The Director's point of view
During its first year as the common voice of private enterprise in the petroleum industry, some dramatic challenges have been put before the South African Petroleum Industry Association (SAPIA). Yet the basic task of beginning the long process of creating a fuller understanding of the industry, its benefits, its shortcomings and the role it should play in serving our new society, remains a priority.
It requires a conscious effort to communicate clearly and openly. The enforced secrecy of nearly half a century perpetuated suspicion and misconceptions. SAPIA's task, therefore, is to open discussion about the industry, to supply information to all who seek it, and to take part in the vital debate on the future of an open economy.
During the honeymoon of the new South Africa, SAPIA has worked hard to find areas of common interest with all the direct stakeholders in this vitally important industry. These stakeholders include labour as well as organised business, government and consumers. SAPIA's members, local and foreign-based, are seeking common ground between all these interest groups - and with all South Africans - so that we can together help the economy to grow. Economic growth, the key to our country's future, is the common goal to which we should all contribute, and make sensible concessions where necessary.
The record of the petroleum companies in being directly supportive of the community at large is almost unrivaled in South Africa. During the apartheid years they did as much as anyone in trying to alleviate the suffering, support freedom and keep the lines of communication open. They took initiatives which helped topple job reservation, the group areas act and to uplift the levels of opportunities and education for the disadvantaged. In this we had the benefit of the support and pressure of concerned shareholders abroad. Through political change, our role in public participation has not changed. SAPIA members still play a leading role in seeking consensus on national issues as well as those affecting the industry.
Negotiations SAPIA now represents the private enterprise companies on the interactive committees of Business South Africa (BSA), and enjoys representation through BSA on the executive committee of the National Economic Development and Labour Council (Nedlac). It also participates in negotiations on the future shape of the industry, with Government, the Fuel Retailers' Task Group, Labour and other stakeholders. SAPIA has met with many government ministers, and is seeking further meetings with them and many more, on the future of the industry.
In all this activity there is one matter to which I must refer. It concerns the Nedlac Liquid Fuels Industry Task Force (LFITF), over which there has been some misunderstanding. While SAPIA remains represented in BSA and at Nedlac, it withdrew from the Business caucus of the LFITF. SAPIA felt driven into this position when the Business caucus of the LFITF took a stand which we felt was contrary to the national interest as well as to the direct interests of our members. We could not remain a lone voice in a caucus which directly supported the continuation of massive taxpayer subsidies for the privatised Sasol despite the anti-competitive nature and negative implications of these for the national economy. We also had deep concern about the process being followed in the LFITF and the failure of that process to deliver any meaningful result after two years of discussions. The acceptance of the Arthur Andersen report was in a sense the final straw which led us to withdraw from the unsatisfactory process.
We believe fervently in reaching, in the national interest, consensus
through negotiation. We did not leave Nedlac, nor BSA. Our problem was not with
Labour, nor Government, nor Nedlac. Our difficulty was within the Business
caucus of the LFITF when it took a position which specifically ignored our view
on the crucially important matter of subsidies for Sasol. We hope this issue is
now clarified.
We believe in a free economy and minimal regulation of the
fuel industry.
We believe in a free economy and minimal regulation of the fuel industry. Progress towards this is being hampered, in our view, by the Cabinet decision to continue massive subsidies to the synfuels projects. These subsidies not only distort the economy and cost the taxpayers billions, but the present policy is likely to discourage vitally needed investment, local and foreign. Subsidies also inflate the input cost of liquid fuels to all sectors of the economy and adversely affect South Africa's international competitiveness.
We should use this opportunity again to state clearly that we do not wish to see Sasol close down its synfuel plants. Their contribution to the economy is too great. However we believe that, at current oil prices, Sasol does not require a subsidy to encourage it to keep its plants going. South Africa can have all the benefits of Sasol synfuels, including jobs and foreign exchange savings, without having to pay a subsidy. In a time of low oil prices we would support a Government subsidy to keep the plants operating, if Sasol decide to close them. A subsidy in these circumstances could be in the national interest. It would be a temporary expedient until prices recovered sufficiently to again make the plants viable. Sasol would be expected to repay any such subsidies in times of high oil prices. The main weakness of the Arthur Andersen report is that it dealt with subsidies from the perspective of Sasol interests - rather than the national interest.
In our view, other deficiencies in the Arthur Andersen proposals included a double counting in Sasol's favour of a R300 million per annum transport benefit; the lack of a sunset clause; the fact that new capital expenditure could in effect be subsidised; and the apparent unilateral removal of the obligation on Sasol to repay past subsidies in times of high oil prices. Sasol should not be allowed to escape a hitherto mandatory obligation to repay the taxpayer the billions, paid in subsidies, that it has enjoyed over the years to the benefit of its shareholders.
Looking forward, SAPIA hopes to participate in finding solutions that will make all parties efficient, and thus able to contribute together to the nation's growth.
Resources and development SAPIA members, like businesses throughout the economy, have been undergoing major organisational changes aimed at increasing productivity and decreasing costs. While following a world-wide trend, this move also takes into account the probability of far more local competition in the future, particularly as we move into a less regulated environment.SAPIA's members make substantial investments which now stand at about R14 billion in assets. They also provide the country with state-of-the-art technology, training and skills. Internationally, the amount spent by the oil companies on research and development is enormous. No single country could afford the equivalent. Because these companies are active in South Africa, this country automatically gleans the benefits and gains part of the foundation necessary to be globally competitive. The same applies to important issues such as environmental protection and industrial safety. The most advanced techniques are readily available to our members and are practised here.
The aggregated financial results of SAPIA members for the years 1990 to
1994 and the first half of 1995, are set out.
Financial results
The results show capital expenditures of some R1,5 billion a year, reflecting great faith in South Africa. Capital expenditures on refinery expansions and marketing assets - to meet the needs of the country - substantially exceed the profits earned by the member companies in the period under review.
The results also show that returns on assets and cents per litre profits have fallen significantly since 1993. This reflects concessions made at the LFITF, the impact of depressed international refining margins and delays in the implementation of the existing regulatory mechanism.
This decline in the profitability of the industry is a cause for great
concern, coming at a time when further investments in refining capacity are
required.
Progress to date
Details of the activities of SAPIA are covered. Let me sum up our first year by saying that our aims have not faltered, and we have shown satisfactory progress.
Instead of being legally forced to answer the public's queries with "No Comment" and "We cannot tell you", SAPIA has been able to answer questions from the media, and has been pro-active in creating a new, open relationship between its members and the public.
In its first year SAPIA has found a major role in the long process of developing consensus between Government, Labour and Business, as well as in finding agreement on the changing shape of the oil industry.
We are now busy negotiating the future - negotiations of critical importance to the well-being of South Africa. The outcome must be one which encourages investment, development and the creation of jobs.