BP in SA in the final decade of apartheid

Robin Knight writes on the dilemma facing global companies caught up in international sanctions

BP in South Africa

Trade and financial sanctions were applied to South Africa from 1979 following decades-long pressure from anti-apartheid activists and governments. By 1994 Nelson Mandela had been elected president of South Africa; he and other black leaders were convinced that the sanctions, and particularly the ban on oil sales to South Africa – a country without its own oil reserves – and Pretoria’s growing inability to access international capital markets, played a significant role in the transition.

That argument is debateable. South Africa never ran seriously short of oil throughout this 15-year period. Sasol at Secunda eventually produced one-third of the republic’s oil needs from its coal-to-liquids process during the 1980s. And a number of academic studies have now concluded, as did one undertaken at Yale University in 1999, that “the actions taken by governments were not especially economically damaging.” What cannot be disputed, though, is that the impact on those global oil companies that chose to remain in the republic was hugely damaging both in terms of long term reputation and their subsequent success in post-apartheid South Africa.

BP plc is a case in point. It had been represented in South Africa since 1924. It had an extensive refining and marketing-based operation in the country involving a 50 per cent share in a large refinery in Durban, a fleet of road tankers, 800 service stations and several thousand employees. BP Marine and Air BP had extensive operations too. As one of seven companies importing oil into South Africa, it was a vital cog in keeping the republic running.

Sanctions imposed on Rhodesia following the white-minority government’s declaration of independence in 1965 had already caused BP – still then 51 per cent owned by the UK government – considerable difficulties but been surmounted by “cosmetic” arrangements with local South African companies, tacitly approved by the Board in London and reflecting the alleged “managerial autonomy” of its overseas subsidiaries. In 1978 the official Bingham Report laid bare the collusion, and the role of the British government in this deception, to the intense embarrassment of senior BP executives.

Some lessons were learned and in South Africa BPSA management came to the view that an end to apartheid was inevitable but would take time. Meantime the company took refuge in internal initiatives such as ending segregation in the workplace, introducing a unified pay structure irrespective of race or sex and promoting affirmative action plans. Externally, it supported non-racial educational projects and a campaign related to rolling back the worst impact of the Group Areas Act on Cape Town’s District Six area. Otherwise, it adopted a low-key, wait-and-see posture.

The South African government, by contrast, did anything but sit back and wait. During the Rhodesian embargo it threatened BP and Shell directly in 1968 that it would take legal action if the companies did not supply petroleum products to South African citizens or organisations (who were then free to sell them on as they wished). As the threat of oil sanctions against the republic grew – they were imposed formally by the UN General Assembly in 1979 and lasted to early 1993 – so government pressure on BPSA rose. BP’s Board in London, which continued to have government representatives on it until 1987 when all BP’s shareholdings were privatised, at some stage decided not to pull out of the republic. The die was cast.

What followed is detailed in an extensive Statement BPSA prepared for the Truth and Reconciliation Commission (TRC) in post-apartheid South Africa in October 1997. Other global oil companies drew up similar statements. At the last moment all withdrew their cooperation, prompted by horror in BP’s London headquarters at the looming reputational damage. The Commission chairman, Bishop Desmond Tutu, protested in a rather pro forma way, nothing further happened and the statements remain unpublished to this day.

What the BP Statement shows, painful paragraph by painful paragraph, is the way the initial warning to BPSA from the SA government in October 1968 against placing any resale conditions on its products in South Africa grew into an all-encompassing relationship with the apartheid authorities that local managers realised at the time amounted to a sustained attempt to break or undermine UN, US and EU oil sanctions on the country. “The problem was that apartheid had so many tentacles and came upon the society and the company gradually but inexorably,” noted the Statement with masterly understatement.

Following that initial warning shot from Pretoria, BPSA was cautioned twice more, in 1974 and 1977, against disclosing any information to anyone (including to BP shareholders and BP headquarters in London) about oil stocks, supplies and products in South Africa. Thereafter “excessive caution” was used in all internal and external communications – just as the SA government intended.

Once the UN General Assembly acted in October 1979, BPSA slid further and further into a web of secrecy and collusion dictated by the apartheid regime. A Strategic Fuel Fund (SFF) was set up officially to procure crude oil on international markets – and BPSA was forced by the government to operate the fund and take the vast majority of its crude supplies from the SFF despite knowing that most of it had been illegally acquired in sanctions-busting deals.

It also bought three cargoes of its own illegally into South Africa, all from Brunei which had not subscribed to the UN sanctions regime. As part of the arrangements, it instructed the Masters of the tankers involved to camouflage their identities and to paint out the names of their vessels. In parallel it complied with elaborate government measures to avoid any reflection in its records of any of these transactions, the crude oil types involved and the names of intermediaries. Numerous secret codes were used – and known only to four people in BPSA who had all been given government security clearances “at the highest level.”

Ironically, BPSA’s central role in the functioning of the SFF had an upside. Like other oil importers, it was protected from the full economic effects of the embargo because the government paid it a premium for the oil purchased through the SFF. These premiums were absorbed by the SFF which meant, effectively, that South African consumers paid for them out of levies imposed by the state on the price of fuel.

Perhaps the most damaging ethical aspect of BPSA’s role in South Africa during the 1979-93 period, however, is the hand-in-glove relationship that grew, slowly but surely, with the South African Defence Force (SADF) and the apartheid regime’s security establishment. The Statement acknowledges, for example, that BPSA:

Took part in regular meetings with the SADF concerning security-related issues.

- Upgraded security at various BPSA sites in South Africa in line with demands made by and part-paid for by the state.

- Gave the government personal details about its employees which may have been passed on to the security establishment.

- Tendered and won contracts to supply fuel to a major South African military base (Grootfontein) in Namibia that was key to the civil war in Angola.

- Supplied up to 70 per cent of the fuel needs of the South African Air Force, more than 90 percent of fuel used by the SA Navy and over half the fuel required by the SA Army.

- Knew that fuel supplied by BPSA to SADF units in Namibia was being used to power military incursions into Angola.

- Knew that its staff, in the course of mandatory military service, gave the SADF expert information on how to build and operate oil storage sites.

- Received regular intelligence briefings from the SA government on the socio-political issues facing South Africa including details of guerrilla attacks. “BPSA was therefore very proximate and certainly integrally involved in the mechanism by which apartheid sought to manage the (external) threat.”

BPSA was not, however, immune to the impact the no-change policies of the SA government in the 1980s had on business in the country. Nine BPSA assets were attacked by ANC units between 1982-90 including the bombing of BP headquarters in Cape Town in October 1989. Six BPSA sites were declared National Key Points by the government so forcing the subsidiary to undertake dozens of security-driven improvements such as installing perimeter fencing and floodlighting and employing armed guards. Some of the cost was borne by the state.

Just how much BP in London knew about this slide into hand-in-glove collusion has yet to be established. Records in the UK National Archives and the BP Archive at Warwick University extend only to 1987 and are partial while the official BP company history for the 1975-2000 period has never appeared. Still, throughout most of the sanctions period three UK-appointed directors sat on the BPSA board and the company was majority-owned by the UK government. BP’s chief financial officer from 1986 was David Simon, later to become chief executive and chairman of BP in the 1990s before being ennobled in 1997 as Lord Simon of Highbury and joining the Blair government as Trade Minister.

That said, as time went by the wisdom of staying in South Africa was challenged more and more frequently, both inside and outside the company and in other international companies operating in South Africa. It was always resisted by BPSA. In its Statement to the TRC it cites four main reasons:

First, for a long time the directors of BPSA were convinced that they could affect change in a positive way inside “abnormal” South Africa by setting an example in such areas as workplace segregation and colour-blind employment policies despite acknowledged white hostility among some of its employees.

Second, BPSA, although a relatively small cog in the BP Group, proved extremely profitable over the 20-year period to 1994, earning as much as $2.5 billion for the company. Since no new investments were made by BP in the republic in this era, most of these earnings are likely to have been repatriated to London.

Third, it was felt that disengagement and divestment would have made no real difference. BPSA’s assets would have been bought for knock-down prices by local interests, the supply and distribution of petroleum products in the republic would have continued unchecked – and apartheid would have carried on.

Fourth, rightly or wrongly, BPSA and other international companies that decided to remain in South Africa believed that by staying they gave the disadvantaged some uplift by being able to devote funds to worthwhile social projects. Once the country normalised, they reckoned they would be in a better position to help rebuild society than if they had left and then returned.

It might be wondered, in the light of this largely damaging testimony, why BPSA, if not BP plc in London, felt it appropriate to prepare such an open mea culpa submission for the TRC. The answer can be found at the end of the BPSA Statement. “It is clear to us now,” the conclusion reads, “that, although our efforts to bring about change may have contributed to the demise of apartheid, we were unavoidably involved in its continuance.”

In particular, BPSA saw its statement as a warning to leaders in global industries against the pernicious effects of secrecy and government attempts to suborn companies, especially those in the oil and gas business. “Politicians know that to obtain popular consent to obscure their actions they need only say they are dealing with the oil industry ‘in the national interest.’”

BPSA’s advice still has resonance today as economic sanctions are scattered like confetti around the world. The BP of 1979-93 or even 1997 is not the BP of today. At the time of the submission the company said it was confident that “this unfortunate situation…will not happen again” or if it did that it would recognise it “for what it is.” Since then, BP plc has been tested on ethical or business grounds in the United States, Russia, Colombia, Angola, Azerbaijan and elsewhere. If, by the low standards set in South Africa during the apartheid/ sanctions era, it has failed these tests, it is yet to be revealed.

ROBIN KNIGHT worked as an international journalist for American newsmagazines for 30 years. He was based in South Africa 1979-81. In 1999 he won a Business Journalist of the Year award as a contributing editor at Time magazine. From 1997-2003 he was BP plc Editorial Writer before establishing his own corporate writing company Knightwrite Ltd.