Energy Stakeholder Meeting: Transformation in Petroleum Industry

Energy

31 October 2012
Chairperson: Mr SJ Njikelana (ANC)
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Meeting Summary

The South African Supplier Development Agency, the South African Petroleum Industry Association, Women in Oil & Energy South Africa, and the Chemical Energy Paper Printing Wood and Allied Workers Union presented their views as stakeholders on the state of transformation in the liquefied petroleum industry.

There was general consensus that transformation was very slow, with a lack of commitment from some stakeholders.  There was agreement that the main obstacles to progress were a shortage of skills, a lack of access to information regarding business opportunities, a lack of access to capital, dominant and entrenched incumbent suppliers who did not open up to small suppliers, “fronting”, and the perception of risk in the form of inferior quality and disruption of operations. 

As a way forward, there was an urgent need to attend to the revision of the Liquid Fuel Charter, and to collaborate with higher institutions of learning in terms of skills development.   Transformation plans should be put in place, and companies should first consider skills available in South Africa before looking for personnel overseas. The view was expressed that decisively dealing with fronting would go a long way in speeding up the implementation of transformation. The introduction of penalties to deal with fronting would also play a role, although caution would have to be exercised to guard against unintended consequences.  Another proposal was that a scorecard for the monitoring and measurement of compliance against set objectives and targets should be developed, resulting in uniform reporting by all measured entities (manufacturers, wholesalers and retailers).  There should also be a recommitment by all measured entities to comply with all elements of the Petroleum and Liquid Fuels Scorecard.

Members raised questions about skills training, the role of women in the industry, and funding issues.
It was said that transformation in the industry was marginal and that oil companies lacked commitment.  Most oil companies did not have transformation plans
 

Meeting report

The Chairperson, by way of introduction, informed the meeting that Parliament’s contribution to the liquefied petroleum industry revolved primarily around the Liquid Fuels Charter (LFC) which, once in force, would epitomize the Committee’s attempts to have the industry turned around in the South African context. He said that the Committee was still waiting for the Department of Energy to present a refined draft of the Charter, which at the moment was not forthcoming.

The Chairperson said that an energy stakeholders’ meeting had been held in January, at which the Committee’s focus had been to determine the role that could be played in the strategic management of fuels. He said that the various speakers at the meeting wanted, as part of the transformation, a level playing field.

South African Supplier Development Agency (SASDA): The driving forces behind the Liquid Fuels Charter
Mr Lunga Saki, Acting CEO, SASDA said that SASDA had been incorporated to implement the Department of Energy’s (DoE) transformation objectives.  Its journey had begun with the White Paper on energy that laid down the basis for Broad Based Black Economic Empowerment (B-BBEE) in the petro-chemical sector. In response to the White Paper, the DoE and South African Petroleum Industry Association (SAPIA) had put together the Petroleum and Liquid Fuels Charter in 2000 in order to redress historical inequalities, accelerate empowerment in the liquid fuels Industry and to stimulate the growth of small and medium-sized enterprises (SMEs).

Mr Saki said that in 2003, DoE had instructed PetroSA to establish a supplier development pilot project whose satisfactory results had led to the rolling out of a national program. 2005 saw the completion of the national supplier development pilot project, in partnership with PetroSA.

Mr Saki said that SASDA had been established in 2005 by the DoE and SAPIA to carry out the transformation imperatives of the petroleum and liquid fuels industry. Its mandate was to be the sole national supplier development agency for the petroleum industry in South Africa under Section 2B subsection 2(c) of the Petroleum Product Amendment Act No. 58 of 2003.  SASDA was to achieve the objective of promoting the advancement of historically disadvantaged South Africans, and to give effect to the Petroleum and Liquid Fuels Charter. The other legislation relevant to the working of SASDA was the Broad Based Black Economic Empowerment Act No. 53 of 2003 and the National Small Enterprises Act No. 102 of 1996.

SASDA’s mission was to facilitate the development and empowerment of Black South Africans through increased access to industry procurement opportunities. SASDA’s strategic objectives were the co-ordination of existing supplier development efforts, by collaborating with participating companies and fully utilising the common supplier database, implementation and management of supplier development programmes for participating companies, and the active sourcing of black suppliers with particular emphasis on women, youth and people with disabilities according to industry requirements. One area of its mission was to enter into strategic alliances with other complimentary initiatives, like the Department of Trade and Industry (dti), the Industrial Development Corporation (IDC), the United Nations Industrial Development Organisation (UNIDO) and the National Empowerment Fund (NEF). Other areas included facilitating the establishment of new SME enterprises in the renewable energy sector and assistance in the development of small, micro and medium-sized enterprises (SMMEs) to meaningfully participate in crude oil procurement.  The concern raised by big companies was that they could not find black suppliers who could supply certain goods and services.

Mr Saki said that following the completion of the pilot project with PetroSA, SASDA had found that there was a lack of capacity and ability of SMEs to serve more than one customer, a shortage of skills, a lack of access to information regarding business opportunities, a lack of access to capital, dominant and entrenched incumbent suppliers that did not open up to small suppliers, “fronting”, and the perception of risk, inferior quality and disruption of operations. 

SASDA’s conclusions, based on the findings, were that there was a need to facilitate skills training to meet the industry standards, the creation of a market place between buyers, B-BBEE SMEs and financiers, and a breakdown of barriers by facilitating credibility and trust between B-BBEE suppliers and customers. SASDA had developed a program offering mentorship and coaching, technical support, skills training (technical and business), supplier assessment, access to raw materials, facilitation of financial support and project management.

Mr Saki said that the foundations for initiatives with oil companies had been laid and a long-term strategy had been completed, from which SASDA would deliver on its mandate. In terms of supplier development, 20 SMMEs were in the process of being developed and R17m had been invested with the potential for generating R233m in revenue, 170 jobs and 35 shareholders, of which 20 per cent would be women.

The Refineries Managers Project was underway and 15 SMMEs would be developed.  A R1.3m investment would have the potential of creating R75 million in revenue, 60 jobs and 20 shareholders, of which 20 per cent would be women. SASDA was assisting Turner and Townsend in its application for Equity Equivalent, with an investment of R2m that had the potential to create R80m in revenue, 70 jobs and 30 shareholders, 25 per cent of which would be women. 

Obstacles and barriers to transformation included lack of skills and experience, few opportunities, capital requirements, and incumbent suppliers with track records.  Risks, real and perceived, facing the industry and causing resistance included concerns over the lack of skills and experience, incumbent suppliers with track records, disruptions to operations and a drop in quality of goods and services.

 Mr Saki said that SASDA’s successes in areas like skills development, employment equity and socio-economic development, required quantifying, while there was still a lot to be done in the field of preferential procurement and enterprise development.

SASDA was requesting regulation and support from the Department of Energy in terms of a new funding model (initially funded by the oil companies but currently funded solely by the Department of Energy), alignment of the Liquid Fuel Charter (LFC) with the dti codes (Revised LFC), and measurable targets for the industry (success against targets). There should also be consequences for non-participation (sanctions, penalties, licenses, incentives and dis-incentives), setting aside a dispensation for procurement from SMEs (for instance, goods below a value of R20m to be procured from SMEs).  In addition, 25 per cent of all products, including crude, should be sourced from black suppliers, with active support for SASDA’s programs and a scorecard audit of oil companies.

Transformation in the Liquid Fuels Industry: SAPIA Initiatives and Programmes
Ms Nobuzwe Mbuyisa, a Member of the Board of Governors and Chairperson, Chevron South Africa, said that the South African Petroleum Industry Association (SAPIA) was in principle aligned to the outcomes of the compliance audit in terms of ownership, management control, capacity building, employment equity and supportive culture, procurement, access to facilities and wholesaling and retailing.
 
SAPIA welcomed and supported the Broad-Based Black Economic Empowerment Amendment Bill 2011, with an appeal that the monitoring and proper implementation be enhanced. SAPIA was of the view that decisively dealing with fronting would go a long way in speeding up the implementation of transformation in the country. The introduction of penalties to deal with fronting would also play a role, although caution would have to be exercised to guard against unintended consequences. She added that regulation of the verification industry would bring consistency and credibility in the verification regime. The inclusion of organs of state, public entities and the introduction of a BEE Commission would be an excellent development.

Ms Mbuyisa said that a revised scorecard would be very relevant in the areas of ownership, management control, skills development, enterprise and supplier development and socio-economic development.

SAPIA had successfully implemented a Leadership in Oil and Energy Certificate Programme from 2006 to 2011, from which 348 industry employees, mostly black people and women, had graduated.  A Women in Leadership Programme had been launched in August 2012, with approximately 40 industry women enrolling.  An Advanced Certificate in Management for Oil and Gas was to be launched in 2013, aimed at middle managers making a transition to senior managers.

Ms Mbuyisa said that on a broader level, SAPIA had developed a framework that was looking at an industry learning pathway right from matric.  SAPIA would be working with learning institutions, and skills development up to PhD level would be supported. There was a need to develop locally available petroleum industry qualifications, short courses for entrepreneurs (particularly female) and more industry partnerships with SETAs and learning institutions.

The Department of Energy should lead the process to develop a new sector transformation framework, recognising changes in the Broad-Based Black Economic Empowerment Amendment Bill 2011, revised Broad-Based Black Economic Empowerment Codes of Good Practice and the Broad-Based Black Economic Empowerment Technical Assistance Guidelines. She added that there was a need for the development of a scorecard for the monitoring and measurement of compliance against set objectives and targets, resulting in uniform reporting by all measured entities (manufacturers, wholesalers and retailers).  There should also be a recommitment by all measured entities to comply with all elements of the Petroleum and Liquid Fuels Scorecard.

WOESA: Challenges and Experiences in the Liquid Fuels Sector
Ms Bongani Mthombeni-Möller,  Managing Director, Itens Engineering Solutions, representing Women in Oil & Energy South Africa (WOESA), said that WOESA was a Section 21 company whose aim was to facilitate and promote business opportunities for, and enhance the participation of, South African women in the oil and energy sector, with a vision of being a leading organisation in facilitating the participation of women in business ventures in the oil, gas and other energy sectors.  Referring to the WOESA group of companies, she said that WOESA (section 21) and WOESA individual shareholders/members owned 30% and 70% respectively in WOESA Investment Holdings, with Investment Holdings controlling WOESA Investments (Pty) Limited.

WOESA faced challenges in the areas of finance and infrastructure. There was a modest budget for overheads and running of the organisation, and an unwillingness on the part of oil companies to contribute to overheads, as they preferred to fund only projects. She said that 20% of dividends from WOESA Investments would flow to WOESA to cover overhead costs, but it would take three to five years to realise positive cash flows from the investment arm.

Ms Mthombeni-Möller said that WOESA was facing infrastructural challenges in skills development and training, and the lack of a well-resourced platform and network for women in the sector.  In proposing ways of addressing the challenges, she said that there was a need for a clear national plan of action for women’s empowerment, targets for women empowerment, a body to monitor progress, an advisory body to intervene if targets were not met and financial support from the industry (Total, SASOL, PetroSA, Shell), government and institutions closely linked to it (dti, DoE and ESKOM) and the financial sector (banks and investment companies).

CEPPWAWU Submission on Liquid Fuels Charter Implementation
Mr Samuel Seatlholo, Deputy Secretary General, Chemical Energy Paper Printing Wood and Allied Workers Union (CEPPWAWU) said that CEPPWAWU’s comments were preliminary and that at a later date a proper submission would be made.

Ms Tanya van Meelis, Trade and Industry Coordinator, CEPPWAWU, highlighting the key focus areas, said that there had been a decline in spending on capacity building and a lack of sufficient implementation of mentorships.  There was a need for more training on core skills, priority skills and scarce skills, as these offered not only a chance for upward mobility and improved life but also safer and more interesting work and an opportunity to make a meaningful contribution towards development through improved productivity. There was a tendency to spend more on highly skilled white managers rather than less skilled black employees, and it was not clear how much time had been made available to workers to allow them to acquire skills.

Ms Van Meelis said that procurement seemed to be integrated in a business model, and blacks were not being confined to the side-lines. What remained to be checked, however, was whether goods and services were being produced and sourced in South Africa to allow for job creation and the benefit of South African workers. The other concern raised was whether there was monitoring of workers’ conditions in the supply chain.

Referring to employment equity, she said that companies were still run largely by whites in key positions.  This was partly due to a general lack of opportunity for black employees to progress in their careers at all levels in the organisation, and a lack of commitment to training, career pathing and mentoring by the companies. While white people did not have to prove their worth, black people had to do so – this was something that had been backed up by research. In some companies, opportunities were afforded to those from outside South Africa’s borders and as a result, South Africans missed out on the opportunities. Although there were scarce skills that could only be imported, companies should look carefully to confirm that the scarce skills were indeed lacking before choosing to import them. Employment equity had to be challenged at all levels of management, with more training and opportunities provided to access such positions.

Ms Van Meelis said that there was a lack of access to joint facilities, a finding that was to be read in conjunction with the Competition Commission’s referral of possible collusive activities in the oil industry to the Competition Tribunal. She added that there was a lack of refinery capacity, and this would become more acute with the growth in demand. Refinery investments required long-term planning and there were a host of regulatory implications and incentives that could boost or impede such investments.

In terms of enterprise development, there was some action taking place in areas such as procurement and terms of credit, but there was a need for more action to be taken by the companies to support enterprise development with the aim of promoting employment. Upgrades of refineries had to be undertaken to expand supply, with a concerted effort placed on the use of local enterprises in order to expand employment opportunities.

In conclusion, Mr Seatlholo said CEPPWAWU had severe concerns regarding the viability of the industry going forward – in particular with the need to invest and extend refining capacity – and with the conduct of companies to ensure access to facilities and appropriate pricing.  CEPPWAWU’s recommendations were that more emphasis should be placed on skills and training, job creation (direct and indirect), supported by an investigation by the Committee on how to promote investment in refining capacity and how to maximise job creation, and a further investigation by the Committee into the lack of access to infrastructure, linking this to the work being done by the competition authorities.

Discussion
Mr S Radebe (ANC) asked whether SASDA was collaborating with higher education institutions in terms of skills training.  What was the turnaround time?  What was the actual number of women shareholders, which had been expressed in percentages? What had happened to oil companies initially funding SASDA before the Department of Energy came on board?

Mr Radebe applauded the support for postgraduate students all the way to Ph.D level. He added, however, that commitments had been made regarding the Liquid Fuel Charter, with no implementation done so far.  Referring to CEPPWAWU, he said that there was a need for clarity in terms of employment equity and the fact that black people were still not recognised. Turning to WOESA, Mr Radebe asked for details of the other investors in WOESA, and the challenges faced by the company.

Mr J Smalle (DA) said that for capacity building to be realised, there was a need for a proper economic plan.  In terms of securing rights of workers, he wanted clarity on partnerships made and the funding model in place.

The Chairperson asked what constituted transformation in the Liquid Fuel Industry. Some oil companies located in South Africa were transnational. He added that cleaner fuels should be considered by the stakeholders.

Professor Philip Lloyd, Cape Peninsula University of Technology, said that there was a lack of data on what the industry was all about and that people simply did not know anything about it.

Mr Noor Kapdi, Managing Partner, KapdiTwala, said that transformation in the industry was marginal and that oil companies lacked commitment.  Most oil companies did not have transformation plans.

Mr Mashudu Ramano said that there was a difference in interpretation and perception of what transformation was.  Unless an understanding and a link between the licence to operate and the need to transform the industry was realised, the problem of not moving forward in terms of transformation would persist. He added that other stakeholders should be given an opportunity to share their experience with the Committee.  There was a lack of commitment from stakeholders like Sapia in areas of transformation and procurement, with the focus mainly on capacity building. There was a need for the development of a scorecard for the monitoring and measurement of compliance against set objectives and targets, resulting in uniform reporting by all measured entities (manufacturers, wholesalers and retailers).  There should also be a recommitment by all measured entities to comply with all elements of the Petroleum and Liquid Fuels Scorecard.

Ms Van Meelis said that all multinational companies had to comply with the laws of the country. Enforcement had to be conducted in a manner that would not cripple existing companies and new entrants.

The meeting was adjourned.
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