Parliamentary Public Hearings Presentation: Petroleum Industry :

By Z.Mavuso

Chief Director: Petroleum Controller

TRANSFORMATION IN THE PETROLEUM INDUSTRY: FROM 2000-2010

1. INTRODUCTION

Liquid Fuels Charter

The policy objective stated in the Energy Policy White Paper to achieve "Sustainable presence, ownership or control by historically disadvantaged South Africans a quarter of all facets of the liquid fuels industry or plans to achieve this"

To bring about transformation in the Industry – 25% ownership across the value chain

2.COMPLIANCE IN TERMS OF THE PILLARS

2.1 Ownership- (Described as equity participation and the ability to exercise rights and obligations, control of boards through shareholding)

Prior to Nov 2000- 5.8% Post 2000- 26%

 2.2 Management and Control Black Board Representation-36% Black Executive management representation -41% Black Women Board member representation -11% No woman CEO or MD

COMPLIANCE IN TERMS OF THE PILLARS - CONTINUED

2.3 Procurement - % share of procurement spend by oil

companies by HDSA suppliers Prior to Nov 2000- 1.9% Post 2000 42% -goods and services

2.4 Total Black Representation in Employment -70.92% Top management -32.40% Senior management -37.10% Specialists and mid-management -55.50%

(all information: Industry Sources)

Is this progress?.

3. DoE PERSPECTIVE ON EMPOWERMENT TRENDS

Ownership- Significant progress made in terms of equity if the period prior to Nov 2000 is considered.

- however, shareholding not uniformly spread across the value

chain and total assets.

- deals concentrated on particular parts of the value chain and

excluding certain activities of the value chain, eg storage

facilities.

- there is a loose link between shareholding and operational

value add by HDSA’s- Equity an easy option?.

- No information of the actual take up of shares by HDSA’s

in some of the empowerment deals – not contained in

Annual Reports of Oil Majors

DoE PERSPECTIVE- Continued Management and Control– 36% & 41% black representation

at board and top management level respectively seems to be in compliance with the Charter.

- however if one removes PetroSA( National Oil Company)

which has about 10 board Members and all of them black,

the International Oil Company(IOC) picture will tend to be

different.

- At the time of the industry report, PetroSA had 7 blacks in

top management( including the Chief Economist and

Company Secretary)

- so the 36% and 41% on board/top management cannot be

the true picture.

DoE PERSPECTIVE- Continued Procurement : 42% claimed for procurement spent excludes

crude oil which constitutes 70% of procurement spent of Oil Majors

- Less than 10 HDSA/BEE companies are in crude trading

- Procurement may well be around 10% or less Skills Development. Information on this area scant as such

industry assessment difficult. This is even more important as most of the skilled personnel is fast approaching retirement age. The DoE audit will pay particular attention to this area.

Conclusion: the empowerment journey is a mixed bag

- significant strides have been made in some areas

- But lack of depth and magnitude in empowerment.

deals. Women participation, procurement and

enterprise development lag far behind

4.RECENT BEE SUCCESS STORIES

Reatile Gaz (Pty) Ltd (“Reatile”) merged with Engen Petroleum Ltd on 55% and 45% equity- LPG Market Focus

Sasol – Dedicated Crude Trading Program- 7 HDSA crude traders

Shell’s empowerment deal with Thebe extended to manufacturing- 50% ownership in Sapref

Chevron selling its wholesale business- HDSA take up. A couple of the HDSA’s are emerging as significant players in

the fuel market. Notable Calulo Petro- Chemicals, Fuel Logic, Kwande, Makwande, etc.

5. OBSERVATIONS FROM A LICENSING PERSPECTIVE

The Licensing dispensation -as provided by the PPAA of 2003- a tool through which transformation of the industry is effected and monitored. Operationalised in 2006

Approximately 15500 applications to date- cumulative number of applications since implementation

6000 retailers including general dealers and unbranded sites)

(approximately 60% of the sites are in Gauteng) 460 Wholesalers (30 HDSA operators-right to import product) 22 manufacturing/blending/Biofuels facilities( 4 qualifying as

HDSA’s)

5.1 RETAIL SECTOR HDSA/ BEE - 37% of retail service stations are 100% HDSA

owned (100% ownership only). Various other degrees of ownership from less than 100% are excluded.

This % significantly varies from province to province with some lower than the national average. For example in the Western Cape out of 903, only 26% service stations are 100% HDSA owned.

A large % of HDSA/BEE’s relegated to sites that are survivalist in nature and few in sites that pump high volumes including those on free ways. High Volumes > 300 000 liters per month – guarantee a return on investment.

RETAIL - CONTINUED Retail market is over traded and saturated- if the rate of change of

hands of service station ownership and the number of new to industry service stations is considered.

On average less than 20 new to industry service stations per year for the whole industry.

Approximately 1300 new applications per year- 90% retail change of ownership.

If 60% of the service stations are in Gauteng- serious empowerment challenges in retail as far as other provinces are concerned.

Beneficiaries definition as “HDSA” problematic in certain instances where compliance is acquired by simple transferring shareholding to female members of the family.

5.2 WHOLESALE SECTOR

30 HDSA wholesalers licensed with the right to import product. However there is very low import permit usage within this group

some have never traded. Only about 11 HDSA’s have used the permit- albeit sparingly No known HDSA bringing import into Durban Port for market

supply In instances where there is access to port facilities, it is through

Oil Majors. Hence the creation of independent HDSA wholesalers will remain a challenge.

Entrenched industry relationships – reports of non HDSA sometimes unlicensed wholesalers getting business and as such squeezing out legitimate players.

WHOLESALE- Continued The main issues relate to access to petroleum infrastructure Limited access to storage facilities HDSA/BEE wholesalers also compete directly with the

marketing arms of oil companies. Out of 7 Oil Majors only one has a dedicated program for

HDSA crude traders. Most dedicated funding available for HDSA/BEE’s in the retail

segment as opposed to wholesale.

= Volumes imported by HDSA growing but said to be less than 0,5% of the total industry volumes traded.

6. WAY FORWARD Possible amendments to the PPAA /Charter to increase

HDSA/BEE participation Volumes set aside for HDSA wholesalers to mitigate against

direct competition with Oil Companies? restricting oil companies imports of refined products to their

nameplate - putting a quota. State agencies that have a significant fuel input to their

operations- prioritize buying from HDSA suppliers HDSA allocation at the Durban Port and in the new pipeline? Alignment between DoE, Nersa, Transnet, National Ports

Authority on empowerment.

=CREATION OF A NICHE OPPORTUNITY FOR HDSA’S

WAY FORWARD - CONTINUED

Crude being made a measured procurement spent for Oil Companies?.

Incentive induced retail/wholesale incubator programs? Charter Audit and Review- DoE. Alignment of the Charter to the BEE Codes?. Or continue a sector specific with stronger monitoring and

enforcement legislative teeth?.

WAY FORWARD - CONTINUED

that the current licensing regime was only operationalised in 2006, six years after the Charter had been signed has been a

challenge. the Act regards all those that had already been operating at its

commencement as deemed license holders giving them the right to continue operating.

the great majority of the industry players including the Oil Majors fell within the “deemed” category and for them to comply they were asked to give them plans to comply by November 2010.

Service station owners having three or more stations- asked comply with the 25% HDSA ownership.

Thank you!