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Portfolio Committee on Energy “Downstream Liquid Fuel Sector” SAPRA - Gerrie Lewies 24 July 2013

This document provides an overview of the retail fuel industry, highlighting the challenges facing fuel retailers and the financial impact they experience. It also outlines the strategic intent for moving forward in this highly regulated industry.

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Portfolio Committee on Energy “Downstream Liquid Fuel Sector” SAPRA - Gerrie Lewies 24 July 2013

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  1. Portfolio Committee on Energy “Downstream Liquid Fuel Sector” SAPRA - Gerrie Lewies24 July 2013

  2. Agenda • Retail Fuel Industry Overview • Challenges Facing Fuel Retailers • Financial Impact on Fuel Retailer • Our Way Forward • Our Strategic Intent

  3. Agenda • Retail Fuel Industry Overview • Challenges Facing Fuel Retailers • Financial Impact on Fuel Retailer • Our Way Forward • Our Strategic Intent

  4. Retail Fuel Industry Overview • Highly Regulated Industry • Regulatory Accounting System(RAS) to be implemented by December 2013 • Approx. 4200 Service Stations • Approx. 6000+ retail licenses issued • Competition is Brand Based • High Price Volatility • Importance of Security of Supply

  5. Retail Fuel Industry Overview • Diesel not regulated • Use of Diesel Cards – vertical integration • Fuel cross subsidisation • 20% Increase in price per litre • Price increase results in decrease in sales • Retail margin is 7,5% of price per litre • Currently large focus on convenience – not regulated

  6. Retail Fuel Industry Overview • Approx. 60% of sites are Oil company owned • These account for about 70% of the volume • NB - RAS developed for Retailer owned sites • Approx. 56 000 attendants • Approx. 17 000 other staff • Very high employee turnover • Constant investment in training

  7. Retail Fuel Industry Overview • Fuel Retailer most of the time on receiving end • Regulatory lag with margin increases • Fuel Retailer is the collection agent • Service station (24/7/52) not a normal business

  8. Agenda • Retail Fuel Industry Overview • Challenges Facing Fuel Retailers • Financial Impact on Fuel Retailers • Our Way Forward • Our Strategic Intent

  9. Challenges Facing Fuel Retailers Global & Local Economy Government Financial Institutions V&SM BMR&CM A&FM Leadership Labour Competition SA&LM I&TM Relation ships Culture Service Station 24/7/52 OPS/M HCM Values Stakeholders H, S & S

  10. Global & Local Economy • Increasing cost per barrel of oil • Weakening of Rand/Dollar exchange rate • Increase in Repo Rate • Increase in CPI/PPI • Average cost per fuel drop = R400 000 • Average 8 drops per month = R3 200 000 • Increasing cost to do business

  11. Financial Institutions • Rising interchange costs as a result of different methods of payment • Rising insurance costs • Excess insurance payments • High overdraft charges • Increasing finance costs • Increasing cash deposit fees

  12. Labour • Increase in labour unrest • Unintended consequences of strikes • Unreasonable Union demands • High unemployment • Increase in shoplifting • Increase in armed robberies

  13. Stakeholders • Inconsistency with RAS implementation • Increase in vertical integration • Increase in cross subsidisation • No guarantee on security of supply • Bank guarantee to cover 1-2.5 drops • Tenure not adequate to secure ROI • No standard “Business Valuation” model • No security on goodwill • Retailer to insure Oil company equipment

  14. Health, Safety & Security • Increase in cost of health, safety & security standards & requirements • Cost of contamination and/or spillage • Unemployed target service stations for life support • Financial impact of armed robberies

  15. Health, Safety & Security

  16. Health, Safety & Security

  17. Health, Safety & Security

  18. Health, Safety & Security

  19. Competition • Financial impact of new sites on current sites • Oil companies compete with own brand • Regulated environment prevents conditional selling • Cost of marketing constraints • Cost of Oil Companies competing

  20. Government • Administration barriers in the start up and running of a service station • Cost of non compliance • Lack of regulation enforcement • Increase in rates & taxes • Margin erosion • Cost and/or safety of zone differentiation

  21. Agenda • Retail Fuel Industry Overview • Challenges Facing Fuel Retailers • Financial Impact on Fuel Retailers • Our Way Forward • Our Strategic Intent

  22. Financial Impact On Fuel Retailers • Security of Supply - Standing dry on 6 000 litres per month for 12 months @ .992cpl = R71 424 per annum

  23. Financial Impact On Fuel Retailers • Fuel Price Changes - R1 increase in price per litre @ 40 000lt per delivery = R40 000 extra for next fuel delivery and an increase in the fuel guarantee

  24. Financial Impact On Fuel Retailers • Different Payment Methods - The use of Credit Cards have changed the cost of cards by approx. 200%. On a 300 000 lt service station the real increase is approx. R11 000 to R33 000 per month as a result of the use of credit cards

  25. Financial Impact On Fuel Retailers • Armed Robberies - One major armed robbery could close the doors for 2 weeks = R170 000 loss in income

  26. Financial Impact On Fuel Retailers • Armed Robberies - One major armed robbery could result in an actual loss in fuel sales of 50 000 litres per month = R600 000 loss in income per annum

  27. Agenda • Retail Fuel Industry Overview • Challenges Facing Fuel Retailers • Financial Impact on Fuel Retailers • Our Way Forward • Our Strategic Intent

  28. Our Way Forward • First of all we would like to take this opportunity to thank the Government Officials for their dedicated effort and hard work with the implementation of the Regulatory Accounting System

  29. Our Way Forward • To continue to work closely with Dealer Councils and Government Officials to implement the principles of RAS to help fuel retailers to secure their future

  30. Our Way Forward • To engage positively with all Stakeholders to develop win-win solutions to address the challenges facing the fuel retailers

  31. Our Way Forward • To work closely with all Government Departments to address the barriers to do business to ensure speed of service delivery

  32. Our Way Forward • To engage the Setas, Stakeholders, Government, Service Providers and the SA Fuel Retailers’ Network to continue to utilise service stations for the employment of the (18.2) unemployed, training & education and placement in the Fuel Industry Value Chain

  33. Agenda • Retail Fuel Industry Overview • Challenges Facing Fuel Retailers • Financial Impact on Fuel Retailers • Our Way Forward • Our Strategic Intent

  34. Our Strategic Intent • To make a difference to the Fuel Industry Value Chain to unleash the power of potential of the SA Economy

  35. Thank you for listening Gerrie Lewies - National Chairman -South African Petroleum Retailers’ Association

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