South Africa liquid fuels charter in the spotlight

Fuel dispencer11 October 2013, Johannesburg – South Africa’s Liquid Fuels Charter provides a framework for the empowering of historically disadvantaged South Africans in the petroleum industry. But the Portfolio Committee on Energy heard from stakeholders that it is still failing the petroleum downstream sector groups.

Referring to generic challenges in the petroleum downstream sector (wholesalers, retailers and transporters), the Chairperson of the Portfolio Committee on Energy, Mr Sisa Njikelana, said at a briefing by the Department of Energy on the liquid fuels sector, that the Committee needed to take decisive steps to help implement the revised Liquid Fuels Charter. The Portfolio Committee, wholesalers and retailers in the industry heard from the Department that the sector was failing to meet the transformation targets stated in the Charter. Obstacles included artificial competition between oil companies, retailers and wholesalers, “unsustainable vertical integration”, as well as the sector’s anxiety about the Regulatory Accounting System, and inconsistency in the regulation of fuel prices.

The Liquid Fuels Charter is an agreement among industry players, which states that black South Africans should attain at least 25% ownership and control of all facets of the liquid fuels industry. In his presentation, the Chief Executive of the Fuel Retailers’ Association, Mr Reggie Sibiya, said that among the challenges experienced by the retail sector was that “wholesale continues to enjoy profits from retailing businesses”. He added that the franchise agreements and the Petroleum Products Amendment Act contradicted each other in many respects. He recommended legislation on the two areas be reviewed and monitored on a regular basis.

The fuel retail industry supported about 4 500 small, medium and micro enterprises and created over

70 000 jobs nationally. In his presentation, Mr Sibiya said retailing ownership stood at 78% white and 22% Indian. White people owned 93% of petroleum companies, black people 6% and Indians 1%. Mr Sibiya added that most black Africans and coloureds were overlooked for the more lucrative opportunities, such as transit sites. The process of applying for funding presented serious hurdles to historically disadvantaged South Africans and the transferability of site licences had a big impact on the transformation agenda.

Mr Njikelana asked about the usefulness of licensing to enforce transformation. Mr Sibiya responded by saying that licensing could be used as a tool to force transformation in the retail sector and industry. Mr Njikelana said municipalities should drive transformation, but still had a long way to go. Committee members said: “The Department needs to take the blame for being soft in this particular area.” Of the

4 453 retail licences granted, about 60% were owned by big companies and 22% of these were black-owned. Most of them were tied down by big loans to service the business, said Deputy Director-General of the Department of Energy, Mr Tseliso Maqhubela.

Committee member Mr Lance Greyling cautioned that during transformation of the retail sector, people should not be set up for failure: “The regulatory framework of the sector needs to be examined, so that it does not benefit one value chain,” he added.

The dominant companies in South Africa are PetroSA (a state-owned company), British Petroleum (BP), Chevron, Engen Sasol, Shell and Total SA. These are the major oil distributors that own and operate storage terminals and distributions facilities at the major ports and distribution facilities throughout South Africa. The Committee called for the Department to conduct an urgent intervention in the retail sector where the current arrangement appeared neither suitable nor encouraging for new industry players.

Mr Greg Moldenhauer of the Liquid Fuels Wholesale Association said current cost-recovery and pricing models did not promote an efficient wholesaling sector and that this was affecting transformation in the industry. Rules on the creation of employment opportunities and the development of small business in the petroleum sector added to its unattractiveness.

Mr Njikelana welcomed inputs from industry players and comments from members, and recommended that the public hearings focus on the many challenges facing the sector. The new public hearings follow those of 2010, which marked 10 years of the Liquid Fuels Charter and gave the Committee an opportunity to review progress and set targets.

Last year, former Energy Minister, Ms Dipuo Peters, released the audit outcomes of the Charter review commissioned by her Department in 2010. She described the findings of the Liquid Fuels Charter Audit as disappointing. The purpose of the audit was to achieve a comprehensive and representative assessment, verify the status of compliance by Charter signatories, identify bottlenecks in implementation, develop standardised assessment criteria and monitor transformation throughout the value chain. The audit also ascertained the extent of transformation in the petroleum and liquid fuels sector between 2000 and 2010.

“Overall compliance stands at a mere 48%. On ownership, the finding concludes that the average effective narrow-based black shareholding is 18.91%,” Ms Peters said when she released the audit outcomes in 2012. Of this 18.91%, representation for black women was a “meagre” 6.72%, while only one oil company had fully complied with the obligation for ownership by black shareholders. “The paucity of representation of women is apparent in particular areas, such as management control, employment equity, crude oil procurement and skills development,” she said. These were the very areas that had been identified as having potential to place women on a faster trajectory of economic development and empowerment due to their ripple effects, she pointed out.

“In terms of the transformation across the greater petroleum and liquid fuels sector, government is also concerned at the dismal performance of the industry

in the areas of enterprise development, skills development, employment equity and preferential procurement. The figures in the report show that the status in this instance is worse than it was in 2006 with regard to the Liquid Fuels Charter and black

economic empowerment frameworks,” Ms Peters noted. The audit report revealed some progress in the partial ownership of assets by serial investors who were not actively involved in key operations within the sector as envisaged in the black economic empowerment imperatives. “The audit shows that over the 10-year period under review, out of the six oil companies operating in the country, only two oil companies procured crude oil from previously disadvantaged entrepreneurs,” Ms Peters added.

The Liquid Fuels Charter, signed in 2004, aimed to place 25% of the liquid fuels sector in the hands of historically disadvantaged South Africans by late 2010. The Charter applies to privately owned companies all along the value chain of the oil sector, but the liquid fuel industry has not been able to comply with the Charter as regards ownership or control.

The government is concerned that none of the privately owned companies has been able to meet the ownership, buying or control requirements as projected in 2006. Employment equity still falls short and women remain consistently under-represented across all occupational levels in the oil sector.

The parties to the Charter agreed that the measurement of the extent of the achievement of this target of 25% of the aggregate value of the equity would be based on the asset values per the audited accounts of the entities concerned.

These companies are required to submit affidavits to government reconfirming their ownership status each December. Government publishes this list annually.

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