PetroSA “Outlook 2012 to 2016”, Integrated Energy Centre Programme: Department's briefing


04 May 2012
Chairperson: Mr S Njikelana (ANC)
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Meeting Summary

PetroSA presented its Outlook 2012 to 2016 document, which aimed to support group’s growth objectives. There was concern that PetroSA relied on a single source of income, had a depleting feedstock and limited market share, which in turn meant it did not have a very large influence in the oil industry. It hoped to increase its market share of South African liquid fuels to 25%, with a sizeable gas and crude oil reserve base, by 2020, and saw its role as the national oil company as pivotal to growth of South Africa and the region. Entry into the downstream market would be critical in increasing productivity and making PetroSA more sustainable. Particular projects that were hoped to produce positive effects were Project Mthombo, gas discoveries in Mozambique to which PetroSA hoped to get access, and Project Ikhwezi. It also hoped to reduce reliance on imports, to grow value chains and job creation. It was committed to exploration, despite the high risks, and was trying to limit the risk by entering into partnerships. There was a move to bring Liquefied Natural Gas into the industry and future plans to invest also in shale gas. PetroSA was committed to transformation in the industry and itself, described the initiatives being taken, and outlined its target of 35% female representation in the next five years, reflected by steady growth towards this figure so far. PetroSA had special programmes to attract females, and offered eleven bursaries for disabled students. It was also committed to environmental care. It expected a decrease in profits for the next financial year, because of depletion of feedstock and planned shut-downs but to increase profits thereafter.

Members urged for investment in refineries and exploiting of downstream opportunities, asked about the reliance on the Sasol pipeline to transport natural gas from Mozambique and questioned why other regions’ gas was not taken into consideration. More details were requested on Project Ikhwezi, and its effect in sustainability, and Members questioned why South Africa was not importing more refined products, instead of investing in a refinery, asked what gas infrastructure was considered, and who would be investing. Members also asked the strategy around shut-downs, plans for increasing storage capacity, and the costs of Project Mthombo. They wanted more details around the most recent employees, transformation initiatives, and active strategies, and commented that the figure of 35% women was still too low. The corporate social investment initiatives were also questioned, and the Chairperson commented that he was expecting to hear more on the environmental plans and carbon footprint, as well as the reasons behind so many temporary employees.  

The Department of Energy (DOE) briefed the Committee on the Integrated Energy Centre (IeC) programme, which had been running since 2002 to assist the DOE to promote access to affordable energy services, provide education and develop partnerships, particularly using small enterprises and cooperatives. Seven IeCs were in existence, with more planned, although two were not operational. They had led to creation of 60 temporary jobs during construction phase, about eight permanent jobs for each IeC and creation of complementary businesses. Several other entities had assisted. There were challenges of poor governance and poor financial management, inadequate support by municipalities, over-reliance on external funding and some problems with the cooperative model, but steps were taken to address these, and there would be continued interaction on the framework. Although the IeCs were intended for the benefit of the community, this did not always happen and the DOE had limited scope to intervene, whilst other problems arose around competition and poor sites. Members asked about the IeCs’ proximity to other businesses, and said that whilst they were supportive of the programme, more details were needed on exactly how energy poverty was being addressed, as well as more details on the IeC that closed. They urged the need for effective training and partnerships, said that Eskom could play a role, and said monitoring must improve. A list of proposed IeCs was requested, and oil companies were thanked for their assistance.

Meeting report

PetroSA Outlook 2012 – 2016 briefing
Dr Benny Mokaba, Chairperson, PetroSA, noted at the outset that  PetroSA was committed to the transformation agenda, particularly with regard to the inclusion of women at senior management. He made reference to increases in oil prices, as well as the changes in the industry players in Africa as well as the rest of the world, which would provide different opportunities and challenges, with a particular move noted from downstream to upstream. He noted that this affected the security of supply. He voiced concern that South Africa still imported 30% of its oil. These, and other factors, were all taken into consideration when planning the Outlook 2012 to 2016.

Ms Nosizwe Nokwe, Group Chief Executive Officer, PetroSA, noted that this plan was made in recognition and support of the group’s growth objectives. One of the challenges was the concern about PetroSA’s reliance on a single source of income, adding to low influence in the oil industry. She also noted the problem of depleting feedstock, as well as the constraints created by the size or market share, limiting PetroSA’s role in transformation of the industry. PetroSA planned to increase its market share of South African liquid fuels to 25%, with a sizeable gas and crude oil reserve base, by 2020. Another of its focus areas was its commitment to being an environmentally responsible organisation. These were summarised into the strategic objective to be a sustainable, commercially competitive, fully integrated national oil company that supplied at least 25% of South Africa’s liquid fuel needs by 2020. More detail on the projects and presentations in the strategic focus areas were detailed (see attached presentation).  She noted that the group saw its role as a national oil company as being pivotal to the growth of not only the country, but also the region.

Ms Nokwe further noted that PetroSA hoped to be fully integrated by 2020, and be an internationally reputable oil company. She noted that entry into the downstream market would be critical in increasing productivity and bringing PetroSA closer to its goal of being sustainable. She made reference to the introduction of Project Mthombo and the very positive effect that this was expected to have in ensuring optimal performance. The gas discoveries in Mozambique were also noted as being a key factor in this objective, and there were plans to secure access to these reserves. She again voiced her concern with the high reliance on importation to cover the deficit that the country was likely to find in future years. She highlighted the point that over-reliance on imports meant that the country would lose out on the benefits of manufacturing of a barrel of oil that stemmed from the other spin-off industry gains. This lack of involvement in the value chains of these industries would be an injustice to the country and a limitation on job creation.

She reiterated the group’s desire to grow the company to a fully integrated and sustainable entity, and its commitment to transformation objectives. She made special note to the fact that the oil industry has been a male dominated industry but that PetroSA was committing itself to changing that situation to ensure that women enjoyed more inclusion in this industry. More specific transformation initiatives were set out (see attached presentation). Presently the PetroSA workforce had 79% black representation, and of that 29% were women. There was a commitment to having 35% female representation in five years, and in this regard she noted the growth from 26% in 2010, to 29% in 2012.

Mr Darrin Arendse, Vice President: Human Capital, PetroSA added that PetroSA was committed to its transformation goals, and noted that there were various initiatives that had been specially designed to attract females to the industry. Eleven bursaries had been awarded to students at the Cape Peninsula Technikon, who were disabled, to bridge the shortcomings in the industry on employments of disabled people.

Mr Nkosemntu Nika, Chief Financial Officer, PetroSA, made reference to PetroSA’s continued commitment to exploration, noting that the risks were high, but the returns were even greater. He also noted that steps were being taken to limit the risk incurred by PetroSA by entering into partnerships for the purposes of exploration. He also noted the desire to bring Liquefied Natural Gas (LNG) into the industry and the future plans to invest also in shale gas. He noted that the income stream for Project Mthombo was expected to come in around 2020.

Mr Nika pointed out that for the greater part of the last ten years, PetroSA had been a R1 billion profit company. However, it was expecting a decrease in profits for the following financial year, owing to the depletion of PetroSA’s feedstock, as well as the planned shut-down, and reiterated that PetroSA had only one source of income. In  2012/13 Project Ikwhezi was expected to enter into the business of PetroSA. The subsequent financial years indicated an expected increase in profits out of the returns expected from these initiatives (see attached presentation for more details).

Mr K Moloto (ANC) was encouraged by the stance taken by PetroSA in terms of project Mthombo. He referred to a statement with regard to refineries that had noted a trend of reducing capacity in various refineries, even in the United States. He commented on the need for real investments in refineries, as this helped to ensure that downstream opportunities were exploited. He then voiced concern with the reliance on the Sasol pipeline in transporting natural gas from Mozambique. He wanted to know if there were no other initiatives to transport gas from Mozambique and other regions where gas had been discovered, such as Tanzania.

Dr Thabo Kgogo, Acting Vice President: Operations, PetroSA, assured the Committee that the drilling was happening on a discovered field. He noted that in regard to LNG and compressed natural gas (CNG), there was an issue with the distance, since this gas could only go up to 2000 km, which raised issues around its import from places such as Tanzania, and even the more northern parts of Mozambique, to Mossel Bay. That was the motivation for the investment on LNG, even though this method was costly. Consideration was being given to ensure gas-to-power, and therefore creating the requisite infrastructure, and in this regard, agreements were being entered into with other players. Investors would be invited to partner with PetroSA in exploiting the huge gas market that existed in South Africa.

Mr Moloto asked for more detail on the key elements of Project Ikhwezi, and whether any assurances could be given that this project could indeed sustain PetroSA.

Dr Kgogo noted that Ikhwezi project included activities around the drilling of five horizontal wells, the building of a 40 km pipeline offshore, and minor modifications to the current platform offshore.

Mr L Greyling (ID) read from the National Development Plan, noting that it stated that refining margins were quite low, creating a surplus in refined products. If this assumption was correct, South Africa would have to export surplus product at a loss, which would presumably be covered by local fuel consumers through the fuel price. The report noted that this would be unfair. Mr Greyling therefore wondered whether South Africa should not be importing more refined products instead of investing in a refinery at this stage. He noted that there was a clear need for leadership in the liquid fuel sector as the current position was unsustainable, and there was confusion as to the message being sent out to the market. At the moment, refining was being handled by the private sector refineries, which were performing at about 70% to 80% capacity, which indicated that they need to be upgraded. However, he questioned if these refineries would refrain from conducting such upgrades if they know that Project Mthombo would be entering into the market. He noted that gas would be a major player in the Southern African region and wondered what infrastructure was being considered, and the investments that were expected to be made, as well as who was to make them.

Dr Mokaba noted that refinery capacity figures were very low indeed, as evidenced by the volumes imported. This meant that infrastructure development became necessary. He noted that refining margins varied from decade to decade, and that various factors need to be considered, prior to the time, to ensure that the country found itself in a favourable position. By the time product came out of the new refinery, the data showed that the product produced would be consumed locally, as local refinery capacity was and would continue to be a very important factor. He noted that the figures on how much the refinery was going to cost were yet to be made available.

Mr J Smalle (DA) noted that there was a need for all refineries to upgrade their current operations, and, in order for this to happen, shut-downs were necessary. He wanted to know what strategies were in place to facilitate these shut-downs. He also enquired why there was an import of 7 billion litres, asking if this was due to the fact that it was cheaper to import than it was to make locally.

Mr Smalle noted that storage capacity needed to increase and wanted to know what the plans were in this regard.

Mr Smalle took note of the net finance cost, asked what the specific cost of Project Mthombo would be, and how long it would take to pay this off. He also wondered if this investment would move South Africa towards its Euro 5 goals.

Ms Nokwe noted the correctness of the observations in regard to storage, as well as the fact that infrastructure for storage would be needed. She noted that steps had been taken to ensure that storage was not a problem. However, this also had its positives, as it opened up possibilities of entering into the downstream market. She added that PetroSA’s status as a national oil company allowed it to venture into areas where few others may dare to go.

Mr E Lucas (IFP) commended PetroSA on its presentation and wondered how the production of crude to fuel would affect the prices. He noted the success of PetroSA, as opposed to MossGas, and would like to see continued support given to PetroSA. He wondered if the same pipeline would still be used if new reserves were discovered in Mozambique. He also commended PetroSA’s commitment to maintaining the refinery in Mossel Bay, saying that if this were to shut down, there would be adverse economic effects on the town. He noted the need for continued development to move this country towards first world status. He then emphasised the need for transformation in this industry.

Mr S Radebe (ANC) echoed the question on the Ikhwezi Project and also wanted to know how this would sustain PetroSA. He also voiced concern as to the issue of transformation, saying that the figure of 35% was not satisfactory. He called for PetroSA to align itself with the labour law requirements in this regard. He wanted to know who was being targeted with the initiatives to create jobs. He called for there to be more engagement with tertiary institutions, for the purpose of producing students who were to work in this sector. In terms of the economic strategy, he wanted to know what the plan was to support Historically Disadvantaged Individuals (HDIs).

Mr Arendse responded that there had been structural issues preventing female employees from moving up in the ranks, but PetroSA was effectively dealing with this issue, through various initiatives and targeting of women in new positions within the group. He added that Project Mthombo was expected to have a good influence on job creation. At the moment, there were initiatives ongoing through the Centre of Excellence, benefiting numerous individuals, who had now entered into the economy.

Dr Mokaba added that the 35% target was to be reached over five years and assured the Members that PetroSA took these targets very seriously, as evidenced by the percentage increase over past years. PetroSA was determined to meet those targets.

Ms B Tinto (ANC) noted that PetroSA, during its previous visit, had noted the recruitment of 35 graduates but had failed to indicate the demographic composition of those graduates. She was happy to see that the transformation initiatives were focussing particularly on women. She asked, in relation to the social corporate investment, what projects were in place. She also asked what the plan was for creating new jobs and sustaining those that currently existed.

Mr Kaiser Nyatsumba, Head: Corporate Affairs and Shared Services, PetroSA, noted that PetroSA took very seriously the need to make a real difference in South Africa, and corporate social investments (CSI) were the vehicle to ensure that difference. PetroSA now had a national footprint with community based projects in all nine provinces, focussing on education and health. These initiatives required the involvement of various other players too. There was an intention to spend 30% of the CSI budget on education, 25% on health, 20% on community development, and another 20% on environment. The remaining 5% was reserved for deserving projects that did not fall into those categories. In the current year, that allocation was being put to the Integrated Energy Centres project. He then assured the Chairperson of the Committee that invitations would be extended to Committee Members to attend launches and various other events.

The Chairperson urged PetroSA to respond to the questions about the National Development Plan, and said that this still had to be adopted. He asked that, in future, PetroSA should present as comprehensive a presentation as possible, to assist the Committee is making assessments. He had hoped that PetroSA would share with the Committee its environmental plans and state how it intended to reduce its carbon footprint. He also wondered why PetroSA had so many temporary employees. He also asked what the progress was on the 220 learnerships that PetroSA had mentioned.

Mr Arendse responded that one of the reasons for having so many temporary employees was that the industry tended to poach staff from each other, and so PetroSA was continually looking to fill gaps. At any time, there would therefore always be some temporary employees, with the numbers varying from month to month. In terms of skills development, PetroSA would be offering ten to fifteen bursaries in operations management at Nelson Mandela Metropolitan University, as well as the eleven bursaries being offered to disabled students at CPUT, to further its skills development goal.

Ms Nokwe answered, in relation to the environmental plans, that PetroSA always had regard to environmental considerations at all times, but apologised for not being able to present more specific information in support of this assertion now.

Integrated Energy Centre (IeC) Programme: Department of Energy briefing
Mr Muzi Mkhize, Chief Director: Hydrocarbons, Department of Energy, noted that the Integrated Energy Centre (IeC) Programme had been in effect since 2002, and would assist the Department of Energy (DOE or the Department) in fulfilling its mandate to promote access to affordable energy services. IeC was a “one-stop energy shop” owned and operated by a registered community cooperative, and was aimed at energy poverty alleviation in South Africa’s rural hinterlands. He tabled a diagram explaining these points further (see attached presentation).

In addition to promoting access and affordability, IeCs also aimed to provide education and develop partnerships. They aimed to secure modern energy for all, leading to improved lifestyles, better energy planning, and small, medium and micro enterprises (SMME) development as well as local economic development.

There was legislation to support the IeC programme (see attached presentation, page 6). There were seven IeCs in various areas, with more in the pipeline. The IeC in Kgalagadi had been closed down due to operational problems, and the one in Eshane was not operational, and was currently being revamped. He made special note of the positive role that Sasol had played in the creation and construction of these IeCs. He also noted that they were challenged by various construction issues that had taken time to resolve.

The benefits enjoyed through these IeCs were outlined, including the creation of 60 temporary jobs during construction, the creation of about eight permanent jobs per IeC, as well as other complementary businesses created as a result of the IeCs, which were illustrated in the presentation. Access to clean and affordable energy services, and energy advisory services, were provided to the public. He commended the work and demonstrations done by the Paraffin and Safety Association of South Africa (PASASA), LPG associations and Eskom.

The Department noted that challenges included issues of poor governance, leading to poor money management. There was a lack of financial and business management skills, inadequate co-operation and support by local municipalities, dependence on external funding and difficulty in complying with legislation. The cooperative models that were in use were not adequate and sustainability was doubtful. However, these models were not meant to be involved in the day to day running of the IeCs, but only to be involved at commencement.

Various initiatives had been taken to counter the challenges, which were detailed in the presentation, but he noted, in particular, the need to establish other ownership models that could be adopted and piloted to ensure that the IeCs would be sustainable in the future. In future, there should be a checklist as well as effective piloting of ownership models. The challenge of promises for funding not being met also had to be addressed. There was a need for continued interactions to ensure the review of the framework of the IeC programme, as well as ensuring that human capital development and deployment took place.

Mr Makhosonke Plaatjies, Deputy Director, Department of Energy, spoke to the impact of the cooperative model. He repeated that the IeCs were meant to be for the benefit of the community and voiced concern that some players were using the IeCs to better themselves and not the communities. It was difficult for the DOE to intervene, because cooperative agreements ensured autonomy in operations. There were also issues around competition between the IeCs and various wholesalers in the area, which had, for instance, led to the situation where most IeCs were no longer selling paraffin, as the communities preferred to get it from other wholesalers.

Mr Moloto asked about competition and proximity of the IeCs to other business, noting that if the IeCs were not situated far enough from their competitors, this could raise problems around their long term sustainability.

The Department noted that IeCs tended to be situated between 20 and 30km from other service stations, and it was not intended that they should adversely affect other businesses. The licensing regime was also a tool used to counter this problem.

Mr Plaatjies added that there had been a move to create hubs at the IeCs to attract other businesses, such as pension paypoints.

The Chairperson noted his support of the IeC programme, as it addressed the issue of energy poverty. However, he felt that not enough information had been given. He urged the DOE to give the Committee a fuller picture of exactly how energy poverty was being alleviated. He wanted to know the specifics of the Kgalagadi IeC, and what was now happening there. He said it was unacceptable that some IeCs were being adversely affected by politicking. He echoed the need to ensure that co-operatives effected adequate training and entered into partnerships. He noted that Eskom could also play a role in re-enforcing the IeCs. He also asked for monitoring and evaluation to be improved in the IeCs, and noted his approval of Energy Advisory Services and what they did.

The Department noted, in relation to Energy Advisory Services, that there was a need to look beyond the simple services provided for by the IeCs, and also to ensure that the energy needs of the community were assessed and met through other means as well, not just the establishment of IeCs. This would yield various other partnerships. The recruitment method had also been flawed, since some ill-informed people were employed by the cooperatives, as well as other administrative obstacles that had hindered real progress. The oil companies had also been providing training on what a cooperative entailed. He highlighted the need for training and retraining, on a continuous basis, to counter problems such as poor cash management. He added that the remoteness of the sites made them not ideal for business.

Mr Plaatjies responded on the Kgalagadi questions, saying that this was one of the first IeCs, covering a radius of about 60km. There were some issues in attracting skilled people to employ, as well as those with a common interest, and there were some problems arising out of poor financial management. He concurred with the Chairperson’s comments on training and assured him that the DOE would be attending to those issues. He also addressed the IeC in Newcastle, noting that there were environmental hindrances to getting this programme running, as well as some matters presented by Total, the sponsor of the project.

The Chairperson then asked DOE to provide a list of the proposed IeCs that were in the pipelines. He commended the oil companies that had been involved in these programmes.

The meeting was adjourned.


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