The Competition Commission of Pakistan (CCP) has given its nod to Pakistan State Oil (PSO) for acquisition of shares in Pakistan Refinery Limited (PRL), which have been renounced by Shell Petroleum Company.
In its recent decision, the CCP gave conditional approval to the purchase of 63 million right shares and unconditional approval for 21 million right shares in PRL depending on final decision of the Sindh High Court.
The green signal came in response to an application submitted by PSO seeking the go-ahead for acquiring 84 million right shares in PRL.
Along with the application, PSO also provided necessary information and the applicable processing fee in accordance with provisions of the Competition Act 2010 and the Competition (Merger Control) Regulations 2007.
Hascol Petroleum Limited, in its representation to the CCP, argued that after the purchase of shares, PSO would become vertically integrated with PRL, exercise greater control over the refinery’s operations and possibly prioritise its own interests in respect to refining.
PSO, however, claimed that in accordance with the provision relating to the right of first refusal contained in the shareholders’ agreement signed on March 26, 1970 by Shell, PSO and Chevron to which PRL was not a party, it had the right to subscribe to Shell’s remaining renounced right shares numbering 21 million.
Earlier, Shell offered these shares to Chevron, which it did not accept. Later, Shell attempted to sell the shares to Pak Arab Refinery Company (Parco), but PSO asserted that these could not be sold to Parco without first making the offer to it.
The CCP sought and analysed relevant data and information from all refineries relating to crude oil purchased locally and imported from abroad on an average monthly basis. It also asked for data of all oil marketing companies perta
On May 15, 2015, out of its 84 million rights issue entitlement, which it had renounced, Shell offered PSO 63 million shares and Chevron 21 million shares. On May 26, PSO through its board resolution approved and accepted the offer of 63 million shares.
However, Chevron did not respond to the offer. In accordance with Article 11.04 of the shareholders’ agreement, the offer of shares is deemed to have been rejected if it is not accepted within 30 days.
Accordingly, the right to acquire the additional 21 million shares shifted to PSO in pursuance of Article 11.02 of the agreement. PSO agreed to purchase these shares as well and Shell decided to sell the entire rights issue entitlement to PSO.
After the examination of facts, the Competition Commission decided that the intended acquisition of shares would not substantially weaken competition or lead to anti-competitive practices.
Following the acquisition, in contrast to other vertically integrated refineries and oil marketing companies, PSO would not be fully integrated with PRL, it said.
The CCP pointed out that there was no evidence to suggest the existence or possibility of anti-competitive behaviour or substantial reduction in competition by creating or strengthening the dominant position in relevant markets or any segment thereof by PSO.
PRL, situated on the coastal belt of Karachi, is a hydro-skimming refinery designed to process various types of imported and local crude oil to meet strategic and normal fuel requirements of the country.
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