Parliamentary Public Hearings Presentation: Petroleum Industry :

1. Parliamentary Public Hearings Presentation: Petroleum Industry : • By Z.Mavuso Chief Director: Petroleum Controller

2. TRANSFORMATION IN THE PETROLEUM INDUSTRY: FROM 2000-2010

3. 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

4. 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

5. 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?.

6. 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

7. 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.

8. 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

9. 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.

10. 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)

11. 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.

12. 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.

13. 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.

14. 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.

15. 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

16. 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?.

17. 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.

18. Thank you!