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OVERVIEW The South African Fuels Retailing Sector 8 th June 2011

OVERVIEW The South African Fuels Retailing Sector 8 th June 2011. Mr. Reggie Sibiya, CEO of Fuel Retailers Association. Agenda. White Paper on the Energy Policy of the Republic of South Africa (Dec 98). Petroleum Products Amendment Act . Consumer Protection Act &

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OVERVIEW The South African Fuels Retailing Sector 8 th June 2011

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  1. OVERVIEW The South African Fuels Retailing Sector 8th June 2011 Mr. Reggie Sibiya, CEO of Fuel Retailers Association

  2. Agenda

  3. White Paper on the Energy Policy of the Republic of South Africa (Dec 98) Petroleum Products Amendment Act Consumer Protection Act & Competitions Act The are a number of the policy and legal instruments governing this sector National Environment Management Act

  4. It is important to note that it is not all sectors of the liquid fuels industry that are regulated Retail Wholesale Petrol Regulated Unregulated Diesel Unregulated Unregulated LPGAS Maximum Pricing Unregulated Unregulated Non-fuel products From a regulatory perspective, having regulated and unregulated activities within one business, incentivises cost aggregation into the regulated business and cross subsidisation. Also creates misinterpretation of regulations i.e. R731.

  5. Global Retail businesses are managed against a Market Phase Framework Phase 4 Phase 1 Phase 2 Phase 3 Deregulating Increasing Supply Deregulated Free Supply Deregulated Excess supply Regulated Limited Supply Unregulated Emerging Competition Intense traditional Competition Non-traditional Competition Limited Competition Unregulated Majors Expand Networks grow New volume players Under pumped New entrants Regulated Pump Prices High Pump Prices PRICES Networks decline Customers Demanding. Price Sensitive Focus on brand, quality, access Focus on brand, quality, CONVENIENCE VOLATILITY All sites make money Most sites make money Better sites make money Cluster sites make money

  6. Pump price build up of Unleaded Petrol 95 (Average 2010) 31% Taxes Distribution & Marketing 12% 7% Retail Margin Basic Fuel Price 50% Whether the price is regulated or not, it is important to note that there are many players in the liquid fuels value chain 6- 6 -

  7. There are many hands that derive value from the retail margin and not all of it is for the retailer’s account • The value that accrues to the retailer is not as a high as is it may seem • Conflict between R731 on credit card payments and Banking Sector Regulations • Unregulated Costs vs. Regulated Margin • In the case of the franchised outlet, the return of “retailer’s investment” is difficult to define

  8. Agenda

  9. Petroleum Products Amendment Act has created a number of opportunities for retailers • Licensing all petroleum activities • Prohibits vertical integration • Introduces a balance of power between retailers & wholesalers • Enforces arbitration • Special provisions for • Empowerment – Charter annexed • Full service (protection of jobs) • The proposed pricing framework could bring better value for retailers, especially independent retailers - Retail margin would include an explicit component for fuel-related asset return

  10. Agenda

  11. Challenges There are still a number of challenges to the transformation agenda Black Retailers Businesses Highly Geared Black Retailers occupying mainly the low volume sites band. These sites fall below the BSS volume benchmark Black Retailers not accessing RORO sites – land values high & owned by non BEE Property Developers

  12. Agenda

  13. Consumer Prices & Input Costs Industry Survival & Security of Supply Social issues including HDSA Empowerment Balancing act In changing the system, it is important not to promote one national priority at the expense of others. Sometimes regulators seem to focus only on one side of this triangle

  14. Q&A

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