CHALLENGES IN THE INDUSTRY

HDSA Wholesalers

Liquid Fuels Charter Salient Features

• Procurement

•Target for 2010 = 25% of local preferential procurement must be with BEE suppliers.

• Ownership

•A quarter of all facets of the liquid fuels industry or plans to achieve this

The 25% ownership and control of all facets of the industry that the

parties to this Charter are seeking to bring about over a ten year period means HDSAs owing in total, by the end of that period, not less than 25% of the aggregate value of the equity of the various entities that hold the operating assets of the South African oil industry. The parties to the Charter agree that the measurement of the extent of the achievement of this target of 25% of the aggregate value of the equity will be based on the asset values per the audited accounts of the entities concerned

• Transformation of the industry – encouraging new entrants•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"

Upstream

E & P

Downstream

Secondary Logistics

(distribution)

Pipeline

Secondary Storage & Handling

Depots

Tertiary Logistics

Commercial Clients

Wholesale Retail

Value Chain

S.A. Coastal Refinery

International Refinery

Midstream

Inbound Logistics (Crude transport

& storage)

Refining

Coastal Storage

Port

Durban Port

It has been mentioned before that there is currently NO licensed HDSA Wholesale company currently importing product into Durban harbour for supply into the market

The BEE companies that are trading into Durban are having to supply into the oil majors in their own tanks rather than import for sale into the market

There are a number of reasons for this but let’s look at this in some detail;

IV1

IV2

IV3

IV4

IV5

IV6

IV7

IV8

IV9Bunker Berth

General Berth Layout

Durban Oil Berth Utilisation

0

10

20

30

40

50

60

70

80

90

100

% U

tilis

atio

n

5 6 7 8 9

Berth Number

Oil Berth Utilisation for the Period April

2006 to January 2007

Min

Avg

Max

Berths

5 6 7 8 9

Draft [m] 10.7Increase

to 12.812.8 12.8 12.8

OAL [m] 185 185 230 230 230

Sample of Ship Discharge and Loading Rates [m3/hr] for Imports and

Coastal Shipping

Discharge

Rate

[Petrol, Diesel,

Jet]

675

Un

de

r Co

ns

truc

tion

to R

eb

uild

998 953

Sa

so

l an

d T

SA

us

e b

erth

for im

po

rting

UL

P9

5 a

nd

Die

se

l, no

t us

ed

for c

rud

e

for a

nu

mb

er o

f ye

ars

Loading Rate

[All Products] 700 848 735

Loading Rate

[excl LPG,

Fuel Oils,

Solvents]748 762 594

Upstream

E & P

Downstream

Secondary Logistics

(distribution)

Pipeline

Secondary Storage & Handling

Depots

Tertiary Logistics

Commercial Clients

Wholesale Retail

Value Chain

S.A. Coastal Refinery

International Refinery

Midstream

Inbound Logistics (Crude transport

& storage)

Refining

Coastal Storage

Port

SASOL

Island View Storage

Petronet

Vopak

Sapref

Engen

Total

Caltex

H&R

Other

BP

Durban Port

The port in Durban is critical for importation of products into SA As seen on above slides, there is no space currently for any new

entrant (HDSA companies) to construct and operate its own terminal

Without this there can be no real participation in the industry value chain by HDSA wholesalers

The new pipeline will be commissioned soon and even though Transnet pipeline would like to allocate space to HDSA wholesalers, this is rather pointless as we cannot even get to the Berth let alone into the pipeline

Part of the reason why HDSA’s were created was to present a niche opportunity to independent companies to supply product into the SA market

Without a viable option into Durban, the dream of creating independent suppliers will remain just that – a dream!

Recommendation regarding Ports

TNPA must be compelled to enforce the provisions of the NPA act in as far as ensuring that land on the port is only used for enhancing port activities i.e. Imports and exports NOT PROCESSING or Manufacturing

We request Energy Department to form an inter-ministerial task team with public enterprises to ensure there adequate planning for a storage terminal in Durban which will give access to all new entrants with specific emphasis on BEE companies

Liquid fuels chartersalient features

• Procurement

•Target for 2010 = 25% of local preferential procurement must be with BEE suppliers.

•Current BEE proc spend exceeds R6.5b, creation of SASDA, ongoing BEE supplier development (2007 Sapia)

• Ownership

•A quarter of all facets of the liquid fuels industry or plans to achieve thisThe 25% ownership and control of all facets of the industry that the parties to this Charter are seeking to bring about over a ten year period means HDSAs owing in total, by the end of that period, not less than 25% of the aggregate value of the equity of the various entities that hold the operating assets of the South African oil industry. The parties to the Charter agree that the measurement of the extent of the achievement of this target of 25% of the aggregate value of the equity will be based on the asset values per the audited accounts of the entities concerned

• Transformation of the industry – encouraging new entrants•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"

Procurement

Crude oil imports alone are in excess of R100 billion per annum

Importation of product is in excess of R13 billion per annum

SAPIA have presented to us their procurement numbers notably without crude oil procurement

So, it is clear that the above figures from industry are well below the target levels of 25% as envisaged in the charter

Majority of industry believe that crude and product imports are excluded from the charter with notable exceptions being Sasol, PetroSA and Total

It must also be emphasised that the law allows any person to import crude oil but only licensed HDSA companies and manufacturers to import finished product,

Recommendations regarding Procurement

• We are requesting the Energy Department to clarify to the industry the position on crude and product importation as being part of the measured procurement spend under the charter

• Industry should also ensure that when they procure finished product it should be from LICENCED HDSA wholesalers

Upstream

E & P

Downstream

Secondary Logistics

(distribution)

Pipeline

Secondary Storage & Handling

Depots

Tertiary Logistics

Commercial Clients

Wholesale Retail

VALUE CHAIN

S.A. Coastal Refinery

International Refinery

Midstream

Inbound Logistics (Crude transport

& storage)

Refining

Coastal Storage

Import Permits

Issuance of Import Permits

Historically, oil companies invested in refinery capacity in SA The DME then, protected these investments by regulating the

importation of product into the country Now, though SA is a net importer of petroleum products that

demand outstrips supply Licensed manufacturers should only be given import permits

to import up to their name plate capacity For supply beyond refining capacity, preference should be

given to licensed HDSA wholesalers. This regulation was discussed and circulated by Energy

Department in the past, but does not seem to have gone further, we would like to see this resuscitated

Upstream

E & P

Downstream

Secondary Logistics

(distribution)

Pipeline

Secondary Storage & Handling

Depots

Tertiary Logistics

Commercial Clients

Wholesale Retail

Value Chain

S.A. Coastal Refinery

International Refinery

Midstream

Inbound Logistics (Crude transport

& storage)

Refining

Coastal Storage

Distribution Inland - Storage

• Many storage facilities around the country have been mothballed over the years and the owners are unwilling to sell or lease to BEE. (Kroonstad, Isando, Standerton, Ermelo etc)

• Excess land is available around oil companies, however they are reluctant to sell such land and such storage facilities to new entrants, so even when we are willing to build in those areas we are still blocked

• Acquiring other land, although possible becomes an exercise in reinventing the wheel

• Without an effective storage and supply chain network, wholesaling of fuel by new independent entrants will remain increasingly difficult

• A few of the HDSA’s are in the early stages of building their own storage facilities - but this will take time whilst existing facilities lay idle

In terms of sub-section 20(1) of the Act, NERSA is empowered to make license conditions within a framework of requirements and limitations, including the following:

(n) third parties must in the manner prescribed by regulation have access on commercially reasonable terms to uncommitted capacity in storage facilities: providedthat an applicant for a storage facility license or an amendment of such license may elect to give users access to the facility on the basis that the capacity is shared among all users in proportion to their needs;

• This is critical in advancing the charter requirement of BEE participation across the value chain

• However, a declaration by the very oil companies that their storage is uncommitted is unlikely and as such, oil companies continue operating their own storage for their own purposes

• The provisions therefore of this act are not achieved

• We recommend that perhaps an amendment of the PPA that compels the industry to GIVE 25% of their storage capacity to BEE

Recommendations regarding distribution storage

Access Provisions in terms of the Act

Requests to Dept. of Energy from HDSA Wholesalers

Pricing

Incremental inland transport cost recovery levy – HDSA’s should be allowed to access this levy

Supply Managers Meetings & other planning forums like Task 141

An HDSA representative needs to be present at these meetings as we are also suppliers

Broader HDSA issues

Anecdotal

Financial capacity – self funding

Trading - hedging, risk management

Financing product – international banks, letters of credit

Margins

Support systems

Other BEE wholesalers

BEE logistics companies

BEE retailers – white sites

Other support areas

Recommendations to Industry

There are a few HDSA’s that are currently importing consistently month to month through Matola

The volumes are nowhere near even 0.5% of the total industry

We are however assisting with providing supply security in outlying areas where the majors are moving away their focus for various reasons

Industry needs to come to the party and recognise the role that HDSA’s and independents can play in this industry and how they work together with them to achieve mutual benefit

It is getting to a point where the market is calling for punitive measures – should we end up there?

Take a look at the Anglo Zimele model and see how we could use a similar enterprise development model for our sector

THANK YOU