Reliance Industries buys out the Gapco group in East Africa

Reliance Industries acquired the petroleum marketing operations of Gapco (Gulf Africa Petroleum Corporation). The acquisition has been done through a subsidiary and Reliance has not disclosed the consideration for the deal. Gapco owns a distribution network including retail outlets in countries like Tanzania, Uganda and Kenya. The company imports fuel and then supplies it to various consumers. Reliance would obviously seek to export its own fuel products through Gapco, boosting its retail margins. The company’s retail foray in the country has run into rough weather, as the government-run PSUs are selling fuel at prices that Reliance finds unviable.

The economic logic seems quite simple. By acquiring marketing infrastructure abroad, Reliance has captured a captive source for its fuel. Moreover, the assets belonging to this company –storage terminal facilities and retail outlets- will be valuable for ance. Reliance Industries’ ability to manage the tough environment in these countries will also play a key role in the success of this acquisition. The group also has operations in Sudan. While these economies too have been doing well, the same cannot be said about the situation on domestic front.

The promoters of Gapco are two Tanzanians (who seem to be of Indian origin) Yogesh and Dhiren Kotak. This Washington Post Special Feature published in 2001 gives some details about their operations. It mainly expanded by acquiring assets from MNCs who exited the region for various reasons, spreading its grip over the region. The story talks about a turnover of $400mn for the group, which is considerable but then again this is just a marketing operation. Still, for Reliance Industries that is a substantial market. Kenya for example, in 2004 had a domestic supply of 342,000 tonnes of petrol and 950,000 tonnes of diesel, according to the International Energy Agency.

This story talks about how Kenya’s sole oil refinery is also being eyed by Reliance. Of immediate relevance are details about Gapco, which it says has a relatively small share of 1.85% of the Kenyan market, but has a 35% share in Tanzania and 12% in Uganda. This research paper offers some good insights into the background of Gapco’s promoters. It also gives details about their operations, though may be dated. The company has been giving stiff competition to MNCs operating in these countries, and have succeeded in building infrastructure and even increasing its own market share. That is a story that Reliance will be familiar with. Why it sold out is not clear though. There were some reports on the internet about some disputes over amounts owed to Standard Chartered Bank. It is not clear if this had any role to play here. Read this.

With no financial details forthcoming about the deal or the group, one will have to keep guessing for some time as to how much revenues will get added to Reliance’s kitty. Reliance has acquired a majority stake and management control, the company release says, indicating that it does not have full control yet. But there is little else to go by, though it seems unlikely that Gapco will make a significant difference to Reliance’s Rs 110,886 crore sales figure.

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