Pumping up a $144m discount

JOHN COWPLAND/Sunday Star-Times

PUMPING UP A DISCOUNT: Dom Kloosterman is a New Zealand Refining small shareholder who says he's being shafted by a deal with the big boys.

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A small shareholder in NZ Refining Company believes the four global oil giants who control nearly 75 percent of the company are siphoning off millions of dollars each year to the "gross injustice" of shareholders like himself.

Dom Kloosterman, a retired banker, calculates that a sweetheart deal signed more than a decade ago means BP, Exxon Mobil, Caltex and Shell last year got a $144 million discount on the fees they paid NZ Refining to process their crude oil into petrol and diesel for sale at the pumps.

Rather than paying NZ Refinery a gross processing fee of $430m, they paid $286m instead. The difference, he says, is "a quite staggering amount, of real material significance, and is nowhere substantiated or accounted for in the company's annual balance sheets".

He says if the money had gone straight to the bottom line, NZ Refining's pre-tax profit last year would have been $293m, instead of $149m. And that would have meant more money available for dividends to small shareholders.

NZ Refining chairman David Jackson said it was necessary to offer the petrol majors a discount.

"Without that 70/30 split [of processing fees between NZ Refining and oil company users] we would have no customers," he told the Sunday Star-Times.

He said the agreements did not adequately compensate oil firms for the risks of owning and stockpiling oil, and that the agreements were continually monitored and some aspects negotiated.

A more extensive review about to get under way would examine aspects of the agreement which protected both the refinery and the oil companies against price fluctuations.

Jackson said all NZ Refining shareholders enjoyed exactly the same returns.

"I can assure you there is no preferential treatment given to any shareholder," he said.

But Kloosterman believes there is disparity between benefits to the four big shareholders and the firm's 3000 small shareholders, a result of changes making the 1995 agreement outdated.

Kloosterman said the discounts agreed then "have remained unchanged, in spite of sky-rocketing [processing] fee income caused by a worldwide shortage of refining facilities".

The agreements envisaged annual reviews, but bar one change to terms, they remain largely unchanged, he says.

After spending the best part of two years gathering information to determine the size of the benefit to oil companies, he wrote to Jackson in August, and again in September, outlining his findings.

Days after the last letter, NZ Refining released its interim report, in which Jackson announced a review of the 1995 agreements. He also said the agreements had proved "remarkably robust and served our shareholders well".

Kloosterman is quietly chuffed by the development. As for which shareholders have been well served by the fee agreement, Kloosterman has no doubt.

And it's not just the size of the discount which delivers a huge annual cash payment to oil companies that disturbs him, but the fact that they are paid at all.

He says other aspects of the agreement mean oil companies are adequately compensated for the costs of bringing crude oil to the Marsden Point refinery.

He says the 30% discount figure "is no more than a fictional percentage plucked out of the air" when the agreement was drawn up, and when he believes the oil companies had NZ Refining over a barrel.

He quotes from an appraisal report by Deloitte Touche Tomatsu at the time that said independent NZ Refining directors had reported the deal was the best the company could negotiate. "Accordingly, the company has no alternative means of deriving revenue from use of its assets," the report conceded.

- © Fairfax NZ News