The muddy waters of Chevron refuse to clear

Given the congenital secrecy of the oil industry, it is remarkable that Chevron South Africa has allowed two senior managers to respond to the anguish of 70 or more Caltex service station operators at the way their contracts have been handled or cancelled.

The usual way of dealing with matters that have become public is to shield top managers behind statements issued by the media spokesperson. In the US, they call this “plausible deniability”. Thus if the statements are economical with the truth, or just plain wrong, they can always be denied. Senior heads are below the parapet. The buck does not stop at the top. It flies over. Another way is to keep opponents in court until they run out of money and retire broke. One hopes irate Caltex dealers are aware of this tactic.

On the other hand, the aggrieved dealers might club together in a class action. The more of them there are behind a court challenge, the more the smoke thickens, and of course the more suspicion that there must be a fire. This is best described as “Many Davids versus one Goliath”.

Money power is not immune to this. In the US where juries are super-generous when it comes to awarding costs and damages, it has created “No win, no pay” lawyers. It is a relatively new phenomenon in this country.

If disgruntled dealers do mount a class action against Caltex, it will probably centre on the minutiae of the contracts they signed over the years. They certainly are contentious, not only for their one-sidedness. Service station operators, for example, have to fork out a great deal of money to improve or maintain the Caltex brand.

Although Caltex does not employ pump attendants, it insists on how they dress and how many uniforms the dealer must pay for (two a year for each). The contracts ignore the impact on attendants on cancellation – often meaning a new boss with all that could entail, and even the loss of a job.

Then there are the dealers’ capital investments to improve the appeal of Caltex forecourts and, the matter of customer goodwill built up – in some cases – over decades. This last aspect of the argument will be interesting. It is axiomatic in the retail fuel business that the franchisee/ operator is a critical factor in any service station’s fuel sales. A good one has a positive effect on fuel and convenience store sales. A bad one has a negative one.

Performance failures

Caltex has responded to the complaints against its actual and possible summary cancellation of contracts with statements by an executive chairman. This presumably senior manager told the media that only a few dealers would have their contracts cancelled. The reasons were (or could be) because of performance failures and tardiness in meeting broad-based black economic empowerment (BBBEE) targets, he said.

However, some dealers dispute the performance reason. They say their fuel sales regularly outperformed gross domestic product growth. Others point to significant increases in fuel volumes ever since they operated the site. If fuel targets were not met, they say, why did Caltex wait until the end of the contract to notice and use this as an excuse to terminate? Failure to meet targets should result in the operator being placed in breach and then afforded a reasonable period to get up to speed.

The executive chairman interviewed did not give a breakdown of the contract cancellations, so it is impossible to tell which service stations failed Caltex’s requirements in each category. A number of complainants were told by letter or telephone. Neither gave reasons.

What he did say was that those service stations owners that remained on contract would have five years to come up to scratch on the BBBEE “and not just on ownership”, whatever that means. Does it for example include pump attendants having a stake? If so what a marvellous way of incentivising them. It should have been thought of sooner. The five-year grace period for those who survive the cut, also claimed by the executive chairman, seems a bit rash, considering that his company is on the market and could be a completely different animal under new owners.

Lastly, there is another Caltex voice, described as the South African general manager for sales and marketing. He claimed firmly that the contract cancellations had nothing to do with the parent company (Chevron) deciding to sell its South African business.

Chevron in the very recent past also said it was not for sale, making this claim open to question. It seems more reasonable that instructions have been given to make Caltex look so squeaky clean in matters of black empowerment that the government will not try to block any sale. This latest Caltex pronouncement leaves more room for legitimate speculation regarding what is a strategic part of our infrastructure. For example, it is notable that the old Caltex refinery has been re-renamed the Chevron Refinery. Does this mean it will be sold separately from the Caltex network?

What is the price?

If the refinery is included in the package, will the buyer be compelled to invest the millions (or billions) of rands needed to upgrade it to produce the new fuel specifications demanded by the EU and motor manufacturers? Not to forget the site would need to be remediated before a Chevron departure.

Finally, what is the price Chevron/Caltex is asking for its aged refinery? Not that there is a snowball’s hope of ever finding out, but it would be fascinating to know. If it is based on its replacement cost, which oil company in its right mind is building equivalent-sized refineries these days?

* Keith Bryer is a retired communications consultant.

** The views expressed here do not necessarily reflect those of Independent Media.

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