portfolio committee on energy “downstream liquid fuel sector” sapra - gerrie lewies 24 july 2013

Portfolio Committee on Energy

“Downstream Liquid Fuel Sector”

SAPRA - Gerrie Lewies

24 July 2013

Agenda

Retail Fuel Industry Overview Challenges Facing Fuel Retailers Financial Impact on Fuel Retailer

Our Way Forward Our Strategic Intent

Retail Fuel Industry Overview

Highly Regulated Industry Regulatory Accounting System(RAS) to be

implemented by December 2013 Approx. 4200 Service Stations

Approx. 6000+ retail licenses issued Competition is Brand Based

High Price Volatility Importance of Security of Supply


Diesel not regulated Use of Diesel Cards – vertical integration

Fuel cross subsidisation 20% Increase in price per litre

Price increase results in decrease in sales Retail margin is 7,5% of price per litre

Currently large focus on convenience – not regulated


Approx. 60% of sites are Oil company owned

These account for about 70% of the volume

NB - RAS developed for Retailer owned sites

Approx. 56 000 attendants Approx. 17 000 other staff

Very high employee turnover Constant investment in training


Fuel Retailer most of the time on receiving end

Regulatory lag with margin increases

Fuel Retailer is the collection agent

Service station (24/7/52) not a normal business

Agenda

Retail Fuel Industry Overview Challenges Facing Fuel Retailers

Financial Impact on Fuel Retailers Our Way Forward

Our Strategic Intent

Challenges Facing Fuel Retailers

V&SM

BMR&CM

SA&LM

OPS/MHCM

I&TM

A&FM

Labour

StakeholdersH, S & S

Competition

Government

Global & LocalEconomy

Financial Institutions

ServiceStation24/7/52

CultureRelationships

Leadership

Values

Global & Local Economy Increasing cost per barrel of oil

Weakening of Rand/Dollar exchange rate Increase in Repo Rate

Increase in CPI/PPI Average cost per fuel drop = R400 000

Average 8 drops per month = R3 200 000 Increasing cost to do business

Financial Institutions

Rising interchange costs as a result of different methods of payment

Rising insurance costs Excess insurance payments

High overdraft charges Increasing finance costs

Increasing cash deposit fees

Labour Increase in labour unrest

Unintended consequences of strikes Unreasonable Union demands

High unemployment Increase in shoplifting

Increase in armed robberies

Stakeholders Inconsistency with RAS implementation

Increase in vertical integration Increase in cross subsidisation

No guarantee on security of supply Bank guarantee to cover 1-2.5 drops Tenure not adequate to secure ROI

No standard “Business Valuation” model No security on goodwill

Retailer to insure Oil company equipment

Health, Safety & Security Increase in cost of health, safety &

security standards & requirements Cost of contamination and/or spillage

Unemployed target service stations for life support

Financial impact of armed robberies

Health, Safety & Security

Competition

Financial impact of new sites on current sites

Oil companies compete with own brand Regulated environment prevents

conditional selling Cost of marketing constraints

Cost of Oil Companies competing

Government

Administration barriers in the start up and running of a service station Cost of non compliance

Lack of regulation enforcement Increase in rates & taxes

Margin erosion Cost and/or safety of zone differentiation

Agenda




Financial Impact On Fuel Retailers

Security of Supply - Standing dry on 6 000 litres per month for 12 months @

.992cpl = R71 424 per annum


Fuel Price Changes - R1 increase in price per litre @ 40 000lt per delivery = R40 000

extra for next fuel delivery and an increase in the fuel

guarantee


Different Payment Methods - The use of Credit Cards have changed the cost of cards by approx. 200%. On a 300 000 lt service station the

real increase is approx. R11 000 to R33 000 per month as a result of

the use of credit cards


Armed Robberies - One major armed robbery could close the doors for 2 weeks

= R170 000 loss in income


Armed Robberies - One major armed robbery

could result in an actual loss in fuel sales of 50 000 litres per month =

R600 000 loss in income per annum

Agenda


Financial Impact on Fuel Retailers Our Way Forward Our Strategic Intent

Our Way Forward

First of all we would like to take this opportunity to thank the Government Officials for their dedicated effort and hard work with the implementation of

the Regulatory Accounting System

Our Way Forward

To continue to work closely with Dealer Councils and Government

Officials to implement the principles of RAS to help fuel

retailers to secure their future

Our Way Forward

To engage positively with all Stakeholders to develop win-win

solutions to address the challenges facing the fuel retailers

Our Way Forward

To work closely with all Government Departments to

address the barriers to do business to ensure speed of

service delivery

Our Way Forward

To engage the Setas, Stakeholders, Government,

Service Providers and the SA Fuel Retailers’ Network to continue to

utilise service stations for the employment of the (18.2)

unemployed, training & education and placement in the Fuel Industry

Value Chain

Agenda





To make a difference to the Fuel Industry Value

Chain to unleash the power of potential of the

SA Economy

Thank you for listening

Gerrie Lewies - National Chairman -South African Petroleum

Retailers’ Association

portfolio committee on energy “downstream liquid fuel sector” sapra - gerrie lewies 24 july 2013

Documents

fuel drop

fuel retailersfinancial

safety securityhealth

safety securityincrease

cpippiaverage cost

cost of health

oil company equipmenthealth

margin increasesfuel