Total South Africa and Tosaco

1. Total South Africa and Tosaco • TSA is a signatory to the Liquid Fuels Industry Charter. • TSA was proactive in the creation of Tosaco, a BEE consortium established for acquisition of 25% of TSA. • In compliance with the Charter – the transaction covers all of TSA’s areas of operation (including refining). • Transaction is based on fair value, future TSA cash flows with external funding and strong support from TSA. • Transaction completed on 30 April 2003

2. Tosaco TOSACO PRESENTATION TO THE PARLIAMENTARY PORTFOLIO COMMITTEE ON ENERGY PURPOSE OF PRESENTATION To highlight potential detriment of proposed legislation (in Its current form) to SA’s inland refineries and to BEE oil Industry entrants who are/may be in partnership with inland refiners. To make a case and representations in favour of maintaining the Principle of “Transport Cost Neutrality”, whereby product transport costs are currently equalised i.r.o. coastal and inland liquid fuel refiners.

3. Tosaco – Constitution and Charter Compliance • TOSACO is a BEE consortium constituted in terms of a Shareholders’ Agreement signed on 30 January 2003: • Broad based (women; the disabled; new industry players) • Leadership with industry expertise and focus • Ability to provide value addition to TSA through operational participation • 12 separate black empowerment entities - 91.8% • Development and Employee Trusts – 8.2% • Strong leadership and control vesting in Calulo, SouthBase and Capital Oil (industry expertise, business acumen and women’s representation).

4. Tosaco – Constitution and Charter Compliance • Ability to call on all other consortium members on an ad-hoc basis to assist TSA and Tosaco with various initiatives. • Strong transformation tools in the Development and Employee Trusts • facilitating skills development in the SA Oil Industry (scholarships and community projects). • Mechanism for incentivising and retaining key employees. • Share allocation in Trust under control of Tosaco control pool with input from TSA.

5. TOSACO Consortium - Shareholding

6. Tosaco/TSA - a value adding partnership • Tosaco transaction is structured to ensure sustainability, Charter compliance and to enhance both the BEE participation in the Liquid Fuels Industry and the TCS/TSA value. • Active involvement of Tosaco in TSA’s business oil industry (TCS) is core to the deal: • Board and management involvement (JMC). • Actively securing existing and future wholesale and retail market share through the establishment of a new marketing company. • Mechanisms to ensure close co-operation with Government and Industry in the determination of policy decisions affecting the Oil and Gas industries. • Facilitating transformation within TSA (procurement; employment equity; etc.).

7. Tosaco – a value adding partnership • Tosaco, through its stake in TSA is now an active participant in the entire value chain of the SA petroleum industry. Which means: • An interest in Natref and crude oil refining. • An interest in the petroleum pipeline industry (this provides product to depots and crude to our refinery). • An interest in ensuring the profitable growth of the SA Oil Industry through appropriate Gvt interventions, especially for the benefit of HDSA’s. • Support for Gvt policies and legislation, e.g. the Pipeline Bill, insofar as these promote the above.

8. Tosaco – Petroleum Pipeline Bill • Tosaco agrees with stated objectives of the Bill which are compatible with the country’s vision of a transformed SA Oil Industry. • However, the Bill, is not completely supportive of some BEE initiatives i.r.o. new BEE investments and in its current format it will seriously prejudice these investments. • The Bill should take the BEE concerns into account and avoid unintended consequences regarding the Gvt’s stated policy on the participation and promotion of businesses of the HDSA’s in the South African Oil Industry. • From Tosaco’s viewpoint the Bill does not adequately address serious potential transport diseconomies to be faced by inland refiners as a result of the Bill’s promulgation.

9. Tosaco - Pipeline Bill - Entreaty • Tosaco would like the maintenance of level-fields and competitiveness between Coastal and Inland refineries, especially from a transport cost point of view. • The reasons for this entreaty are, inter alia: • SA’s geography makes inland oil refinery investment distinctly uneconomical. • The interests of the previous SA political regime imposed an investment distortion i.r.o. refineries. This was relieved through the cost Neutrality arrangement. • The proposed regulatory framework seeks to favour coastal refineries against Natref. Thus ignoring the basis on which past capital investments were made and on which cost neutrality was agreed. • The legacy handed to SA via the promotion of synthetic fuels alternatives validates the maintenance of transport neutrality even in the new dispensation. • This would require that for Natref, for example, at least no money would be made or lost on transport. This means that the money recovered from the customer on transport should, at a minimum, be equal to the total cost of transport to supply that customer with product - or, on aggregate, the cost of transport of crude oil plus the cost of transport of refined product to the customer should be more or less equal to the same cost of transport to that customer as if the product had been dispatched from the coast.

10. Tosaco - Pipeline Bill - Entreaty • The Bill should provide for inland refiners to be in a neutral transport cost position vis-à-vis coastal refiners and it should consider that the arrangement was an investment incentive which needs to be maintained whilst the investment subsists. • This would mean, e.g. that, at least, Natref would make neither profit nor loss on transport. The money recovered from the customer on transport should, at a minimum, be equal to the total cost of transport to supply the customer with product - or, on aggregate, the cost of transporting crude oil plus the cost of transporting refined product to the customer, should be equal to the same cost of transport to that customer as if the product had been dispatched from the coast.

11. Pipeline Bill Principle to be established: The cost of transport of crude, adjusted for yield (“C”) plus the cost of transport of product from Natref to aggregate depots (“B”) should at least be equal to the cost of transport from Durban to the same aggregate depots (“A”). In this way, from a transport perspective, Natref would not be at a disadvantage compared to a Durban refiner. Natref to depots Cost of transport “B” Depots Natref Durban to depots Cost of transport “A” Durban to Natref Cost of crude transport “C” Durban

12. Tosaco - Pipeline Bill - Entreaty • Without these provisions the Bill and its implementation will be detrimental to the future of Natref and Tosaco, in that Natref’s overall transport cost of product will be more expensive than that of any coastal refinery. • These extra expenses will give coastal refineries an unfair competitive advantage over Natref. • This situation will have a direct bearing on the success or failure of Tosaco’s investment in Total South Africa. • The unintended consequences will be BEE investment into an industry with shrinking margins due to the introduction of the BFP and escalating capital investment (clean fuels) and now transport costs.

13. Natref neutrality • The entreaty is that Natref should not be disadvantaged relative to coastal refineries • The proposed principle is that the dispatch pattern must be such that the monies recovered on transport ex -Durban to destination should equal the monies expended on crude ex-Durban to Natref and monies expended on product transfer ex-Natref to destination - however in practice a small amount of money is recovered. • Future Achilles heal because of the present ‘grace’ of regulatory authorities - principle could be threatened under a new pipeline regulatory regime