Fusion Spark challenges CCA energy deal order

The consortium seeking to acquire a 70 percent controlling stake in Engen Botswana is challenging an order requiring a company owned by Choppies Chief Executive Officer Ramachandran Ottapathu to sell its majority stake in Reddy Group, which has interests in 67 fuel retail station sites across Botswana. Fusion Spark, in which Ottapathu holds a 30 percent stake, is appealing against two conditions imposed by the Competition and Consumer Authority (CCA) when it approved the takeover on September 8, according to the Competition and Consumer Tribunal.

At the centre of the dispute is the regulator’s requirement that Ajantha Proprietary Limited, wholly owned by Ottapathu according to Companies and Intellectual Property Authority (CIPA) records, sell its entire 75 percent shareholding in Reddy Group to citizens or citizen-owned companies before the Engen deal can proceed.

Fusion Spark argues that the CCA lacked sufficient evidence to justify the forced sale, exceeded its legal powers and failed to consider less restrictive measures to address its competition concerns.

The consortium is also challenging a condition governing Engen’s dealer agreements , seeking to limit its duration to three years. It has asked the Tribunal to suspend both disputed conditions while the appeal is considered.

With the Tribunal yet to rule on either the appeal or the suspension request, CCA Chief Executive Officer Gideon Nkala confirmed to The Business Weekly & Review that the conditions remain in force unless they are suspended, amended or overturned.

The dispute follows a public hearing held in July that brought scrutiny to the commercial interests surrounding the proposed takeover, spanning fuel wholesaling, transportation, service station ownership and convenience retail.

In its September decision, the CCA did not object to the transaction on market-share grounds. It estimated Engen’s share of the wholesale and retail fuel market at 15.9 percent, compared with 0.2 percent for Acer Petroleum Botswana, another business linked to the acquiring consortium.

The CCA noted that the two businesses’ combined market share of 16.1 percent would remain below the 25 percent dominance threshold used in its assessment.

Instead, the Authority’s concerns centred on Ottapathu’s overlapping interests in the acquiring consortium and Reddy Group. It found a strong likelihood that his 30 percent stake in Fusion Spark, alongside Ajantha’s 75 percent holding in Reddy Group, could enable him to align Reddy Group’s commercial decisions with those of the merged Engen business.

The CCA warned that this relationship could create an incentive to favour Engen-branded fuel over supplies from rival wholesalers or arrangements involving unaffiliated dealers at Reddy Group’s multi-branded service stations.

To address that risk, the Authority ordered Ajantha to dispose of its entire stake in Reddy Group before the takeover could be implemented. The remedy went further, prohibiting Ajantha from maintaining any direct or indirect involvement with Reddy Group for three years after implementation.

Fusion Spark is challenging the legal basis for that intervention, arguing that the CCA did not have sufficient evidence to justify the divestment, exceeded its legal powers and failed to consider less restrictive alternatives.

The second contested condition concerns Engen’s existing dealer and franchise agreements. The CCA ordered the merged company to honour existing arrangements, including fuel supply, pricing and payment terms, while imposing safeguards against changes that could disadvantage independent dealers.

Fusion Spark is not seeking to remove those protections entirely but wants the condition limited to three years.

Other requirements attached to the approval include providing convenience-store operators with equal opportunities at Engen service stations, appointing at least five citizen-owned fuel transporters or distributors, and prohibiting direct, merger-related retrenchments of citizen employees for three years.

The proposed acquisition follows an earlier competition intervention involving Vitol, which controls both Engen Botswana and Vivo Energy Botswana.

In a previous merger decision, the CCA required the divestment of Engen to address concerns about the concentration of fuel retail operations under Vitol.

According to the regulator, Engen and Vivo Energy together accounted for 163 of approximately 356 dealer-operated service stations nationwide, representing about 45.8 percent of the network.

The proposed sale to Fusion Spark would separate Engen from Vitol’s wider fuel business. However, the conditions attached to the transaction have now become the subject of a separate legal challenge.

The Competition and Consumer Tribunal must decide whether the disputed conditions should stand, be amended or be set aside. Fusion Spark is also seeking their suspension pending the outcome of the appeal, but the Tribunal has yet to issue a ruling.