KEY INITIATIVES

Sapia members, together with the Minister of Minerals and Energy, Ms Phumzile Mlambo-Ngcuka, and her Department, are leading initiatives that are bringing the industry in line with the changes that are taking place nationally and globally.

The key initiatives relate to:

• Restructuring and transforming the industry.
• Managing a smooth liberalisation.

The first of these is being achieved through the 25% black empowerment target that is set out in the “Charter for the South African Petroleum and Liquid Fuels Industry on Empowering Historically Disadvantaged South Africans in the Petroleum and Liquid Fuels Industry ”. The Charter should be read as an integral part of this report. It is available on the Sapia website. (www.sapia.co.za) The Sapia chairperson comments on the Charter on page 8.

The developing and signing of the Charter was the major step forward in the year 2000. Of particular importance was agreeing with Government that the most effective way of bringing about empowerment would be for black shareholders to own shares in the integrated oil companies as opposed to seeking to grow smaller black owned oil companies until they represented 25% of the industry. Financing of these deals is now the key challenge facing both Sapia members and their new shareholders.

Sapia believes that the steps it is taking are essential to the future stability of the nation – and that these steps need to be followed by other industries. The programme includes much more than ownership. Procurement, employment equity, capacity building and the creation of a supportive ulture are also important.

The second key initiative aims at removing, in a managed way, the complex web of regulations that have constrained the industry for the past half-century. Some of the regulatory structures, though devised in a different era, still meet the social objectives of Government today – for example the fostering of small business and jobs in the service station industry. It is important that the liberalisation process should take into account national economic and social priorities.

Other initiatives include environmental issues and the encouragement of rural development and poverty alleviation. The combined challenge of attaining empowerment, liberalisation, environmental sensitivity, rural development and upliftment will be a severe test for the industry. The processes need to be well managed – through well-considered interventions by both the industry members and Government.

THE ROLE OF GOVERNMENT INTERVENTION

Sapia believes that direct Government interventions are needed in only two circumstances:

• When a free market will not of itself necessarily result in the attainment of national strategic objectives e. g. black empowerment and rural development.
• When there is not sufficient competition, e. g. when monopoly conditions are present.

Government interventions should be tested to ensure that they are required for one of the above reasons. We also advocate selfregulation, especially in respect of environmental protection.

TOWARDS LIBERALISATION

The time frame for the managed liberalisation of the South African oil industry is foreseen as:

2001 - Submissions to Government from industry stakeholders. Government responses followed by multi-stakeholder meetings. Ministry of Minerals and Energy announces its preferred options. Parliamentary adoption of the amendments to the Petroleum Products Act (PPA).

2002 - Introduction of proposed omnibus Energy Bill.

2002-2004 - Clarification of major policy directions.

2005-2010 - Process of managed liberalisation of liquid fuels industry.

Sapia has endorsed this timetable, and has welcomed the practice of Government consultation with all interest groups.

A number of facets of the regulatory system are currently under review.

Some of these are driven by the need for the regulation of the industry to be valid in terms of the new competitions law and some are part of a desire to improve governance.

The most important step is a proposal to amend the PPA so as to enable the Minister of Minerals and Energy to promulgate regulations to replace some of the less formal regulatory arrangements of the past.

Various parts of the ontrolled pricing system are also being reviewed. Sapia believes that there is a need, in what will be a long transition period, to have a price and margin setting mechanism that is consistently applied, fully transparent and is fair to all stakeholders.

SAPIA’S POSITION ON MANAGED LIBERALISATION

Sapia and its member companies:

• Believe that it is important that all parties seek to maintain as stable a business environment as possible during the period of transition to a less regulated industry.
• Support the broad approach of adapting some of the regulatory mechanisms governing the liquid fuels industry in order to further Government ’s social and other policy objectives, prior to moving into an environment of less Government regulation of the industry, while also fostering a climate of certainty and fair returns for investors.
• Support efforts to attain the 25%empowerment target spelled out in the Charter.
• Believe that it is important to the well being of the industry that, while regulation of prices and margins continues, this regulation enables fair returns to be earned by refiners, marketers and retail dealers, thus ensuring that the investment necessary for the development of the industry takes place.
• Welcome Government ’s commitment, expressed in the White Paper, to promoting a “climate conducive to reasonable profits and sustained investment in the liquid fuels industry ”.
• Believe that the continued existence and growth of the local refining and synfuels production activities is in the national interest. This means that there will be a need for Government and industry to seek mutually satisfactory ways to enable these activities to meet the various challenges they face, including the continuing need during this decade for large investments in environmental protection and related product quality improvements.
• Note Government ’s intention to amend the PPA so as to enable the Minister to make regulations relating to the licensing and control of aspects of the business of both wholesalers and resellers. Sapia looks forward to working with Government in bringing about these important changes and so assist in ensuring that they lead to better governance of the processes of both regulating and managing the liberalisation of the industry. These processes will then be carried out in terms of an Act of Parliament rather than under the “ad hoc ”arrangements of the past.

SAPIA CONCERNS

Sapia, however, has certain concerns on the detail of the proposals to amend the PPA and on the proposed regulations which were published for public comment by the DME in September 2001 as this Report was going to press. These concerns include the following:

• The proposed amendments give the Minister a wide discretion as to how and for what purposes the delegated powers to regulate are exercised. The draft amendment Act does not, in the opinion of Sapia, adequately describe the objectives for which the proposed regulatory powers are to be used. The proposals as presently drafted may create uncertainty and therefore impact negatively on business confidence in the sector. They also create the potential for discrimination based on criteria that are not sufficiently defined. Sapia believes that the merits of establishing a Petroleum Regulatory Authority for the purposes of arrying out the regulatory/licensing role should be evaluated.
• The resultant uncertainty and inability to plan effectively will adversely affect new service station development. New service station developments, for example, require substantial lead time and preplanning, and investors cannot proceed with confidence in the absence of certainty that a licence will be granted if certain specific criteria are met.
• There are extensive and onerous requirements relating to the provision of information and registration of specific facilities, particularly for the holders of wholesale licences although all licence holders are affected. Sapia considers these requirements as impractical and unduly burdensome.

Sapia believes that the proposals require amendment to address these concerns amongst others and will be submitting comments to DME in which these points are raised and proposals made on how to overcome the concerns. These comments will be made available on the Sapia website (www.sapia.co.za).

THE RETAIL SERVICE STATION SECTOR

Sapia is willing to accept a limitation on the “vertical integration ”of the industry. This means that oil companies would not be allowed to operate service stations, but would leave it to individual dealers to do so, provided that the limitation has the effect of reserving service stations for small and medium enterprises and black empowerment. Sapia believes that chains of dealers also should similarly be prevented from “vertically integrating ” upwards.

Further, the limitation should not be applied in a way that prevents the various arrangements being developed by oil companies with the specific purpose of advancing black economic empowerment. In order to protect tens of thousands of jobs, Sapia agrees that the ban on selfservice at petrol stations should remain, at least while Government regulation remains in force. Once the market is deregulated, however, Sapia members believe that a ban on self-service might not necessarily have the desired effect of preserving jobs, since service stations unable to compete by utting costs might be forced to close down.

THE RESTRUCTURING OF PETRONET

Sapia believes that while the pipeline network remains in the hands of a monopoly service provider, tariffs should be regulated in a manner, which ensures equitable treatment, transparency and fair competition between all users and protects the interests of consumers.