Liquid Fuels Charter & Energy Industry transformation: Public Hearings day 2

Meeting report

The Chairperson announced that, prior to hearing any presentations, the Committee would be given the opportunity to ask questions on the presentations by Shell and PetroSA that were given on the previous day.

Discussion on Shell presentation
Mr S Radebe (ANC) asked about Shell’s current shareholding structure.

Ms Buyiswa Mncono-Liwani, Transformation Manager, Shell, replied that Thebe Petroleum Investment had a 25% share holding and 75% was owned by Shell South Africa Holdings.

Mr Radebe asked how much crude had been procured through Historically Disadvantaged Black South African (HDSA) firms.

Ms Liwani replied that the company started the initiative late and was currently at 16% with HDSA procurement.

Mr J Selau (ANC) said that there seemed to be no impact in the social corporate investment campaigns, because companies were duplicating efforts.

Ms Liwani replied that the point was well taken. The industry needed to come together to integrate activities in order to make an impact.

Mr Selau asked how the market could be turned around to ensure that there was a move away from the energy business only focussing on Gauteng.

Ms Liwani replied that Shell had taken note of this concern.

Mr Selau asked if there were any other activities besides energy centres that could be engaged upon in rural areas to ensure that these areas were turned around.

Ms Liwani replied that Shell had taken note that work was needed in this area. It was high time that the companies collaborated to do some work in this area.

Discussion on PetroSA presentation
Mr Radebe asked what the stumbling blocks were to getting women into top management at PetroSA. This company had previously presented a similar situation of lack of women at top management to the Committee.

Dr Nompumelelo Siswana, Acting Chief Executive Officer, PetroSA replied the company would not proffer any excuses, accepted that perhaps it had not done enough in this regard, and would ensure that more was done.

Ms N Mathibela (ANC) asked why there was not equality of representation, and enquired about the plans that were in place to ensure that others were represented.

Dr Siswana replied that plans were of a longer and medium term and could not address the problem as quickly as the company would have wanted.
 
Ms Mathibela asked specifically what measures were being put in place to ensure that women participation was increased at top management.

Dr Siswana replied that PetroSA would not give excuses about not meeting the target but would instead ensure that more was done in this light. All posts at senior management level in PetroSA were currently filled and labour laws required that those holding the positions needed to first vacate them before other appointments could be made. As soon as that happened, positions would be filled, in line with employment equity targets.
 
Mr Selau asked if there were any other activities besides energy centres that could be engaged upon in rural areas to ensure that these areas were turned around.

Dr Siswana replied that PetroSA, through its board, would come up with a strategy that would look at assisting rural areas. He noted that this was a good suggestion.
 
Ms L Moss (ANC) agreed that the employment equity was very important. PetroSA had not met the requirements, despite the Charter being adopted in 1998. PetroSA was State-owned, but was not leading by example.

Dr Siswana replied that PetroSA understood that expectations were higher because it was State-owned, and therefore it fully embraced the challenge. He reiterated that PetroSA had not done enough and would ensure that more was done.

Ms Moss said that procurement was about ownership, and not just giving tenders.

Dr Siswana replied that PetroSA procurement through BEE was at 34% which was an improvement from the 27% recorded in the previous financial year.

Ms Moss asked what was being done to ensure that other provinces would also benefit from the corporate social responsibility programmes.

Dr Siswana replied that PetroSA had initially been working in areas that were government identified poverty nodes, but would expand and look to other areas.

Mr D Ross (DA) asked if the preferential procurement of R19 billion from BEE firms was calculated yearly or over a period of time.

Dr Siswana replied that this was part of the 34% procurement from BEE, and it reflected a yearly figure.

Mr Radebe asked how much had been done to ensure that black Africans were involved in sourcing petroleum.

Dr Siswana replied that PetroSA sourced concentrate and finished products and there was a recent improvement in sourcing from BEE firms.

Engen submission
Mr Natie Maphanga, General Manager: Corporate Affairs, Engen, gave the presentation on the progress towards the Liquid Fuels Charter. The presentation covered three broad themes on Engen’s transformation journey, the seven pillars of transformation, and the future plans. The Committee was informed that Engen was owned by Petronas, which had a majority share holding of 80%, while 20% was owned by World African Investment Holdings (WAIH). Engen’s management comprised of 35% black representation at board level, 25% black representation at director level and 42% black representation at executive committee level. In terms of employment equity, 78% of the male work force was black. Women made up 25% of the total workforce, and 75% of these were black. In relation to skills development, Engen had a Leadership in Oil and Energy Programme. 55 employees had, between 2006 and 2010, graduated from the programme and their profile was 72% black, 80% women and 20% men. Furthermore there was an Artisan Skills Training Project which was on track to produce 1 200 qualified artisans by 2010. Under preferential procurement Engen’s procurement spend from all suppliers, based on the Black Economic Empowerment (BEE) procurement recognition levels, as a percentage of total measured procurement spend, was 75.5%, which equated to R19 billion. Under enterprise development the Committee was informed that there was a R50 million partnership with National Energy Fund (NEF) which would provide financing for the balance of service station purchase costs, thus allowing black dealers entrance to the market. Engen would stand surety for half of the average of R5 million-plus purchase price, and would cover training, evaluation and business support costs. In regard to social economic development, Engen focussed on education and had assisted seven maths and science schools in Kwa-Zulu Natal, Eastern Cape, Western Cape and Gauteng.

Mr Maphanga concluded his presentation by putting forward two recommendations, which included a proposed alignment of all authorities on transformation, using existing tools and instruments to monitor, and an increased focus on transformation internally.

Discussion
Mr Radebe asked why the company’s corporate social responsibility only focused on Kwa-Zulu Natal and Gauteng and not the other provinces.

Mr Maphanga replied that the work being done with Department of Higher Education and Training was informed by where that department had the most need.

Mr Radebe asked for the names of the rural schools that were supported by Engen.

Mr Maphanga replied that they would gladly send the list with the Committee. The schools were in Limpopo, Kwa-Zulu Natal and Eastern Cape.

Ms Mathibela commended Engen for sponsoring employees’ children to attend school.

Ms Mathibela asked the type of work being done by the women who were employed within Engen.

Mr Maphanga replied that the work done by women cut across the entire value chain. In the legal department there were two women, in the finance department there were two women, the procurement manager was a woman, and the manager of Island View was a woman. These were just a few examples of women working for Engen.

Ms Mathibela asked why there was only one Indian employed in top management.

Mr Maphanga replied that the one Indian referred to was part of the executive committee, but within Engen there were a lot of Indian staff members.

Chevron submission
Mr James Seutloadi, Chairman, Chevron, informed the Committee that Chevron South Africa (Pty) Limited entered into an equity partnership with BEE firms. This involved 25% of the equity of Chevron South Africa (Pty) Limited, the company that owned and controlled the full value chain of South African assets and businesses, being given to BEE partners that consisted of a broad-based consortium of BEE shareholders and beneficiaries. These included African Legend, a pioneering BEE business, who would play an anchor shareholder role in consortium, SANTACO, a representative of national taxi industry stakeholders, Lithemba, an organisation of black women entrepreneurs with existing interests and capacity in the oil industry, Ditikeni, an organisation benefiting a broad base of Non Government Organisations (NGOs) involved in serving capacity-building community groups, and Chevron South Africa Employee Participation Plan, which benefited all employees equally. There was proportional representation on the board of directors and a full 25% dividend rights.

The current Broad Based Black Economic Empowerment (BBBEE) rating of Chevron South Africa, based on the 2009 BBBEE audit done on 2008 data, had resulted in a 13 point (18.4%) improvement on the 2008 audit, to Level 4. Significant improvements in the Final Evaluation Report included a score rise from 57.04 to 69.92, rating from BBB to A, contribution level from Level 5 to Level 4, and procurement recognition level from 80% to 100%. The areas of improvement were employment equity (from 8.03 points to 9.07 points out of 15), skills development (from 5.02 points to 9.03 points out of 15), preferential procurement (from 10.60 points to 15.39 points out of 20) and enterprise development (from 10.91 points to 15.00 points out of 15).

The Committee was informed that programmes under skills development included the Leadership in Oil and Energy Learnership, where 11 Chevron employees graduated, with two earning a place in the top three students, and the Refinery Artisan Learnership Programme in electrical, welding, boiler making and fitting skills, where 195 people had been trained between 2007 and 2009. In terms of preferential procurement, Chevron Refinery had developed a 100% black women-owned pipe and fittings business partner, and a 100% black-owned metals reclamation business partner. Chevron was further committed to socio-economic development, and was participating in numerous projects for community development, such as education and health.

Mr Seutloadi concluded his presentation by stating that Chevron had embraced the spirit and letter of the Liquid Fuels Charter and its transformation objectives. Transformation was a continuous journey and Chevron’s programmes and strategies would continue to make significant progress in contributing to government’s objectives towards providing economic and social upliftment of previously disadvantaged South Africans.

Discussion
Mr A Nyambi (ANC, Mpumalanga) asked Chevron to clarify its statement that it only assisted people in areas where it operated.

Mr Seutloadi replied that Chevron worked in South Africa and that is what was meant by the area of work. Help was rendered throughout South Africa and was not limited to a specific area.

Mr S Motau (DA) asked whether there were plans to upskill black unskilled labourers, of whom there were the largest number.

Mr Seutloadi replied that there were training programmes within the organisation that were aimed at up-skilling the unskilled labour.

Mr Radebe asked what overall amount was spent on crude oil, in relation to HDSAs.

Mr Seutloadi replied that crude procurement was a specialised area of procurement and as such there was need to help equip some of the people who were interested in procuring crude with the necessary skills. The amount spent on crude procurement was at R4.5 billion a year.

Mr Radebe asked what the HDSA composition was in senior and top management.

Mr Seutloadi replied that the organisation had training programmes aimed at up skilling black people into management positions.

Ms Mathibela asked how many people living with disabilities were part of the workforce.

Mr Seutloadi replied that there were 11 people with disabilities working for the organisation, but these did not account for its BEE scoring.

Presentation by Transnet
Mr Lennie Moodley, Deputy Chief Executive Officer, Transnet, noted that Transnet supported policy objectives for sustainable presence, ownership or control by HDSAs, on all facets of the liquid fuels industry, as stated in the Energy Policy White Paper. Transnet had endeavoured to make a meaningful contribution in the areas of employment equity, where it had maintained 70% black staff representation, although staff with disabilities and females at semi skilled and unskilled levels remained a challenge.

For its procurement and supplier development, its focus was on improving the socio-economic environment by creating competitive local suppliers through the Competitive Supplier Development Programme (CSDP), which aimed at a procurement practice that would contribute toward competitiveness by leveraging BEE procurement to develop a local supplier base. This would indirectly put influence on the multinationals to develop downstream suppliers. Enterprise Development had included financial services to BEE in the form of direct monetary investments in local suppliers. Transnet’s current BBBEE total procurement spending was at R 20.7 billion.

Mr Moodley concluded the presentation by stating Transnet’s commitment to improving access to facilities.

Discussion
Mr E Lucas (IFP) told the group from Transnet that it was of concern that there was no room for entry for HDSAs into the storage arena.

Mr Moodley replied that Transnet was making efforts to get hold of some terminals within the port, and that would be made available.

Ms Mathibela asked how Transnet was dealing with the construction of the pipeline from Gauteng to Durban.

Mr Moodley replied that construction was on course and some sections would be commissioned by the end of the year. The entire pipeline would be complete by 2013.

Ms Moss asked Transnet to explain why they were complaints about it blocking parties from entering into the industry.

Mr Moodley replied that some of the tenants within the port had not met the BEE score of Level 4, but had long term leases. As a way to ease the problems, these contracts would be re-examined, to try to provide a balance.

Total submission
Dr Jerry Gule, General Manager: Human Resource and Transformation, Total, covered seven areas in his presentation. He noted that Total’s equity partner TOSACO owned 25% equity in Total South Africa. TOSACO had full participation in the value chain, including all TSA subsidiaries, and was assisted with a financially sound BEE funding model. The repayment schedule for the loan that was used to fund TOSACO was shifted from 2013 to 2010. In terms of its management and control, the Committee was informed that 45% of the board members were black people. Total had achieved 42% female representation and 2% representation of people living with disabilities. In terms of skills development, Total spent 4% to 5% of its total payroll annually on training, which translated to about R16 million. Of the total spent on training, around 77% or R12 million was spent on training black staff. Total further had a black staff Internship programme with 25 graduate students and local and international bursary programmes. Total’s supportive culture programme included a women’s empowerment programme. It had assisted Women in Oil and Energy South Africa, amongst others. Enterprise development focussed on the Retail Entrepreneurship Empowerment Programme, where eight new HDSA entrants into retail were trained over a year and were then placed. Another aspect of enterprise development related to the Integrated Energy Centres, which provided fuel and other services to rural communities.The affirmative procurement campaign had registered 14 HDSA companies that had been identified, and included the supplier development programme for 2010. Total had made a corporate social investment in education, specifically in mathematics, science education and teacher education and training. Other aspects of corporate social investment included environmental conservation, and part of this was the My Acre of Africa campaign in Kruger National Park.

Dr Gule concluded his presentation by highlighting some of the challenges, which included managing stakeholder expectations and inability to retain staff for extended periods.

Discussion
Mr Lucas said that he was disappointed that Total had not made more progress, despite being the pace setters in the transformation journey.

Mr Zandile Sibiya, General Manager: Human Resource and Transformation, Total, replied that black shareholding within Total was at about 30%.

Mr Motau asked whether there were plans to up skill the black unskilled labours, who were employed in large numbers.

Mr Sibaya replied that 74% of all the staff were black, and of those, 66% were in middle management. Skills transfer was a huge challenge, as this also required the unskilled staff to come forward to accept the training.

Mr Radebe asked if the recent retrenchments had affected the issue of equity representation.

Mr Sibiya replied that the retrenchment was across the board and so the equity was not skewed. The impact of the retrenchments on employment equity was minimal.

Ms Mathibela asked if the BEE partners of Total were real, or were just fronts.

Mr Sibaya replied that Total South Africa sold 25% of its equity to TOSACO, who were genuinely BEE South Africans.

Women in Oil and Energy South Africa submission
Ms Khumo Ntlha, Chief Executive Officer, Women in Oil and Energy South Africa, noted that Women in Oil and Energy (WOESA) was established in 2002, in accordance with Section 21 of the Companies Act, by the Deputy President, to facilitate broader involvement of women in the energy sector and provide an interface with all relevant stakeholders in order to foster a conducive environment for the empowerment of women. WOESA Investment Holdings was established in 2006 and comprised of the WOESA Section 21 company, which owned 30%, whilst 70% was owned by individual members.

WOESA presented some challenges relating to the Charter. Chief amongst these was procurement. Most companies had procurement policies that were supposed to facilitate and leverage the growth of HDSA companies, but the reality was very different. Capacity building, such as access to training, was also costly and had thus far been mostly limited to Johannesburg. There was also a problem with accessing finance, as witnessed by the problems experienced with Development Bank of Southern Africa.

Ms Ntlha concluded her submission by putting forward some proposals, which included that all government tenders needed to be made BBBEE compulsory. There was a further need for consistent monitoring of progress with regard to transformation.

Discussion
Mr Motau asked WOESA to clarify the statement that its members were struggling because it was outside the parameters of the oil industry.

Ms Ntlha replied that WOESA was looking forward to the expansion of the industry to include Small and Medium Enterprises, especially those being run by women.

Mr Motau asked WOESA to explain what the problem was with accessing a loan from Development Bank of Southern Africa.

Ms Ntlha replied that Development Bank of Southern Africa had to date frustrated all their attempts to get the required amounts, despite having complied with all their requirements.

Black Petroleum Institute submission
Ms Lebo Mbethe, Director, Black Petroleum Institute, presented a situational analysis and recommendation of three key areas, of Ports, Procurement and Storage, which needed to be addressed. In respect of ports, Ms Mbethe outlined that the port in Durban was critical for importation of products into South Africa, yet there currently was no licensed HDSA Wholesale company importing products into Durban harbour for supply into the market. The BEE companies that were trading into Durban were having to supply into the oil majors in their own tanks, rather than import for sale into the market. There was no space currently for any new HDSA company entrant to construct and operate its own terminal, and without this there could be no real participation in the industry’s value chain by HDSA wholesalers. The Black Petroleum Institute (BPI) therefore recommended that Transnet should be compelled to enforce the provisions of the National Ports Act by ensuring that land on the port was only used for enhancing port activities, such as imports and exports, and not for processing or manufacturing.

Ms Mbethe said, in relation to procurement, that it was clear that the figures from industry were well below the target levels of 25%, as envisaged in the Liquid Fuels Charter, yet the law only licensed HDSA companies and manufacturers to import the finished product. The recommendation was that there was a need for the Department of Energy to clarify to the industry the position on crude and product importations as being part of the measured procurement spend under the Charter. Industry should also ensure that when it procured finished product, this was from licensed HDSA wholesalers.

The Committee was further informed that many storage facilities around the country had been mothballed over the years, and the owners were unwilling to sell or lease to BEE companies. Examples of these facilities were to be found in Kroonstad, Isando, Standerton and Ermelo. The recommendation was that an amendment be made to the Petroleum Products Act to compel the industry to give 25% of its storage capacity to BEE companies.

Ms Mbethe concluded her presentation by requesting the Department of Energy to allow HDSA wholesalers to access the incremental inland transport cost recovery levy, and sit in on the supply managers meetings and other planning forums like Task 141, as HDSA wholesalers were also suppliers.

Discussion
Mr Nyambi asked the Black Petroleum Institute to rate how much transformation it felt had taken place within the energy sector, on a scale of one to ten.
           
Ms Mbethe replied that BPI thought the rating was 2.5 out of 10, and this was for ownership. The problem was that the oil majors had achieved ownership, but there was no direct control.

Webber Wentzel Attorneys submission
Ms Candice Meyer, Partner, Webber Wentzel Attorneys, presented a submission, which consisted of comments and questions on the Charter. One of the issues raised was that the concept of ownership and equity participation needed to be clarified. Ms Meyer asked what the effect was of the terms ‘ownership or control’ and ‘ownership and control’ as applied in the Charter. She questioned whether, for instance, a company must be 25% owned and 50% plus one controlled, in order to qualify as an HDSA company, or whether the 25% alone would suffice. Ms Meyer asked how transformation would be enforced and if there were any sanctions for non-compliance. Ms Meyer concluded her presentation with a series of questions that needed to be addressed, including the interpretation of the time frame. She asked when the ten year period referred to, for compliance with the ownership and control elements, had commenced – whether this was in November 2000, or when the Charter was enacted as a Schedule to the Petroleum Products Act. Her presentation further pointed out that the BBBEE ownership target deadlines were not conceived within the context of new entrants coming into the industry.

Discussion
The Chairperson noted that this presentation by Webber Wentzel Attorneys presented more questions than answers. Perhaps the way in which the advertisement calling for submissions was worded had caused the problem. The essence of this hearing was to check the level of implementation of the Charter. The scope of the Charter catered for the whole value chain, and was centred on seven important pillars, and at the centre of this was transformation. The Committee had expected that Webber Wentzel might have been sharing some of their clients’ experiences in implementing the Charter. However, it had asked more questions than provided answers. Webber Wentzel was free to meet with the Department of Energy if it needed answers to the questions they had provided.

Mr Ross thanked Webber Wentzel Attorneys for its presentation, saying that it was an important piece of work that highlighted some of the major challenges.

Petrochemo Global (Pty) Ltd submission
Ms Nombini Xabanisa, Executive Director; Petrochemo Global, identified some of the barriers to the market, which included storage facilities, middle-man agencies, reluctance by the empowered to empower others, and scams. Some of the barriers were created by government agencies that did not have any incentive to empower and the middle-man agencies, which currently made it difficult to achieve direct selling from refinery. Empowerment initiatives were also centralised in the same hands and for too long. This could only be changed if the pattern of empowerment and control was done in a different form.

Ms Xabanisa highlighted some of the possible ways of tapping into the market. These included a proposal on rotation of empowerment, so as to prevent empowerment happening in one and the same individuals. This could be imposed on government owned enterprises. She said that there were some BEE groups that were in place for the past 10 to 15 years with the same agency, despite the fact that these should by now surely have learned all the ropes of doing their business and could now survive on their own. Women representation on boards would also be ideal, as Petrochemo believed that empowering women empowered the nation.

Discussion
Ms Mathibela asked who the middle men were, as referred to in the presentation.
           
Ms Xabanisa replied that these were agencies that provided companies with business. They were sometimes useful, but they also sometimes presented a barrier in accessing the product from the refinery or producer.

Ms Mathibela asked Ms Xabanisa if Petrochemo was her company, or if she was just being fronted.

Ms Xabanisa replied that she was Executive Director and co-owner, and denied strenuously that she was being fronted in any way.

Ms B Tinto (ANC) asked if Petrochemo was part of WOESA.

Ms Xabanisa replied that it was not yet part of WOESA but was intending to join WOESA.

Mr Nyambi asked Petrochemo to rate how much transformation it felt had taken place within the energy sector, on a scale of one to ten.
           
Ms Xabanisa replied that Petrochemo’s rating of the transformation within the industry, on a scale of one to ten, was below five, which was below average.

Mr Motau asked for some elaboration on the scams that had been referred to in the presentation.

Ms Xabanisa replied that there were some bad elements who had a data base of wholesalers that sent out e-mails purporting to propose business, but these had turned out to be e-mail scams.

General Discussion
Mr K Sinclair (Northern Cape, COPE) questioned the way in which the transformation agenda was currently being driven. He thought that it was not being seen in context. He thought that if the Committee was constantly going to be focusing continuously on numbers of women, numbers of jobs and so on, it was on the wrong track. The transformation agenda needed to be more than that. Mr Sinclair was concerned that in fifty years time the Committee would not have achieved very much. He thought that the issues were much broader, and should, for instance, be focusing on how the rural areas could be uplifted and establishing a turn around strategy to ensure that service delivery took place where it mattered.

The Chairperson of the Select Committee on Economic Development responded that the reason for the public hearings was to find common ground. There was need to respect everyone’s view. If Members of the Committee were concerned about the number of women on a board, it was their right to raise this as a concern. If the public felt that there were too few women, or that something was not helping them as the public, whether white or black, then they too were free to raise these issues. Legislators had a fundamental right to carry out work on oversight.

The Chairperson of the Portfolio Committee on Energy suggested that Mr Sinclair was out of order. Employment equity was one of the seven pillars of the Charter, and it would forever be raised, even if he did not like it.

Ms Tinto observed that most companies had not met their equity requirements as stipulated by the Charter.

Mr Lucas observed that equity was not just about meeting the 25% bench mark, as most companies aspired to do that. It was rather aimed at addressing the historical imbalances. Therefore companies needed to buy into the larger spirit of the transformation agenda.

Mr D Gamede (ANC, Kwazulu-Natal) observed that most black people who owned businesses did not have control over these businesses.

The Chairperson of the Portfolio Committee on Energy thanked all those present for their commitment in attending the hearing. However, she noted that many of the companies would need to be called back, as the information that some had provided was inadequate. The Committee would further look at the possibility of shortening the review period for the Charter from the stipulated period of ten years to a two year period.

The Chairperson of the Select Committee on Economic Development thanked those in attendance, but observed that it was saddening to learn that State owned entities were not bailing out the ‘ordinary man on the street’, yet they were themselves being bailed out by government.

A Deputy Director General, Department of Energy, thanked the Chairpersons and members of the Committee for hosting the public hearings. The Department’s programme of reviewing compliance to the Charter would start in October. The Department would further meet with the South African Petroleum Industry Association to discuss what could be done to change the situation.

The meeting was adjourned.