CCA orders Engen to sell 40 service stations to dilute dominance

This transaction will result in Vitol gaining sole control over Engen’s operations. The Vitol Group, conducting its operations in Botswana through its subsidiary Vivo Energy Botswana, is actively involved in the distribution and retail supply of refined petroleum products. These products include gasoil (diesel), lubricants, and gasoline, catering to both retail and commercial customers.

Similarly, the Engen Group imports and distributes specific refined petroleum products—such as gasoline, diesel, kerosene, and lubricants—from South Africa to both retail and commercial customers in Botswana. This distribution is facilitated through a network of service stations spread across the country.

According to CCA, the merging parties supply unleaded 93 and 95 octane petrol as well as 50ppm diesel. Furthermore, Engen Group is also engaged in the supply of jet fuel/ kerosene.

In its competitive and public interest analysis, CCA noted that the facts of the merger have shown that the implementation of the proposed transaction will result in an acquisition of dominance in the market for the supply or wholesale of petroleum products to retail customers in Botswana and a substantial player in the commercial market.

“This has an effect of enhancing market power for the merged entity and substantially lessening competition in the relevant market, as it contemplates the removal of a vigorous and effective competitor,” it elaborated.

Conversely, the dynamics and structure of the pertinent market, concerning licensing and pricing, possess the potential to counteract the competitive effects that might emerge as a result of the merged entity’s established dominant position.

However, the authority stated that it is aware of the potential public interest concerns that may arise from the merger regarding the risk to the security of supply, merger specific retrenchments and is also determined to neutralise concentration in any market available in Botswana. It further noted that it is also actively facilitating citizen empowerment as well as the enhancement of market entry.

Approving the merger with conditions, CCA stipulated that the merged entity will dispose of a total of 40 service stations which will dilute their market dominance post-merger to facilitate new entry.

The structure of the disposal will see all sites sold to citizens or wholly citizen-owned companies and prioritise existing dealers who are engaged in the operation of each identified site.

Additionally, 50 percent of the 40 sites must be disposed of to new entrants, with the authority stipulating that the new entrant should not include the merging parties’ principals, agents, partners, representatives, shareholders or directors. The other 50 percent will be disposed of to entities with 20 or fewer sites (including those in partnerships or joint ventures).

The CCA emphasised that the disposal should be concluded within 18 months (business days) from the merger’s implementation date. The divestiture of the 40 sites must specifically target Company Owned Dealer Operated (CODO) sites, encompassing both those owned by the merging parties and those leased from third parties.

The merged entity is further prohibited from taking part in franchise bids for any of the 40 sites identified for disposal for a period of 10 years from the completion date of disposal and supplying the identified 40 sites with fuel requirements for a period of 10 years from the completion date of disposal.

This is with the exception of challenging or unfavorable circumstances such as natural disasters and pandemic situations like COVID- 19 where national supply is severely constrained.

“Pending the disposal of the service stations, a CCA-approved independent trustee will be appointed to monitor the manner in which the merged entity interacts with the relevant service stations,” the authority highlighted.