ABOUT SAPIA

1. Presentation to the Select Committee on Economic Development on Jet Fuel Shortages and Challenges facing the Petroleum Industry: • 25 August 2009 • Committee Room E540, Fifth Floor, National Assembly Wing • 10:00AM

2. ABOUT SAPIA SAPIA represents the common interests of the petroleum industry and aims to promote an understanding of the industry’s contribution to economic and social progress.

3. About SAPIA • Membership The current SAPIA members are: • BP Southern Africa (Pty) Limited • Chevron South Africa (Pty) Limited • Engen Petroleum Limited • PetroSA (Pty) Limited • Sasol Limited • Shell SA (Pty) Limited • Total South Africa (Pty) Limited

4. About SAPIA • SAPIA’s objectives are to: • find solutions to the many pressing issues facing the industry; • be a source of information; • encourage co-operation among members; and • encourage good ethics and governance. • SAPIA supports: • a liberalised market, reached by an orderly, fair and inclusive process; • the empowerment of historically disadvantaged South Africans by member companies; • the upliftment of rural areas; • the sustainable development of our nation; • co-operation with Government in the achievement of national economic objectives; • an economic climate that fosters competitive efficiency; and • continuation of world-class standards in our petroleum industry.

5. RECENT JET FUEL SHORTAGES

6. Industry issues • OR Tambo International Airport Jet Fuel shortage • OR Tambo International Airport receives product from the Transnet refined products pipeline from Durban to Johannesburg (DJP) through the dedicated feeder pipeline, the dedicated AVTUR pipeline from NATREF refinery and rail tank cars from the coastal refineries • Existing fuel storage and distribution facilities consist of nine tanks with a combined storage capacity is 46,500m3 • NATREF and Rail Tank Cars supply 22,500m3 • Multi-products pipeline (DJP) supply 24,000m3 • Chevron South Africa (Pty) Ltd manages and operates petroleum facilities on behalf of the consortium consisting of BP Southern Africa (Pty) Ltd, Chevron South Africa (Pty) Ltd, Engen Petroleum Limited, Exel (Pty) Ltd, Shell South Africa Marketing(Pty) Ltd and Total South Africa (Pty) Ltd • Stakeholders collaboration is required

7. Industry Challenges • Jet fuel supply shortages • During early August supply shortages of jet fuel were experienced at O R Tambo International Airport (ORTIA) • These shortages resulted from a number of potential factors including, inter alia: • Low opening stock holding at ORTIA jet fuel terminal coming into July due to production problems at an inland refinery during June • A number of logistical problems experienced by Transnet during July leading to inadequate and irregular supply to ORTIA and a gradual depletion of stock • Cessation of joint supply planning due to Competition Act considerations leading to slower independent reactions • Stocks dropped from the normal working level of 5 days down to 2 days. • Through a concentrated logistics programme, including increased road haulage and “tankering” by airlines stock levels are now back to normal • The Minister of Trade and Industry designated the petroleum industry for the purpose of the relevant section of the Competition Act • SAPIA is preparing an exemption application to allow interaction between members of the industry teams dealing with issues such as products supply, logistics planning, pipelines operations, shipping, etc to maintain current and ongoing security to supply • The Minister of Energy has established a Supply Task Team, headed by DoE, to further investigate the shortages and the jet fuel supply plans for the 2010 Soccer World Cup

8. Industry issues • 2010 FIFA World Cup South Africa preparation • Objective for RSA: successful event without fuel supply disruption • Kick-off 8 June to 14 July 2010 • 37 days duration • 64 Matches @ 10 Venues • Expected ~450 000 International Visitors (based on ticket sales) • This is the single largest event for RSA! • Competition Act exemption is required urgently for industry wide planning to happen!

9. INDUSTRY CHALLENGES

10. Industry Challenges • The industry faces a number of short & long term challenges including • Current global economic situation • Economic regulation and legislation • Skills shortage • Infrastructure development • Environmental issues • Future fuels requirements • Socio-economic issues • Crime and security • Industry transformation

11. Industry Challenges • Current global economic crisis • The global economic crisis underscores the urgency of sustainable development – mutually reinforcing the balance of economic, social and environmental progress • Highlights the urgency to work efficiently and cooperatively to develop the policy and financial drivers required to provide energy access and security • The following are key issues identified by the International Chamber of Commerce Commission on Environment and Energy: • All energy options are important – no one size fits all solution exists • Sector wide changes can take decades • Coordinated international effort is needed to ensure an enabling framework and markets • National policies have to take current realities and international agreements into account • Long-term investments should be facilitated in light of the need for global and local capital allocation • Energy efficiency should be a key focus and needs to be promoted • Technology cooperation and deployment should be fostered • A variety of market mechanisms fit for national / local circumstances have to be identified

12. Industry Challenges • Economic regulation and legislation • The oil industry is a vital component to the South African economy operating in a highly regulated environment. • “Energy is the blood that runs through the veins of every economy. It is to the survival of an economy what water is to the survival of the human body”- Executive Summary, Energy Security Master Plan, Department of Minerals & Energy. • In order to meet the country’s liquid fuels need now and into the future • The industry needs predictable regulations to encourage investment by existing and new entrants • The return needs to sufficiently reward investment across the value chain • Investment returns need to be sustainable • Skills shortages need to be urgently addressed • Industry is currently working with the Department of Energy and their consultants to develop a new mechanism that will meet the above objectives • Shortage of capacity within Government to handle regulatory requirements (licences, approvals, etc) severely hampers development and increases costs

13. Industry Challenges Industry cost / demand squeeze

14. Industry Challenges • Infrastructure development • Additional petroleum product pipelines and tankage capacity are needed to serve the major vital inland market • fuel shortages will harm the country’s economy and derail the Government’s projected growth target. • The Government’s Energy Security Master Plan calls for investment in the building of new pipelines and tankage facilities, which will include some participation by the private sector. • Beneficial conditions should be created by Government for the industry and other private players to invest in new tankage and pipeline capacity. • Discussions with Competition Authorities are under development to allow stakeholders to jointly discuss security of supply issues in the short to long term. • Regulatory certainty and increased capacity is a necessity for efficient development of required infrastructure

15. ENVIRONMENTAL CHALLENGES

16. Environmental Performance • Future fuels requirements Why clean fuels? • Improve air quality in sensitive areas • Reduction in CO2 • Enable cleaner & more efficient vehicle technology • SAPIA has developed a long-term roadmap for discussion with the relevant regulators (ie DoE, DWEA, DoT, DTI, NT). The roadmap outlines a suggested approach that would be in the best interests of SA as a whole.

17. Future Fuels Roadmap All vehicles Euro 5 compliant RSA Clean Fuels 3 Inline with EN 2009 specs All new models Euro 5 compliant Inspection & Maintenance for all vehicles All vehicles Euro 4 compliant RSA Clean Fuels 2 Inline with EN 2004 specs All new models Euro 4 compliant Inspection & Maintenance for new vehicles All New Vehicles Euro 2 compliant RSA Clean Fuels 1Lead Phase Out (LPO) Black smoke roadside testing TIME • Costs to industry ~ R20 to R40 billion for SA refiners • Design, construction and commissioning will take 5 years from time of agreement on specifications and conditions

18. SOCIO-ECONOMIC CHALLENGES

19. Industry Challenges • Crime and security • Crime continues to escalate • Categorise crimes against the petroleum industry into three main groups: • Violent crimes including robberies, ATM crimes on service station forecourts perpetrated with explosives, attacks on drop-safes with explosives and cash-in-transit robberies on forecourts. • Bulk fuel thefts and other thefts including housebreaking. • Commercial crime including fraud and corruption.

20. Industry Challenges • Crime in 2008 • Robberies at service stations on an upward trend. • SAPS crime statistics indicate a 23% increase in violent crimes perpetrated against the business sector. • Service station robberies increased from 590 incidents in 2007 to 785 incidents in 2008. • The total number of violent crimes increased from 875 in 2007 to 1139 in 2008.

21. Industry Challenges • What is being done? • Oil Industry Security Forum focuses on crime prevention, security issues and crime fighting projects. • Monthly meetings attended by SAPIA members, retail representative bodies and South African Police Service (SAPS). • Co-operative action among industry bodies to address crime problem. • Oil companies and service station owners are managing strict cash-handling procedures.  • Introducing innovative cash handling equipment and procedures. • Enhanced service station design, centred on the installation of improved forecourt lighting and access restriction to sensitive areas. • Minimum standards for closed circuit television (CCTV) installations which now provide clear images of perpetrators. • Installation of bullet-proof glass at some convenience store point-of-sale areas. • Installation of panic buttons, safety locks and enhanced video surveillance equipment. • Establishment of emergency response links with armed response companies and the SAPS. • Enhanced SAPS sector and Community Policing Forum approach.

22. Industry Challenges • What is being done? (continued) • Sharing examples of ‘best practice’ within industry. • Closer liaison with the SAPS senior management, SAPS Hitech Unit, national and provincial JOCOMs, Crime Information Centre, local clusters and provincial management. • Full investigation of every crime related incident and the incorporation of the relevant findings into security procedures. • The formulation of useful security, safety, crime prevention and governance guidelines for the industry and its security service providers. • Specialised training programmes for service station personnel in the area of robbery prevention and survival techniques.

23. Socio-economic Performance • Industry transformation • The goal of the Liquid Fuels Charter, signed by the industry in 2000, is to ensure sustainable presence, ownership and control by approximately 25% of historically disadvantaged South Africans (HDSAs) across the industry value chain by 2010. • SAPIA members are the first industry in South Africa to enter into a voluntary charter committing itself to advancing black economic empowerment. • All privately owned members have concluded equity ownership deals.

24. Socio-economic Performance Management control Board of Director and senior management levels are steadily increasing with 36% black board members and 11% black women participation Preferential procurement The industry’s BEE procurement spend is 42% of total budget for goods and services excluding BEE spend on crude oil and petroleum products. Enterprise development Historically disadvantaged South Africans operate 38% of the industry retail network. Socio-economic development The industry’s average spend on Corporate Social Investment (CSI) is over R175 million. CSI spend includes areas of national and sector priority.

25. Socio-economic Performance • Employment equity • Black representation is steadily increasing at mid and senior levels • Top management 32.4% • Senior management 37.1% • Specialists & mid management 55.6% • Skilled technical 70.9% • Total all staff 70.9% • Skills development • Leadership in Oil and Energy Programme • 147 industry employees graduated since the programme’s inception in 2006. • Artisan Skills Training Project • currently 1 400 learners in the system • 209 learners have qualified at NQF Level 4 trade qualification • project is currently structured to produce in excess of 500 NQF level 4 certificated learners per year from 2009 onwards • Identifying scarce and critical skills

26. Socio-economic Performance • Challenges in the transformation journey • The need to increase credible BEE suppliers • Availability of accredited petroleum industry learning programmes • Increasing the representation of people with disabilities  • Despite all of these challenges, industry remains on track to achieve the Liquid Fuels Charter aspirations and is confident of meeting the other challenges discussed today