Liquid Fuels Charter & Energy Industry transformation: public hearings Day 1

Meeting report

Liquid Fuels Charter & Energy Industry transformation: Public Hearings
Department of Energy submission
Mr Zingiza Mavuso, Chief Director: Petroleum Controller, Department of Energy, said that the policy objective stated in the Energy Policy White Paper was to achieve “sustainable presence, ownership or control by Historically Disadvantaged South Africans (HDSAs), of a quarter of all facets of the liquid fuels industry” or that there should be plans to achieve this. Thus, in order to bring about transformation in the industry, there needed to be 25% ownership by HDSAs across the value chain.

He pointed out that since 2000, ownership had increased from 5.8% to its current level of 26%. Black representation on boards stood at 36%, black executive management representation at 41%, and black female board representation at 11%. There were, however, no female Chief Executive Officers or Managing Directors. Procurement from HDSA companies had increased from 1.9% in 2000 to 42% currently. The total black representation in employment was at 32.4% in top management, 37.1% in senior management and 55.5% in middle management. Significant progress had been made in terms of equity ownership since 2000. However, shareholding was not uniformly spread across the value chain and total assets. Deals concentrated on some parts of the value chain while excluding others (such as storage facilities).There was also a loose link between shareholding and operational value-add by HDSAs.

In addition, there was no information around the actual take-up of shares by HDSAs in some of the empowerment deals. In terms of management and control, the International Oil Company picture would be different if PetroSA were to be removed. The procurement spend also excluded crude oil, which constituted 70% of the procurement spend of Oil Majors. There were also less than ten HDSA or Black Economic Empowerment (BEE) companies in crude trading. Procurement could therefore be less than 10%. Information around skills development was also scant. The Department’s audit would pay particular attention to this. The licensing dispensation was a tool through which transformation of the industry was effected and monitored. This had been put into operation in 2006. There had been approximately 15 500 applications to date. There were also 6 000 retailers, including general retailers and branded sites. Approximately 60% of these sites were located in Gauteng. Within the retail sector, 37% of retail service stations were 100% HDSA-owned. This figure varied from province to province, with the Western Cape having only 26% (1 005) service stations owned by HDSAs. A large percentage of these stations were relegated to sites that were survivalist in nature, while a few pumped high volumes, including those on freeways.

The retail market was over-traded and -saturated.  On average, there were less than twenty new-to-industry service stations per year for the whole industry. There were serious empowerment challenges in provinces outside of Gauteng. In addition, the beneficiaries’ definition as ‘HDSA’ was problematic in certain instances, where compliance was acquired through simple transferring of shareholding to female members of the family. Within the wholesale sector there were 30 HDSA wholesalers licensed with the right to import. There was, however, a very low import permit usage within this group, with some never having traded. Only around eleven HDSAs had used the permit.

In instances where there was access to ports facilities, this was done through Oil Majors. The creation of independent HDSA wholesalers would remain a challenge. There were also reports of non-HDSAs squeezing out legitimate players. The main issues here related to petroleum infrastructure. There was limited access to storage facilities. HDSA wholesalers also competed directly with the marketing arms of oil companies. Most of the funding available for HDSA/BEEs was within the retail and not the wholesale segment.

Mr Mavuso suggested that a possible solution to this might be to make amendments to the Charter or other legislation in order to increase HDSA/BEE participation. Volumes could also possibly be set aside for HDSA wholesalers, so they did not have to compete directly with oil companies. A quota could also be placed on oil companies importing refined products. State agencies that had a significant fuel input to their operations should prioritise buying from HDSAs.

There also needed to be better alignment between the Department, the National Energy Regulator of South Africa (NERSA) and the National Ports Authority in regard to empowerment. There could also be incentive-induced retail/ wholesale incubator programs. The fact that the current licensing regime had only been running since 2006 had proven to be a challenge. The Act regarded all those that had already been operating at this date as deemed license holders, thus giving them the right to continue operating. Most industry players, including the Oil Majors, fell within this category. Service station owners who owned three or more stations were asked to comply with the 25% HDSA ownership.
 
Discussion
Mr S Njikelana (ANC) asked why only four of the seven BEE Codes of Good Practice were considered. He asked why tracking and monitoring were weak, given the nature of the industry. He also asked to what extent the Department had addressed the issue of fronting in the industry.

Mr Mavuso answered that the information that the Department had used was given by the industry. From the information it had received, it had been able to draw conclusions around these four Codes.  Although the Department was aware that there were seven Codes, these four were the most essential. Although monitoring of compliance was generally good, some challenges had arisen. For example, when there was a liquid fuels shortages, the focus originally fell on ensuring that the economy did not grind to a halt. The Department’s focus was now, however, firmly placed on ensuring transformation. The sector was strategic and fast-changing. There was an emergence of new players globally, and a de-emphasis from the majors. Opportunities for transformation were being created as the majors were looking to divest from certain areas of the value chain. He conceded that there were some issues of fronting in the industry, which was not encouraged by the regulator. These deals were entered into surreptitiously. The industry would be in a better position to answer this question.

Mr Bonang Mohale, Chairperson, South African Petroleum Industry Association (SAPIA), agreed that this issue was a reality in the industry, and needed to be addressed single-mindedly.

Mr S Motau (DA) said that the creation of niches exacerbated the problem, as this afforded little opportunity for players become part of the mainstream. He thought that instead, attention should be paid to finding out where the blockages were, and addressing these. This could only happen effectively once there was cooperation between the Department, NERSA and SAPIA.

Ms B Tinto (ANC) asked what the Department suggested to address the problems in skills development and training of HDSAs. She wondered if more retail licences could not be awarded to retailers who wished to operate along freeways, or other high-volume areas, in order to address the challenge that many stations were closing down as a result of poor turnover.
 
Mr Mavuso answered that the Department engaged with the industry continuously around this issue. It faced a challenge, in that some of these stations were privately-owned. The Department would, however, be looking at engaging them in order to ensure transformation.
 
Mr D Gamede (ANC) said that very little was mentioned about empowering women and people with disabilities. He also asked what plans were in place to address the challenge of wholesaler HDSAs not being awarded licenses to import.

Ms N Mathibela (ANC) asked what the Department was doing to ensure greater participation by women in the industry.
 
Mr Mavuso admitted that not enough had been done to address people with disabilities. There had been some progress with youth empowerment. However, although many young people had been trained, the opportunities presented to them after training did not necessarily allow them to gain experience in this field. Some HDSAs did import petrol, diesel and crude oil, but not enough. The Department would be working on improving these figures. These issues, and others, would be addressed during the audit, and would then be addressed directly by a review.

Mr B Mnguni (ANC) asked how many HDSAs were involved in exploration of oil reserves, and what was being done to fast-track transformation in this field.

Mr Mavuso answered that this was governed by the Mineral and Petroleum Resources Development Act. The Department of Mineral Resources would be in a better position to answer this.

Mr A Lees (DA) asked what impact the Charter had had, or would have, on black people in general. He also asked if crude traders were really needed, and what the impact would be on the price of fuel, should the number of these traders be increased. He questioned why the figures presented by the Department were so vague, and wondered if the R5 million turnover threshold requirement for 25% transformation should not be higher. He also asked if the proposed changes to the Charter were in line with the Constitution.

Mr Mavuso answered that the impacts did need to be assessed. Although there were a number of successful and competent black-owned companies, the Department needed to focus on the impact of the changes on the daily lives of South Africans. As long as the market was regulated, the changes would have no impact on the price of fuel.

Mr Njikelana asked why the Department had not taken the seven pillars of good practice as the tools by which to effectively monitor transformation in the industry. He asked what was being done to ensure broad-based black economic empowerment.
 
Mr Mavuso answered that that the Charter was agreed to in 2000 with the Codes coming into play only later. The Charter had not been aligned with these Codes. It was hoped that the audit would address this issue.

Mr Mohale added that SAPIA’s member companies were doing their best to adhere to as broad-based strategies as they could.

National Energy Regulator of South Africa (NERSA) Presentation
Mr Smunda Mokoena, Chief Executive Officer, NERSA, said that the Regulator was responsible for the regulation of the Petroleum Pipelines Act (PPA). Its functions included licensing the construction, operation and conversion of petroleum pipelines, storage and loading facilities, the gathering and storing of information relating to these activities, the undertaking of investigations into these activities and the setting and approving of tariffs in a prescribed manner. NERSA had to use the information it had gathered to facilitate ownership, control or management of operations of petroleum pipelines and storage and loading facilities. Applications for licences had to include information that would allow for mechanisms to promote HDSAs, as was required by the regulations. This information would be taken into account when deciding whether to grant a licence. Licensees were required to submit HDSA-related information annually, in line with the regulations.

He outlined that 194 storage licence facilities had been applied for, with 190 licences having been granted to date. The number of licensees stood at 30. Access to joint facilities was one of the issues raised by HDSAs with NERSA. Although the PPA required proportional access by all according to needs, from a practical point of view the loading facilities and pipelines could not be used if there was no access to storage facilities. There were currently 28 storage facilities connected to the Transnet Pipelines pipe, from Durban to Johannesburg. 27 were owned by the oil companies and one was owned by Transnet Pipelines. HDSAs had complained that the oil companies were saying that there was no uncommitted capacity at their storage facilities. However, this was difficult to prove. Oil companies contracted with each other in the past for reciprocal use of each other’s storage facilities and this may limit the uncommitted capacity available.

Ownership of facilities was another issue raised by HDSAs, as no HDSA owned any petroleum loading facility or pipeline. All HDSA or small wholesaler-owned facilities were standalones, which were not connected to any import-loading facilities or pipelines. Statements from HDSAs suggested that the oil companies had closed down a number of facilities in order to ‘rationalise’ their operations and this included 23 that were connected to Transnet pipelines. HDSA also complained that the oil companies were not prepared to sell them any of the closed storage facilities.

A further issue raised by HDSAs was that of retailing and wholesaling. HDSAs, during workshops, made he point that it was necessary to build relationships between HDSAs and the oil companies, for access to product and infrastructure, and for the HDSAs to gain entry into the market. However, NERSA had no powers to enforce compliance with the Charter, and had no powers to collect prescribed information relating to the participation of HDSAs in the industry. It was only able to take action against licensees, not against non-licensees. Another major challenge was the non-alignment of HDSA instruments such as the BBBEE Act, Ports Authorities Rules, Liquid Fuels Charter and the Petroleum Pipelines Act and Regulations.
 
Discussion
Mr Gamede asked what plans were in place to address the challenge of wholesaler HDSAs not being awarded licenses to import. He also asked what was being done to address issuing of licences that were not being used.
 
Mr Mokoena answered that facilities could not be regulated if they were not licensed.

Mr D Ross (DA) asked what NERSA believed was limiting its mandate in terms of the regulations.
 
Mr Mokoena answered that NERSA could not regulate an unlicensed facility. License conditions could only be imposed in the manner prescribed. This did not presently go beyond the gathering of information.

Mr Njikelana asked for further elaboration on the statement about proving ownership of storage facilities.

Mr Mokoena answered that this statement merely illustrated some of the challenges that NERSA encountered in trying to source information from applicants.  Without proof of ownership, or ownership structure, licences would not be granted.

South African Petroleum Industry Association (SAPIA) submission
Mr Bonang Mohale, Chairman, SAPIA, said that the petroleum industry contributing 2% of South Africa’s gross domestic product and also supplied 18% of its primary energy. It also supported employment for over 100 000 people, either directly or indirectly. It spent more than R115 million on corporate social investment initiatives in 2009. SAPIA and its members were signatories to the Liquid Fuels Industry Charter (the Charter). Signatories were committed to transferring 25% of ownership and control of all facets of the industry over a ten-year period. However, one of the challenges was the lack of a scorecard in the Charter. SAPIA recommended that there should be an alignment with the codes of good practice on Broad-Based Black Economic Empowerment. This would mean that there should be clear definitions, a commonly accepted scorecard, verification by accredited verification agencies, alignment with national policy on BBBEE and a national strategy for broad-based black economic empowerment.

Discussion
Mr Njikelana asked to what extent SAPIA members had complied with the Codes of Good Practice.
 
Mr Mohale answered that, although more work could be done, there had been a lot of progress, especially in relation to ownership.

Mr A Nyambi (ANC) asked for greater detail on how SAPIA members had spent the R115 million mentioned, for corporate social investment initiatives.

Mr Mohale answered that this was an aggregated number, and was probably closer in total to R3.6 billion. It had been spent on environmental sustainability and energy-related education, and alleviation of poverty.

Mr Gamede asked what plans were in place to address the challenge that wholesaler HDSAs were not being awarded licenses to import. He also asked if SAPIA would be setting targets around getting other provinces to achieve higher levels of HSDAs, such as in Gauteng.

Mr Mohale answered that SAPIA had set itself targets, and had told the Deputy Director-General of the Department of Energy of these.

Ms Mathibela asked how far SAPIA had gone in promoting economic growth for the broader good of all South Africans.

Mr Gamede said that very little was mentioned on empowering women and people with disabilities.

Mr Mohale responded that SAPIA did have several initiatives to address these sectors.

Mr Mnguni asked why, considering the poor transformation rate within the industry, there were only black representatives at the meeting. He asked why the necessary infrastructure was being withheld from HDSAs.
 
Mr Mohale answered that those representatives attending the meeting on that day were the highest-ranking in their companies.

Mr Radebe asked for more details to be provided on SAPIA’s contribution towards development.

Mr Mohale noted that South Africa’s GDP was around R3.2 trillion. The 2% that the petroleum industry contributed thus amounted to around R32.4 billion. It also collected R43 billion in taxes.

The Co-Chairperson felt that this presentation was not acceptable. The Select Committee would be asking SAPIA to appear before that Committee again. She asked why not a single female Chief Executive Officer had been appointed across the industry, after 10 years.

Mr Mohale apologised if his presentation was too concise, but noted that in the past SAPIA had been criticised for giving too much detail. In addition, SAPIA had been under the impression that the individual companies would be responsible for giving more detail on the various issues, so that it had considered it necessary only to make a few key points. SAPIA had been engaging with its member companies to come up with clear and realistic plans how to ensure greater women empowerment in the industry.

The Chairperson accepted his apology but said that much more work was needed to ensure effective transformation in this industry.

British Petroleum (BP) submission
Mr Sipho Maseko, Chief Executive Officer, British Petroleum (BP) gave the presentation on the progress of British Petroleum (BP) towards implementation of the Liquid Fuels Charter. The presentation was based on seven broad themes of Supportive Culture, Ownership and Control, Employment Equity, Capacity Building, Procurement, Enterprise Development and Socio-Economic Development (CSI). The Committee was informed that in BP, black people represented 48.75% of the board, 20% of the executive directors and 50% of management. The ownership and control of BP was structured so that Masana, a BEE-owned and operated company, was the equity partner. BP provided funding support as well as logislical and infrustructure support to Masana. BP had further achieved 18% female representation and 76% representation in 2010. In 2009 BP had spent R533 million on procurement from BEE suppliers, of which 25% were HDSAs.

Mr Maseko concluded the presentation by highlighting the social economic developments. BP had established a business leadership and technical development skills programme, in collaboration with Wits University, and made a contribution to HIV/AIDS prevention through Soul City. BP was also participating in road safety programmes such as Arrive Alive, and in high school debating competitions.

Discussion
Ms Mathibela asked whether the students who where sponsored by BP were later employed by it.

Mr Maseko replied that the focus was on developing skills, through collaboration with the Department of Higher Education.

Ms Mathibela asked BP what the Women’s Development Bank was, and where it could be found.

Mr Maseko replied that it was a non-profit Non Governmental Organisation that had been in existence for fifteen years, and was serving poor rural communities.

Mr B Mnguni (ANC, Free State) asked BP and Sasol how many millionaires they had created.

Mr Maseko replied that the country needed to make choices, and if BP had a chance of making one millionaire or producing fifty graduates it would rather produce the graduates.

Mr K Sinclair (Northern Cape) said that transformation could only be successful if people in the rural areas were helped. The urban areas should not be benefitting at the expense of rural areas.

Mr Maseko replied that BP agreed with this Member’s view, but there was a tension as 60% of all the fuel sold was sold in Gauteng and the rest in other urban areas.

Mr S Radebe (ANC) asked BP what the percentage of procurement spending was in relation to total profit.

Mr Maseko replied that two-thirds of the turn over of the oil company went to tax, and the remainder was the profit. The procurement spending was a component of the profit.

Mr Radebe stated that there was a shortage of skills within the energy sector. He said that the industry should collaborate with the Department of Higher Education on its programme of providing more universities.

Mr Maseko replied that BP had spent a lot of time with the Department of Higher Education in developing their skills programme. The company was ready to work with the Department.

Mr J Selau (ANC) asked BP how much it had addressed Broad Based Black Economic Empowerment.

Mr Maseko replied that BP partners were BBBEE. Mine Workers Investment Trust was formed by the mine workers who set up a trust. BP financed their cash flow.


Sasol submission
Mr Vusi Cwane, Marketing Manager, Sasol gave a presentation that covered seven different aspects:  progress on Equity Ownership, progress on Management Control, progress on Employment Equity and Skills Development, progress on Preferential Procurement, progress on Enterprise Development, Corporate Social Investment and the future plans. He noted that Sasol’s equity partner was Tshwarisano, which owned 25% of the total shares, with the rest being owned by Sasol Limited. Tshwarisano comprised of 54% women, 3% youth, 2% disabled and had substantial rural representation covering HDSAs. There were no women represented at top management, although it consisted of 75% blacks. Sasol had made progress on preferential procurement. Approximately 34% of all crude oil and products imports were sourced from BEE Companies. Sasol had invested R18 million in Integrated Energy Centres located within government identified poverty nodes, as part of its corporate social responsibility.

Mr Cwane concluded that the future plans included a desire to accelerate women’s representation in the management structures and further facilitate increased access to petrol station ownership by HDSA population.

Discussion
Ms Mathibela asked if the women within the Sasol management were of all races, or if they were only white.

Mr Cwane replied that there were eight members of the executive committee, of whom two were women and these were both black.

Mr Mnguni asked Sasol how many millionaires it had created.

Mr Cwane replied that Sasol had created a number of millionaires, because anybody who pumped 700 or 800 thousand litres a month was a millionaire. There were black people in that category.

Mr Mnguni asked how many companies had benefited from the supply of crude oil.

Mr Cwane replied that 34% of crude oil imports were done by BEE companies.

Mr Sinclair asked Sasol why the energy centre in Laxey in the Northern Cape was not working.

Mr Cwane replied that the centre was operational and was pumping around 120 thousand litres. There were some challenges, because the place was far away and delivery had been costing a lot.

Mr Sinclair said that the petroleum industry could do more in terms of corporate social responsibility.

Mr Cwane replied that the aspiration of Sasol was to do more.

Mr Radebe asked what the equity was across the entire value chain.

Mr Cwane replied that the participation of Sasol’s BEE partners was throughout the value chain.

Mr Radebe asked Sasol when it would have women at top management.

Mr Cwane replied that there had been a slight over emphasis on the zero percent at top management. What was meant by this notation was that there was only one position at top management, and that position was occupied by a male.

Mr Radebe asked whether the R18 million which was invested in the Integrated Energy Centres was a yearly investment or was a once off investment.

Mr Cwane replied that the R18 million had already been spent and Sasol had budgeted for R12 million for the current financial year and another R12 million for the year after.

Mr S Motau (DA) asked what transformation meant for the companies.

Mr Cwane replied that the aspiration of Sasol was to move beyond focusing on employment equity and supply through BEE companies, to ensuring that these aspects became embedded as an integral part of their existence. This was because the transformation agenda made economic sense.

Ms L Moss (ANC) asked why the people being trained by Sasol in their internal skills development programme were not rising to fill up top management positions.

Mr Cwane replied that it was part of Sasol ambition that women especially should rise up through the ranks. The suggestions made by the members would be taken on board.

Mr E Nchabeleng (ANC) asked the two companies how many students came from rural areas and how many came from urban areas from those who were sponsored.

Mr Maseko replied that those who were sponsored came from Mpumalanga, Limpopo and Gauteng. Mr Cwane did not appear to have answered this question.

Presentation by PetroSA
Dr Nompumelelo Siswana, Acting Chief Executive Officer, PetroSA made the presentation on the progress towards the Liquid Fuels Charter. The presentation covered seven different aspects namely; Management and Control, Employment Equity, Skills Development, Preferential Procurement, Enterprise Development Programme, Corporate Social Investment and BBBEE Performance. The Committee was informed that PetroSA had a workforce that consisted of 85% black and 25% women. Under skills development the Committee was informed that of the people that attended training 74% were males and 26% were female. PetroSA had further embarked on supporting the Women Leadership in Oil and Energy Certificate Programme (NQF Level 7) which was hosted by the South African Petroleum Industry Association (SAPIA) and WITS Business School (WBS) under the SAPIA human resource development strategy. PetroSA also had international training secondments, a bursary programme and centre of excellence where 221 learners were trained in 2009/10 financial period of which 25% were women.

The Acting Chief Executive Officer concluded the presentation by stating that PetroSA had spent R300 million on corporate social investment on education, health and development and disaster funding. The fruits of these initiatives included building of school infrastructure, clinics and development centres.

Presentation by Shell
Ms Buyiswa Mncono Liwani, Transformation Manager, Shell, made the presentation on the progress towards the Liquid Fuels Charter. The Committee was informed that Shell was the first oil company to achieve a level 3 B-BBEE status when Thebe acquired a 25% share in 2002 in Shell South Africa. The employment equity of the company was overall at 74% black and 42% female. Senior management comprised of 48% black and 22% were women while middle management was 56% black and 35% women. Shell allocated 62% of general procurement to BBBEE compliant firms. The transformation initiatives included Shell’s Livewire programme which had been developing aspirant entrepreneurs from disadvantaged communities for over ten years. Under this programme about 300 micro enterprises were given training on how to run a small enterprise every year. Another initiative was the Shell Foundation which, for the past seven years, had run a R20 million Energy Fund through Empowerment Fund Project that resulted in the establishment of around 20 small businesses and more than 200 direct job opportunities. Shell South Africa’s other socio-economic development programmes focused on education, environment, welfare improvement and energy poverty alleviation.

Ms Liwani concluded the presentation by presenting some recommendations to the Committee to try to address the problems around lack of access by HDSAs to pipeline and storage, and the lack of BEE companies being involved in crude procurement. 

The Chairperson noted that questions on the last two presentations could not be asked, because of shortage of time.  These questions would be raised on the following day.

The meeting was adjourned.