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South African Journal of Economic and Management Sciences

On-line version ISSN 2222-3436
Print version ISSN 1015-8812

S. Afr. j. econ. manag. sci. vol.11 n.3 Pretoria Oct. 2008

 

ARTICLES

 

The Sasol/Engen (Uhambo) merger-foreclosure and white fuel demand growth rates

 

 

Nicola Theron

Department of Economics, Stellenbosch University and Econex, Cape Town

 

 


ABSTRACT

During October 2005, the Competition Tribunal heard evidence on the proposed merger between two large oil companies, Sasol Oil (Pty) Ltd and Engen Ltd. During the hearing it emerged that major aspects that would determine the outcome of the matter were:
 Potential foreclosure;
 Demand growth rates of white fuel; and
 Logistics.
The aim of this paper is to examine how the Tribunal dealt with the issue of potential foreclosure, by examining the expected growth rates of white fuels. The Tribunal had to consider the extent to which foreclosure in the oil industry would be profitable. This depended partly on expected growth rates in the demand for petrol and diesel. It will be argued that although there was conflicting evidence on this point, a proper analysis of economic variables such as expected economic growth rates, petrol demand elasticities and income elasticities, provided sound reasons for the Tribunal to prohibit the merger.

JEL: G34, L41


 

 

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