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INFORMING THE PUBLIC During this period Sapia has dealt with a large number of issues. However, one overriding aim has been to increase the level of public understanding of the industry. It has been done constantly and in many ways. We believe that some success has been achieved and this is demonstrated through:
This process of open communication will continue in line with our commitment to transparency and the free flow of information about the industry. SEEKING SOLUTIONS It is a source of pride to Sapia that throughout the last seven years, the petroleum industry has consistently worked with Government and other stakeholders to find “win-win” solutions to the problems facing us all. The petroleum industry has been able to do this because of the willingness of Government and other stakeholders to engage in debate and to work towards constructive solutions. Consequently, we believe that as an industry ollectively, and as individual member companies, we have been able to pioneer paths of transformation within the private sector. Member companies are active, for instance, on the major social issues of education and training, poverty alleviation, HIV/AIDS and crime and corruption. (For some samples of what Sapia and its members are doing in these and other areas: See Reconstruction and Development Report, page 28). The future of our ountry depends on it becoming globally competitive. The industry is committed to this objective and is ensuring that our refining, marketing and distribution businesses are progressing to world-class standards so that we will be able to deliver fuels to industry and our other customers at internationally ompetitive prices. We have recorded in previous Reports how Sapia members add value to the nation by investing billions of rands annually; by helping the economy grow and by providing technology, training, managerial skills and quality products. We also endeavour to lead the way in the areas of Health, Safety and Environment. We are optimistic that our endeavours in the area of empowering Historically Disadvantaged South Africans (HDSAs) will assist and accelerate the process of restructuring and transforming the South African economy. We fully agree with the view of the Chairperson of the Black Economic Empowerment Commission, Mr. Cyril Ramaphosa, that the current level of black economic exclusion is a fundamental issue which, if not properly addressed, will lead to serious crises in South Africa in the future. In terms of corruption and crime, the Industry plays the strongest role it can, by being vigilant about ethics and white-collar crime within its own structures, by protecting its assets and workers from the abnormal spate of theft and violence, and by encouraging social upliftment. However, the high incidences of armed robberies and hijacking of our delivery vehicles and the commensurate trauma, injuries and loss of life are of great concern to us. DYNAMIC DECADE AHEAD The decade ahead will see major changes in the industry. The key areas, which will have been addressed by the year 2010, are:
Many of these changes are anticipated in the first half of the period and will impact in different ways on Sapia’s member companies. The key imperative for the industry is that these huge changes take place in an orderly, efficient and fair manner. There will no doubt be more issues that emerge as the decade progresses – but the above list indicates the extent of the hallenge facing the industry. CONFLICTING OBJECTIVES In the oming years some difficult prioritising decisions will have to be made between policy objectives which are in conflict with each other. For example:
Solutions to these apparent contradictions will require a pragmatic and realistic approach by all stakeholders. PROGRESS TO DATE The Department of Minerals and Energy (DME), Industry and other stakeholders have been engaged in extensive consultation and discussion and some key milestones have been reached. Although there has been slippage in the original timetable, progress has been made in many areas and includes:
CRUDE OIL PRICE In March 1999 crude oil prices bottomed at some $10 per barrel. OPEC then cut production to bolster prices. It had attempted this, without success, on several previous occasions. In March 1999 the move was successful. This success can be attributed to rising world demand for oil – buoyed by recovery in Asia – meeting a constrained supply. Since then OPEC have, by managing their output, sought to keep the price in a narrow range around $28/bbl and have been largely successful. Rand weakness against the US dollar has meant that increases in oil prices in South Africa have been greater than those expressed in dollar terms. MONTHLY PRICING SYSTEM The Monthly Pricing System has been severely tested by the prolonged period of rising prices that began in March 1999. Certain amendments to the system were needed to compensate for the inability of the “slate ”adjustments to take account of the continuous price rises. Sapia would like to express its appreciation to the Government for the timely action that was taken to avert a crisis in the industry when slate under-recoveries exceeded R1 bn. In mid 2000, the Government, the dealer organisations and Sapia embarked on a media information campaign to ensure public awareness of the Monthly Pricing System. Sapia believes that the increased level of understanding by the public of the factors that influence the prices of petroleum products has been beneficial in that onsumers have reacted to price changes with pragmatism. Nevertheless, high pump prices have dampened demand and volumes sold have declined in many sectors. INDUSTRY PROFITABILITY In an environment in which profits are regulated, it is important that the mechanisms be fair to all. This means that returns should be adequate to encourage the required level of investment in the industry, but not so high as to prejudice the consumer. The mechanisms should also encourage efficiency and relate returns and prices to world markets. The Government White Paper on Energy has stated that regulation will remain in place until such time as the empowerment of HDSAs has been achieved. Sapia accepts this view. However, for transformation to be sustainable, it is imperative that the regulatory system develops fair prices, stability and fairness for consumers and all interested parties. The two systems that influence industry profits are the Marketing of Petroleum Activities Return (MPAR) and the In Bond Landed Cost (IBLC) system. MARKETING OF PETROLEUM ACTIVITIES RETURN (MPAR) The Marketing of Petroleum Activities Return (MPAR), when consistently applied, has proved to be a reasonably effective mechanism in the regulatory environment. This system, by basing margins on aggregate industry returns and encouraging each ompany to earn more for itself by striving to beat the average and hence driving the margin down, achieves the goal of fostering efficiency. During the period under review, certain minor improvements were made to the guidelines, and MPAR exercises covering the two years 1998-1999 were completed and adjustments granted. The 2000 MPAR exercise has recently been completed. The financial statistics provided in this report cover a period before the benefit of these adjustments are taken into effect. The improved efficiency in operating the price adjustment mechanism is important, and has reduced the uncertainty with regard to the future profitability of the marketing sector. IN BOND LANDED COST (IBLC) In-Bond Landed Cost (IBLC) is a mechanism that links South African petroleum product prices to world markets. The details of the system, which are widely published and are available from Sapia, have in essence been in place for a long time. In 1994 the Liquid Fuels Task Force – then a sub committee of the forerunners of Nedlac – reviewed the detail and made certain changes to make prices more competitive. The system is again under review, the objective being to investigate whether a system more appropriate to today’s increasingly complex world markets can be developed. It is critical that finalisation on the basis of the future IBLC be realised speedily because of its relevance to future refining investments. (See special section on the Pricing of Petroleum Products page 32) TAXI INDUSTRY Sapia supports the plans to improve the position of the taxi industry. The taxi industry is responsible for moving a large proportion of commuters using public transport, and is vital to both urban and rural needs. However, unlike other forms of public transport with which it competes it receives no state subsidy. The plan to upgrade, assist and regulate this essential private-enterprise service is essential. If taxi fleets are to hange from petroldriven vehicles to diesel-powered ones, as envisaged, the change will offset the current market demand/supply imbalance between these two products. Lead times and larity with regard to policy are important to ensure that the change does not lead to a diesel shortfall and a petrol surplus in the ountry. FUEL SAVING Despite the short-term negative effects on trading, Sapia constantly supports, encourages and seeks innovative ways of improved fuel efficiency. It does so, actively, in the national interest. Sapia members also continuously upgrade their management systems to discourage theft and waste. Hints on how to save fuel are given on page 37. CENTRAL ENERGY FUND I would like to welcome the new Chief Executive of the Central Energy Fund, Dr Renosi Mokate, and sincerely look forward to her input – whatever the future of her organisation and that of other state assets may be during the coming decade. We assure her of our ommitment to work closely with her, as we do with Government and other stakeholders in the energy field. She joins the Minister, the Deputy Minister and the chairperson of Sapia in demonstrating that our industry has already progressed towards eliminating gender discrimination at leadership level. CONCLUSION The past year has been one of great change within Sapia and externally. Meaningful progress has been made in many areas but the overriding outcome of the period has been the positive spirit of cooperation between the key stakeholders in searching for an equitable way forward for the industry. |
In step with South
Africa’s young democracy, Sapia has entered its eighth year. And, like the
nation as a whole, Sapia’s members face major, continuing change and
challenges. We believe our preparedness to accommodate change and to seek new
solutions has already been demonstrated and we will continue on this path.