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PORTFOLIO COMMITTEE MINERALS AND ENERGY
06 SEPTEMBER 2002
PRESENTATIONS BY THE OIL COMPANIES ON THEIR IMPLEMENTATION OF BLACK ECONOMIC EMPOWERMENT
Chair: Mr M Goniwe
Presentations were made by BP, PetroSA, Engen, Total, Shell and Caltex. Presenters outlined their companies' progress in the implementation of Black Economic Empowerment in the areas of (1) employment equity, (2) procurement, (3) equity partnerships and (4) business partnerships. They also explained what their companies were doing with regard to their corporate social responsibilities. The Committee expressed concern that there seemed to be a distinct lack of empowerment iniatives in the upstream end of the value chain, ie at refinery level
The following documents are available:
Black Economic Empowerment: BP Presentation
Black Economic Empowerment: Engen Presentation
The Portfolio Committee on Minerals and Energy held public hearings with BP South Africa, Petro SA, Engen, Shell, Total and Caltex regarding the steps they have taken to imlement black economic empowerment (BEE). The companies all illustrated that they had taken significant steps to improving black economic empowerment, stating that they were all expecting to have racial distribution more representative of the South African population by the year 2005.
Chairperson opened the hearings by stating that the Committee was seeking to evaluate the progress in the oil/petroleum industry for black economic empowerment. Furthermore, the meeting was not to criticise the companies, but to highlight the progress that had already been made
BP South Africa
Mr Fred Phaswana, Mr J.J. Sikazwe and Mr W. Mseleku of BP South Africa presented on their efforts to meet standards of Black Economic Empowerment. To be competitive and successful in meeting their goals, BP South Africa was looking to consistently increase the number of shareholders every year, deliver a performance standard that challenged the world's best companies, attract and retain the best talent, and be number one or two where they chose to compete. While achieving these goals, they wanted to remain committed to human progress, create energy that fuels growth and gives people freedom, and to share their returns with the communities in which they operated. MIC and WDB were named BP South Africa's BEE partners after meeting all of its requirements. MIC owned 17.5% of the shares, and WDB 7.5% with the remaining 75% belonging to BP South Africa. The current demographic profiles of BP South Africa and goals for 2005 are as follows:
Racial Profile -
Current: White, 24%; Asian & Coloured, 25%; Black, 51%.
2005 Goal: White, 19%; Asian & Coloured, 24%; Black, 57%.
Gender Profile -
Current: Female, 25%; Male, 75%.
2005 Goal: Female, 41%; Male, 59%.
Diversity Profile -
Current: White males, 21%; diverse population, 79%.
2005 Goal: White males, 18%; diverse population, 82%.
Questions and Discussion
Mr Dlali (ANC) - wanted to know if BP South Africa would assist a company not meeting their criteria in doing so. He also asked if companies were able to own and control their own destinies. Finally, he asked if those who owned 7.5% of the shares actually had any power to make decisions.
Mr W. Mseleku (BP South Africa) - stated that 25% of the vote on the board did not give BEE's much of a voice. However, on certain issues, such as transformation, they would have more than 25% of the vote. On the retail side, BP South Africa was looking for entrepreneurs to fund. BP was committed to helping them for 2.5 years, then the entrepreneurs would have to pay back the bank on their own.
Mr F. Phaswana (BP South Africa) - believed that at the current time, 25% of the vote was a suitable amount of say in the company.
Ms E. Ngaleka (ANC) - wanted to know with South Africa's history if BP South Africa was only interested in black economic empowerment companies (BEE's). She also asked them to explain why they wanted a broad base of BEE beneficiaries. Finally, Ms Ngaleka stated that only having 20% of workers being female was unacceptable and wanted to know how they could increase that number.
Mr J.J. Sikazwe (BP South Africa) - said that the company had the target of 38% by 2005.
Mr F. Phaswana (BP South Africa) - responded that the criteria was developed after reviewing the mistakes and failures of past empowerment deals and altered to make something that would work. He explained that since September 2001, the number of whites in management positions decreased from 60% to 44%. Mr Phaswana believed that the company must take risks in support of the people.
Mr I. Davidson (DP) - wanted to know what BP South Africa could do to enable new dealers to come in.
BP South Africa responded that they sold assets to fund the deal. They also asserted that the deal was commercially viable.
Mr J. Nash (ANC) - wanted to know how many depots were in the Western Cape and how many of those were run by historically disadvantaged individuals (HDI's). He also wanted to know how employees were trained with other skills in the event of a loss of employment.
Mr F. Phaswana (BP South Africa) - responded that there were 26 depots in the Western Cape. He did not know the percentages on the breakdown of races, but the majority of managers were black. 216 of the 790 filling stations were run by HDI's, as well. He explained that they wanted 25% to be owned by BEE's. Mr Phaswana stated that there was a need to decide for what people would be trained, as well as what skills they would be given to advance their futures. Finally, he emphasized that the current deal did give partners a chance to advance.
Mr G. Oliphant (ANC) - commended BP on their commitment to the BEE charter. He wanted to know the current and future percentages of share ownership. He wanted to know what the South Africa share was, as well as the job creation strategy.
Mr F. Phaswana (BP South Africa) - responded that BP South Africa made up less than 1% of the BP group. BP was continuing to encourage employees to buy shares in BP group, not just BP South Africa. Employees could also buy as many shares as they wanted.
Mr S. Louw (ANC) - asked if there was any room for another black shipping company to enter the market. He stated that the Mining Investment Company had a 17.5% share, and wanted to know if those disabled in the mines were still supported.
Mr J.J. Sikazwe (BP South Africa) - responded that the disabled were supported by the mining companies.
Mr F. Phaswana (BP South Africa) - wanted to point out that the code of ethics did not allow BP South Africa to deal with those who did not meet their ethical standards. Contractors did have standards, which if broken, would result in their dismissal. Regarding job creation, BP was working in education and skills development with the government and different NGOs.
Presentation by PetroSA
Mr Simphiwe Mehlomakulu presented on behalf of PetroSA, which has a mission to, "commercially explore, produce, refine and market oil, gas and petrochemicals for the benefit of (their) customers and stakeholders through innovation, quality products and empowered employees." PetroSA is 100% owned by the government, with the board of directors appointed by the Ministry of Minerals and Energy. Their Black Economic Empowerment strategy is focused on empowering HDI's(Historically Disadvantaged Individuals) by creating a "supportive and enabling environment for business success." PetroSA wished to acknowledge that their transformation has gone from 90% of the executives being white to 70% being black, and R10 million was spent on employee development.
Questions and Discussion
Prof I. Mohamed (ANC) - wanted to know whether the state put up the share capital and where else the capital came from. He also requested more clarity on the racial and gender percentages.
Mr Simphiwe Mehlomakulu (PetroSA) - responded that the State owned the assets. There was a consolidation of the assets that were already owned and was no injection of other funds.
Mr D. Nkosi (ANC) - stated that this should be researched more.
Mr Simphiwe Mehlomakulu (PetroSA) - continued that there were no white women on staff at PetroSA at the current time.
Ms N. Cindi (ANC) - asked if PetroSA had created education opportunities for its employees.
Mr Simphiwe Mehlomakulu (PetroSA) - stated that R21 million was set aside for human capital development and training. They were also bringing in professionals from throughout the world to train South Africans. They have also been recruiting students nationally.
Mr I. Davidson (DP) - asked what opportunities PetroSA was going to give BEE's to participate in equity partnerships.
Mr Simphiwe Mehlomakulu (PetroSA) - explained that PetroSA had a very new board, which had not discussed this yet
Presentation by Engen
Mr Lungile Dumse presented on behalf of Engen, whose BEE mission is "to contribute to the development and growth of (their) BEE partners through the awarding of meaningful opportunities to historically disadvantaged South Africans (HDSA's) to facilitate the sustainability of their business as well as expand their contribution to the South African economy."
Questions and Discussion
Mr Nash asked how many depots there are in SA and how many of these were owned by HDI's. He asked how many garages there were in SA and how many of these were owned by HDI's. He asked how many fore-court attendants there were and whether they were being empowered with other skills in the event of their unemployment. He asked how many bulk vehicles the company owned.
Mr Dumse was unaware of the number of depots there were and how many of them were black owned. Of the 22 stations, which had been privatised four were black-owned. In total, there were also 1,245 stations. He did not know how many drivers and trucks there were but added that Engen did run driver-owner programmes. Mr E Asmal added that sometimes the forecourt attendants were the best qualified to run the stations. One of Engen's initiatives in fact attempts to determine how successful such projects would be by actually letting a forecourt attendant run a service station in the Eastern Cape. In addition Engen also empowers forecourt attendants via their training programmes.
Mr Dlali referred to the fact that BEE companies are unable to secure relationships due to the inaccessibility of capital. He asked what Engen did to assist them in this regard.
Mr Asmal explained that Engen ensures that in business dealings between the BEE and suppliers the former does not suffer a 'raw deal'. Although Engen cannot finance every BEE entity it can ensure that the entity is awarded the contracts so that they can raise their own capital.
Mr Dlali asked if the BEE's were sustainable themselves. He wanted to know if they were producing capital, as well as how they assured that blacks were not being put in management positions to front for whites.
Mr L. Dumse responded that Engen had training programs and standards for its dealers.
Mr Dlali questioned Engen's commitment to addressing BEE with reference to Engen's fluctuating procurement figures.
Mr Dumse stated that although the figure forecasted for year one (10.5%) gets reduced in year two (to 9%), it is then increased to 18% in year three. Mr Asmal added that the statistics all apply to companies which were 51% black-owned.
Ms Ngaleka referred to the Community Policing Forums. She asked how many provinces were reached with this programme.
Mr Dumse said that the forums were held in Gauteng and Natal.
Ms Ngaleka asked if skills development programmes only focused on Engen employees or if they focused on the unemployed as well.
Mr Dumse replied that the training was not only provided to Engen employees, but also to the unemployed and workers at refinery level in Natal.
Mr Davidson referred to the target of achieving 25% BEE participation. He criticised the fact that all the activities were concentrated on downstream activities, which was easiest area of focus for the oil companies.
Mr Davidson asked what the shareholding in the holding company was. The BEE companies had geared themselves up for participation via shareholding. It appears that Engen has not focused on this at all.
Mr Dumse replied that two companies owned Engen (see slides). There is twenty percent BEE shareholding at present. They intend to exceed the target set out in the Charter. Participation takes place throughout the value chain.
Prof Mohamed asked if their partner received any state assistance to fund their share capital. He asked how the share capital had been funded.
Mr Dumse said that the state had not funded the share capital. The funding sources were WW Resources and the parent company
Presentation by Total South Africa
Mr D Harel, Ms C Botes and Mr M Shuenyane represented Total SA. Mr Harel explained that Total had initially held discussions with fourteen BEE groups. Of the fourteen, three had fallen away and the remaining eleven then formed TOSACO.
Mr Shuenyane explained that Total strived toward a sustainable existence. To achieve this would require transformation in their approach to business, the environment and society as a whole. The aim is to take the business to the rural areas. One of the most important principles of their Empowerment Philosophy is the addressing of the social ills of the past, which had included the deliberate exclusion of certain groups on the basis of race and gender. The Special Development Trust was established to deal with this.
Total SA is comprised as follows:
Old Mutual: 8%
The shareholding of Total SA, including the empowerment group is as follows:
Remgro and Old Mutual: 24%
Empowerment will be achieved via
1)Tosaco's composition: These include persons with industry knowledge, new entrants and current industry players.
2)Participation of women and disabled persons
3)Inclusion of staff, unions and service station dealerships.
The mechanism by which transformation will be achieved is environmental preparation. This first method includes providing employees with a good place to work (in which all races and both genders are represented). The second includes becoming number one with suppliers and customers. The third involves becoming a good corporate citizen.
Current empowerment successes include:
-a total renaissance: This is characterised by a joint venture with a BEE company.
-total integrated energy centres
Questions and Discussion
Mr Dlali asked how Total assists BEE companies to access capital.
Mr Harel said that negotiations were taking place and that he did not wish to pre-empt these. They have however agreed on certain principles.
Mr Dlali wanted details regarding the BEE companies' ownership and control of service stations. He asked if members of Tosaco actually participated in Board meetings. He asked how individuals got involved in the BEE process and if members were actually employed by different levels of management. Was there direct involvement of individuals or was empowerment limited to the receipt of dividends?
Mr Harel explained that with ownership goes control (in this case).
Mr Dlali stated that the targets relating to race with regard to persons in lower, middle and senior management were not adequate. Ms Ngaleka referred to the amount spent on training and development. She complained that too much was still spent on white males and that this would not lead to the playing field being leveled. This merely amounts to empowering the empowered.
Mr Shuenyane agreed, saying that they had merely provided these figures to make the point that this has been the trend. This is however being addressed and more must therefore be spent on the most disadvantaged groups. These figures had been presented as a criticism of themselves.
Mr Dlali asked if the figures representing demographics of female employees represent the entire country.
Mr Harel explained that all the figures were national and not regional figures.
Ms Ngaleka asked how many of the 11 companies forming Tosaco were owned by women. She referred to the fact that the Trust brings in women to the Company. She asked why women were only brought in at such a late stage.
Mr Shuenyane explained that all 11 companies forming Tosaco consist of small women's groups. There are three which are made up exclusively of women.
Prof Mohamed asked if their were any exit penalties for exiting the partnership.
Mr Harel explained that the agreement did not include exit penalties. This is governed by shareholder and consortium agreements.
Mr Nash asked how many depots there are in SA and how many of these were owned by HDI's. He asked how many garages there were in SA and how many of these were owned by HDI's. He asked how many fore-court attendants there were and whether they were being empowered to take over the service stations. He asked how many bulk vehicles the company owned.
Mr Harel said that there are 650 garage sites of which 32% are run by HDSA's. This 32% excludes prime sites. They did not have the figures dealing with depots but would provide them at a later stage. It is important to note Total has come a long way, especially if one considers the fact that they had had inadequate expertise to deal with BEE. By virtue of accelerated management training programmes, eight management trainees have been posted as depot managers. People are being groomed in the area of distribution at the supervisory levels. These persons are included as part of middle management. With regard to forecourt attendants there is no specific programme geared toward giving attendants petrol stations. However the approach is holistic. The idea is to train them to facilitate the process of them taking over. The treatment of petrol attendants is governed by the spirit of ubuntu. It is also for reasons of marketing that petrol attendants should be treated really well, since they represent the company by dealing with the public directly on a daily basis. With regard to drivers, he stated that transport is outsourced. As the figures indicate 50% of transport contracts are with BEE companies.
Mr Nash asked if Total is ensuring that the companies with whom they deal are implementing BEE.
Mr Harel replied in the affirmative.
Presentation by Shell
Mr E Marshall, B Mokaba, B Nqwababa. T Kobedi and S Samodien delivered the presentation on behalf of Shell. Mr Marshall stated that Shell had started to implement BEE long before the Charter. Major steps have been taken to ensure equity with regard to recruitment and promotion. This is ensured by practices such as job-freeing, in terms of which white persons are encouraged to take early retirement in order to place HDSA's in these positions. The process of fast tracking individuals to certain positions is also yielding results. This is done by sending employees overseas to learn skills. Four persons have just returned after having been sent on this programme.
In order to hold onto talent they have offered stock options to employees. There is also a programme of job-shadowing in terms of which HDSA's are groomed to fill top management positions. Currently two women are shadowing the Chairperson and Managing Director of the Company.
With regard to the retail part of the value chain he stated that New Africa Petroleum runs ten Shell outlets. This company is run by a black couple. New Africa Petroleum also trains managers via the Shell Retailer Academy.
With regard to the refinery end of the value chain they admitted that they are not doing enough to encourage BEE
Questions and Discussion
The Chair asked why none of the oil companies had mentioned the import and export of crude oil.
Mr Marshall referred to the presentation document, where they had examined further opportunities to empower HDSA's in the different areas of the value chain. He explained that they had identified refining as an area which requires attention. Refining is extremely capital intensive. None of the HDSA's whose books they have examined were able to raise R40million to purchase the oil. The money will then be tied up for 6 weeks while the oil is at refinery level, after which it will proceed to the depots for another 6 weeks. HDSA's are not able to wait 12 weeks to see a return on such investment. In addition to the amount needed to buy oil they would also need money to buy the piece of the refinery.The refinery business is volatile since one can operate at a loss for two months. In order to upgrade a refinery one can require approximately $200 million. Shell has tried to get HDSA's interested but have been unable to get them to invest because of the capital intensity as well as the high risk. With regard to procurement of crude oil, this is done on the open market. They therefore only the cheapest provider.
The Chair indicated that while he appreciated these problems the issue required further interaction. True empowerment required BEE throughout the value chain.
Mr Marshall agreed, saying that they were willing to interact further on the issue. He added that their shareholders preferred to make their investments in different areas of the value chain sequentially and not concurrently. Once they have raised the capital by virtue of their current investments they would then be able to invest it in the refinery end of the value chain. He emphasised that Shell was committed to ensuring that BEE takes place throughout the value chain.
Mr Nash wanted more detail on the job freeing programme.
Mr Marshall replied that this could also be done by transferring white persons internationally. This frees positions for SA employees. Many older white employees also suggested a mentoring programme in terms of which they would mentor HDSA's to take over their positions. In return they would be paid a mentoring bonus.
Mr Nash noted that Shell's progress was the slowest as far as BEE was concerned (if compared to other oil companies). He asked what the current position is with regard to Employment Equity targets. The figures had been very negative.
Mr Marshall replied that their stated aim had been to reflect the demography of SA by 2005. The staff and management understand this. The progress is monitored by scorecards. The persons responsible for its implementation understand that their remuneration depends on the success of the programme. He added that he was not aware of what the other companies were doing and was not really concerned about their activities. As far as Shell themselves were concerned, their targets were set according to what they felt to be achievable. If the Committee felt that these were not good enough he was willing to discuss the issue. Mr B Nqwababa (Shell) added that Thebe now had 25% of Shell's shareholding. The words 'up to 25%' were used because it would first be necessary to add value to the business. If the business does not grow they too would suffer. Mr S Samodien (Shell) added that he had heard the statistics mentioned by the other oil companies with regard to the HDSA component of the retail networks and stated that Shell benchmarked well in comparison.
Ms Ngaleka indicated that she was impressed with the job-shadowing programme. She had a problem with the fact that the couple who formed New Africa Petroleum were allowed to own 10 garages. This could lead to the formation of an oligopoly. It also runs contrary to the principle of the spreading of wealth.
Mr S Samodien (Shell) replied that the success of the dealer would depend on him creating more retailers. Shell grants this him/her the dealership on the condition that he/she should train more potential retailers. Thus existing dealers are used as a springboard to do training in an area where many dealerships are going out of business.
Ms Ngaleka insisted that using one couple means that the process would take longer.
Mr Samodien replied that other systems have been tried nationally, e.g. the 'dealer cadette scheme'. It is better to have hands on operators running the programmes. He agreed that this could be a problem but assured the Committee that the current trainees are at the stage where they could expand the programme. In addition the couple are not the only trainers used by Shell at the moment.
Prof Mohamed asked if their partner received any assistance from government to fund their share capital. He asked how the share capital had been funded.
Mr Nqwababa answered that the state did not contribute toward funding the share capital. Share capital was funded by financial institutions on commercial terms.
Mr Davidson asked what the capitalisation of the holding company was, as well as that of the subisidiary.
Mr Marshall was unwilling to give figures in the presence of their competitors. They said that they would however give the Committee the figures at a later stage.
Presentation by Caltex
Mr D Flanders, J Seutloadi and Mr C Van der Venter presented on behalf of Caltex. Mr Van der Venter (Caltex: Director and Manager of Human Resources) is also in charge of employment equity. The ultimate success of BEE depends on the efforts of all line managers, who work with business units to develop individual plans. Consultation with staff is the key to their approach. The plans developed by the business units should follow a quantitative and qualitative approach.
While the Charter gave rise to renewed effort in the area of employment equity, Caltex has a long history of implementing this approach. Currently HDSA's constitute 64% of the workforce. 67% of all promotions were from HDSA's in 2002.
At refinery level there is interaction with technikons. Engineering students are selected to do their in-service training here. Corporate bursaries are awarded with a view to get recipients involved in the organisation.
The level at which HDSA's are employed in an organisation is vital. Twenty positions have been made available to fast track these employees to management positions. There is good HDSA representation at both lower and higher levels. Good progress has been made at supervisory levels. As far as middle management is concerned, significant progress is needed in order to achieve their targets. They do however have good plans in place to ensure that these are achieved.
They are not proud of their progress with regard to the empowerment of women and will pay more attention to ensure that this is dealt with.
Mr J Seutloadi (Caltex: General Manager of Retail Operations) reiterated that BEE is not an event at Caltex, since it has been implemented for a while now. In 2000 20% of all retailers were made up of HDSA's. The figure has risen to 29% at present. (The figure only includes Africans and not other categories of HDSA's). The problem is that retailers need large sums of money to conduct their businesses. Many companies are trying to help to try and speed up the process. One however cannot rely on financial institutions. The retailers have therefore formed partnerships and obtained assistance from the IDC.
As far as the wholesale area is concerned, it is important to get as many distributors involved as possible. It is for this reason that a marketing strategy for distributors has been developed. Partnerships have been formed with new HDSA distributors. Caltex is also actively seeking out suitable HDSA distributors.
With regard to procurement a BEE Task Team has been established. Caltex encourages existing suppliers to increase HDSA representation. They also are searching for new HDSA suppliers. They implement affirmative action in their tender processes.
Caltex also has social investment programmes. Previously this had taken the form of merely giving money to NGO's. Now they play an active role in ensuring that programmes are implemented, especially in the area of poverty alleviation.
With regard to the issue of ownership and equity, Caltex has not done a BEE deal yet, but is currently in negotiations. They were unwilling to divulge information on the identity of potential partners, but emphasised that such partner would be an active participant in the company and would, as such be expected to add value to the company.
Due to time constraints no discussion followed.
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