleum from South Africa, as well as India’s Reliance Industries Limited and Essar Oil, are also expected to increase their stakes in the oil sector on the continent. Kenya’s KenolKobil has also expressed its interest in acquiring Shell’s operations. But “with a 50 per cent stake in the (Kenya petroleum sector)… Essar has lots of much better refining capability in India and it would make much more sense for them to turn the refinery into an import terminal and bring the product from their refineries in India,” said Robert Paterson, a petroleum consultant and former CEO of Mobil Kenya Ltd, quoted by Business Day.

Countries affected by the decision include, Morocco, Algeria, Tunisia, Egypt, Cote d’Ivoire, Burkina Faso, Ghana, Togo, Senegal, Mali, Guinea, Cape Verde, Kenya, South Africa, Tanzania, Botswana, Namibia, Madagascar, Mauritius, Uganda and La Reunion.

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