Petroleum Products Amendment Bill: hearings

Meeting report

MINERALS AND ENERGY PORTFOLIO COMMITTEE
18 August 2003
PETROLEUM PRODUCTS AMENDMENT BILL: PUBLIC HEARINGS

Chairperson: Mr M Goniwe

Documents handed out:
Petroleum Products Amendment Bill [B25-2003]
Fuel Retailers Association & SA Fuel Dealers Association PowerPoint presentation
African Mineral & Energy Forum PowerPoint presentation
South African Coastal Crude Refiners PowerPoint presentation
Coastal Crude Refiners written submission
African Mineral & Energy Forum written submission
Liquefied Petroleum Gas Safety Association written submission (Appendix 1)
COSATU media statement (Appendix 2)
Edward Nathan & Friedland Submission (Appendix 3)

Documents awaited
Fuel Retailers Association written submission

SUMMARY
The Coastal Crude Refiners supported the SAPIA submission at the hearings on 14 August 2003. They expressed concern that SASOL might gain unfair advantage in the retail sector based on dominance in the production sector - the regulator must be scrupulously fair in issuing licences. The Refiners were concerned that the wording of Clause 2D(2)(c)(ii), which states that the Regulator should link the issuing of licences to petroleum product production, could be read as meaning that retail licences should be proportional to one's share of production.

The African Minerals & Energy Forum asked that Black economic empowerment and the empowerment of women be considered in licensing. The Bill should ensure that historically disadvantaged South Africans are empowered and advanced and that there are no unintended negative consequences for them.

The Fuel Retailers Association and The South African Fuel Dealers Association expressed concern about overtrading in the retail sector. Over-proliferation had to be addressed and, except where needed, no new retail sites should be licensed unless oil companies could show a real and sustained increase in throughput. Oil companies should compete for retail sites by making better offers to those running the sites. They held that the Bill should be passed as it stands.

MINUTES
Coastal Crude Refiners
Ms T Booth-Oliveira (Manager: Corporate Planning, Caltex Oil) gave the oral presentation. She stated that the Coastal Refiners fully supported the submission by SAPIA (South African Petroleum Industry Association). The Coastal Crude Refiners - BP, Caltex, Engen and Shell - are distinguishable from the synthetic fuel refiners by reference to feedstock and/or location. Historically, crude oil refiners were obliged to purchase all SASOL's synfuel production and almost all its production from Natref, leading them to cut back on their own production substantially and limiting access of their product to the 'economic heartland' of South Africa. In exchange, SASOL accepted restricted participation in marketing via the service station industry. This balance of benefit and prejudice ends on 31 December 2003. The Coastal Crude Refiners' view is that no preferential treatment should result from this history in the new system. Ms Booth-Oliveira noted that the synfuel producers had argued that they should be given preferential treatment in the future allocation of licences based on their exclusion from the retail market. This was a self-serving argument and not in the public interest. The limit on SASOL entering the retail market had been a quid pro quo for the benefits it received under the old system.

The Coastal Refiners were concerned about Clause 2D of the Bill, which enables the Minister to make regulations prescribing a system for the allocation of retail licences. Clause 2D(2)(c)(ii) states that the system may link the issuing of retail site licences to the total mass of petroleum products manufactured in or imported into South Africa. The Coastal refiners objected to the use of this criterion since SASOL produces more than 40% of South Africa's product requirement because of the historical distortions of the old system.

The Coastal Refiners held that historical inequities between stakeholders should not be perpetuated; no new unfair, non-transparent or anti-competitive measures should be allowed in the new regulatory regime; the liquid fuels industry must strive to abide by free and fair competition. Without these principles, the South African economy would suffer damage. The Coastal Refiners accepted the objectives of the Bill and supported manage liberalisation. They expressed concern that the amendments in the Bill went beyond what is necessary and appropriate in the context of managed liberalisation. The Refiners accepted that regulation would continue in the retail sector, but that otherwise there should be no restriction on competition. Fair competition should not be distorted and, aside from the legitimate case of historically disadvantaged South Africans, no stakeholder should be advantaged.

In summary, the Refiners emphasized the following: the competitive playing field should be kept level, and the industry should not be regulated more than is strictly necessary.

Discussion
Mr I Davidson (DA) noted that the Coastal Refiners had expressed strong reservations about Clause 2D, but offered nothing to replace it. He asked if the Refiners had a formula for greater equity in mind.

Mr A Quail (Industry & Government Liaison Manager, Engen) replied that no system was set out in the Bill. The regulator would have the power to control competition through the allocation of licences since this would effectively redistribute market share. There would have to be scrupulous fairness. The Coastal Refiners would have preferred that the Competition Commission regulated competition in the industry. They accepted that the regulator would have this power, and wished to stress that such power should be carefully exercised.

Mr Davidson responded that whilst he understood the concerns expressed, the reply was not helpful. The Bill sets out what will guide the regulator. The Refiners had stated that they did not like Clause 2D(2)(c)(ii). Did they want it deleted or amended? If the latter, what change did they propose?

Mr Quail replied that the criteria in Clause 2D did not add clarity. As the Clause stood, it could be read as saying that licences should be allocated in proportion to production. One's share in production should have nothing to do with the allocation. What one sold in the marketplace was a more relevant matter. The Refiners would make a submission at the appropriate time on the system for licence allocations.

Mr C Germeshuys (BP) added that from a technical, legal perspective, 2D(2)(c) should be deleted. 2D(2)(b) was sufficiently clear to guide the regulator. He stated that he had thought that 2D(2)(c) was included to allow the regulator to stop the proliferation of service stations. As it stood, it created an unclear position.

Mr Davidson asked what the Refiners were alluding to when they stated that there should be no new unfair, non-transparent or anti-competitive measures allowed in the new regulatory regime.

Mr Quail replied that the replies to Mr Davidson's first question threw light on the answer to this question. The Refiners were concerned about anti-competitive practices in licence allocation. They were simply saying that one had to be careful not to distort competition.

Mr Davidson asked if the Refiners could expand on their views on managed liberalisation.

Mr Quail replied that they could only see the need for regulation in the retail sector. There were social reasons for this - preserving jobs, advancing historically disadvantaged South Africans. They could not see why Government would need to extend control over the other sectors in the industry. The industry was progressing towards fair competition with minimal controls. Whilst it was necessary to replace the Ratplan in the retail sector, it made no sense in a process of managed liberalisation to introduce regulation where there had been none before.

Mr Germeshuys raised a technical point. Clause 2(b)(c) amended Section 2(1)(c) of the Act so that the price, or a maximum or minimum price, or a maximum and minimum price, at which any petroleum product may be sold or bought could be prescribed. The words 'or bought' are to be added. This gave a new regulatory power - it was not clear what for, but presumably it could be used at any level contemplated by the Bill. The phrase 'or bought' should be clarified. For example, could this allow the price at which wholesalers bought product from refiners to be prescribed?

Mr G Oliphant (ANC) stated that the Committee wanted to craft good legislation. It was not helpful if presenters gave conflicting messages. Suggesting both that a Clause should be clarified and that it should be scrapped could cause confusion.

Mr Oliphant asked if the current playing field for the Coastal Refineries and Natref was fair. If not, what did the Coastal Refiners propose?

Mr Quail replied that the current system involved a balance of interests - oil companies bought all the synfuel production and, in exchange, SASOL stayed out of the retail market. Under the proposed system, the dominant supplier would enter the market. The Coastal Refiners had no problem with this so long as SASOL did not receive any preferential treatment.

Mr Oliphant asked that the Coastal Refiners clarify their concerns about regulation. What did they mean by 'public interest' in this regard?

Mr Quail replied that the Coastal Refiners view was that free and fair competition is the best way to deliver the lowest prices to the economy. Thus, they held that competition should not be restricted more than is necessary to advance the public interest, for example in areas like job preservation and the advancement of historically disadvantaged South Africans. They accepted that lifting price controls in the retail sector would lead to the closure of small business and the loss of jobs. He stated that they hoped that even these controls could be lifted eventually. The Refiners held that it was unnecessary to extend regulation into new areas. There was no reason to extend control over the wholesale and refining sectors - the Coastal Refiners saw no public interest in these areas.

Mr E Lucas (IFP) responded that he was confused by the reply. He stated that oil companies had benefited from regulation and that the Coastal Refiners had stated that they accepted regulation in the retail sector. He was concerned that the presenters were now arguing against regulation in the retail sector.

Mr Quail replied that the Refiners accepted regulation of the retail sector. They were simply asking that regulation not be extended into the other sectors. There was already competition in the wholesale sector and they hoped that there would be no regulation to restrict this. There should be regulation where necessary, but not beyond that point, especially in a situation where we are working towards a system with fewer controls not more.

AMEF (African Minerals and Energy Forum)
Mr M Radebe (Chairperson, AMEF) gave the presentation. He stated that AMEF welcomed the Bill. They believed that the objects of the Bill should be prioritised. Under object 1.3: the third point, promoting historically disadvantaged South Africans, should be the first; the fourth, creating employment and developing small businesses, should be the second; the fifth, ensuring countrywide availability of petroleum products, should be the third; the first, promoting an efficient and competitive retail industry should be the fourth; and the second, facilitating an environment conducive to investment, should be the fifth. AMEF believe that investment would come if the priorities were sorted out.

Mr Radebe stated that licensing could go a long way to facilitate the empowerment of historically disadvantaged South Africans. He pointed out that the renegotiated Ratplan allocated new licences to black oil companies. Black economic empowerment conditions on licensing are critical, and the empowerment of women should be added to the licence conditions. Adherence to the industry charter should be required.

Whilst the powers granted to the Minister were perceived to be excessive by some, AMEF believed that they are necessary to manage the transitional process. AMEF asked that the appeal process be simple and practical and that an independent review board be considered.

The Bill should differentiate between wholesalers and resellers of petroleum products. The resale market is an active one that is not addressed by the Bill. Resellers should be defined and regulated on matters of health, safety and the environment. AMEF supported the prohibition on vertical integration as a means to promote SMMEs. Mr Radebe stated that a way should be found to ensure that established players comply with the licensing objectives. Licence holders should be given time in which to comply with the legal requirements. Licences should be approved before major investment decisions.

AMEF were concerned that the Bill does not adequately address the impact on transport costs and this should be carefully considered. The Bill should provide for the orderly entrance of synthetic fuel producers to the retail market or it could have a negative impact on Black economic empowerment. AMEF asked that the Bill be passed speedily to end uncertainty.

Discussion
Mr B Douglas (NNP) asked that AMEF explain the reference to the licensing of black oil companies in point 3.2 of the written submission.

Mr Radebe explained that under the Ratplan, all new licenses were allocated to black oil companies. AMEF would like that this be entrenched in the current Bill to ensure that it supported black companies or it would be difficult for them to grow in the industry.

Mr Oliphant asked that AMEF clarify the distinction between wholesalers and resellers. Were they suggesting a new definition and did they want only health and safety regulations in the sector?

Mr C Kashiram (General Manager: Corporate Finance and Planning, Exel) explained that a wholesaler would be an oil company, whilst a reseller would be a business that bought product in bulk for resale to the end user, generally to other businesses, such as freight businesses. He wondered if such businesses would have to apply for licensing under the Bill. He noted that such businesses are usually small. AMEF were requesting that a definition of resellers be included so that the sector could be regulated.

Mr Oliphant asked that AMEF expand on their comments on the entry of SASOL and PetroSA.

Mr Radebe replied that AMEF supported their entry but wanted it to be orderly. It should facilitate the empowerment process. If the entry were not orderly - if there were just deregulation, then there would be problems with price undercutting which would wipe out small players.

Mr Oliphant asked for AMEF's comment on the restriction of regulation to the retail sector.

Mr Kashiram replied that the manufacture and wholesale sectors were largely deregulated. One should consider the objectives of the Bill when looking at the retail sector. There was a rationale for regulating just that part of the value chain.

Mr Davidson noted that one would want to protect current players but allow new entrants to the industry and that the previous presenters had suggested that Clause 2D(2)(c)(ii) be removed. He asked if AMEF thought that Clauses 2B and 2D adequately addressed the matter.

Mr Radebe replied that AMEF's view was that the Clause should remain. If it was read with the objectives, it was adequate. The Committee should just ensure that they prioritised black economic empowerment.

Mr B Bell (DA) asked that AMEF enlarge on their comment on the appeal process and independent review board.

Mr Kashiram replied the Minister should allow that the industry be regulated without becoming entangled in the process. AMEF recommended that a review board look at the actions of the regulator - the board could review the process for the Minister. He noted that arbitration is expensive - AMEF wanted a lesser step for small issues.

Mr Oliphant asked that AMEF submit a written proposal on the composition of and expertise needed on such a review board. He noted that the Committee had asked the Department to look at ways to make reference to the industry charter in the Bill. The Committee would like AMEF's input on empowering people in the industry.

Mr Radebe responded that the Bill provided an opportunity to ensure that the empowerment process was further consolidated.

Fuel Retailers Association and The South African Fuel Dealers Association
Mr P Morgan (CEO, Fuel Retailers Association) gave the presentation. The Associations saw the Bill as a necessary intervention, not over-regulation, and critical to the sustainability of the fuel retail sector. Mr Morgan stated that the trading environment was a classic oligopoly, with five major companies supplying fuel to most of the approximately 4800 service stations in the country. The five companies own 45% of the service station sites, and these sites pump over 55% of the fuel. All players agreed that the retail sector was overtraded, though estimates varied from 20% to 40% overtrading. This situation would be aggravated by the entry of SASOL and PetroSA to the market.

Mr Morgan noted that the average driveway gross profit margin for service stations had dropped from an already low 10.3% in 1998/9 to less than 7.45% in 2001/2. On average, 90.45% of gross profit was absorbed by operating costs - the Potchefstroom University Small Business Advisory Bureau (SBAB) norm is that this proportion should be no more than 80%. SBAB advises that rental should consume up to 13.33% of gross profit - the fuel retail sector average is 15.81%. Bank charges had shown an increase of 31.44% over the period. Even after the 0.7c per litre increase in the retail margin in August 2003, 52% of retailers will be in an under-recovery situation (that is, they will spend more than the recommended 80% of gross profit on operating costs). Continued proliferation of service stations would only worsen the situation by lowering average throughput.

The Associations suggested that oil companies not be allowed to invest in new service stations unless they could demonstrate real and significant growth on average throughout the network they controlled. The Department should aim for average volumes of 400 000 litres per month before issuing new service station permits. This would reverse the process that had caused over-proliferation. They held that the MPAR should be amended to prevent capital expenditure that was not needed and desirable.

The Associations held that the margins should increase as one went further down the value chain. The ratio of retail to production margin should be 2:1, but was currently less than that.

The Associations supported the Bill's measures against sales promotions. Currently, every cost added to the chain was paid for by the motorist. They supported the appeals and arbitration provisions. They stated that site rehabilitation costs should be borne by the wholesalers that installed the tanks and benefited from the return on assets.

Mr Morgan expressed concern that historically disadvantaged South Africans were drawn in by the perception that service station owners made money. As he had explained, this perception is not correct and they were being drawn into an unsustainable industry; being set up for failure. The Associations did not want people making large investments, only to realise after a few months that they had invested in an unsustainable site.

The Associations held that the Bill should be passed as it stands.

Discussion
Mr Oliphant asked that the Associations explain the concern around oil company cards for corporate purchasers.

Mr Morgan replied that wholesalers and transporters signed deals for diesel sales. These set the price of the fuel and the credit terms. Service stations were paid a handling fee for the transactions, but this was lower than the costs of handling the transactions. This meant that ordinary retail sales ended up subsidising such corporate sales. Companies should not be expected to do business for less than the cost of doing that business.

Another member of the delegation added that oil companies often converted regular customers of service stations to the card system. This resulted in the loss of a guaranteed purchase to the site owner. He noted also that whilst oil companies demanded payment up front for their products, the handling fees took seventy-two hours to be paid to the site owner. This compromised the margin.

Mr Oliphant stated that he was concerned by the claim that black economic empowerment companies were being set up for failure.

Mr Morgan replied that such companies were being drawn in and set up to fail. In an industry with fixed margins and increasing costs, the only way to sustain the business was to grow sales volumes. Because the current system encouraged the over-proliferation of stations, the average throughput was dropping. He explained that the top stations were never sold - it was the bottom 60% that ended up on the market. They were for sale because they were unprofitable. So, investors were buying in to an unsustainable business. He did not accept the argument that over-proliferation resulted from the market moving. New stations were encouraged because of the charter. Also, there was the perception that fuel retail was lucrative. Fuel retail is a tough industry and entrants needed proper skills training, not brief expensive courses.

Mr Lucas stated that he was under the impression that the presenters represented 45% of the retailers. He asked who represented the other 55%.

Mr Morgan replied that the delegation represented all retailers. He stated that he had probably caused confusion when citing the statistics - 45% of service stations are owned by oil companies.

Mr Lucas expressed his concern about agreements between oil companies and retailers. People were vulnerable when starting up businesses and inclined to be over-optimistic. There should be a mechanism to asses agreements.

Mr Morgan agreed with Mr Lucas that this was a problem.

The Chair stated that he wished to take up the problem of over-proliferation. What could be done for hard-pressed people now? The problem ended up reproducing itself - a site would go bankrupt, be sold to a new starry-eyed person and then go bankrupt again. The problem simply recurred.

Mr Morgan replied that there were two parts to a solution. First, stop building service stations where they were not needed. The over-proliferation was mainly in urban areas. He pointed out that there were over sixty stations within a five kilometre radius of the intersection on which his offices were located in Johannesburg. Bellville alone has fifty-one stations. The licensing system could be used to stop stations being built where they were not needed. Second, the issues of who was joining the sector, how and why, and the margin should be looked at. If there was a cap on the number of service stations now, there would be no economic bloodbath when the next step in deregulation was taken in six to seven years.

Mr J Nash (ANC) stated that the Associations were advocating an end to the proliferation of stations but this was in tension with the entry of SASOL and PetroSA to the market. How would they get into the market if no new service stations could be built? One had to take into account historically disadvantaged South Africans that wanted to enter the market.

Mr Morgan replied that it made no sense to build more stations in an over-traded market. SASOL and PetroSA should offer retailers a good deal to get them to switch to them - this would encourage competition. Building more stations was not the answer - there had to be more creative ways to enter the market.

Mr Nash asked if Mr Morgan was suggesting that SASOL and PetroSA limit themselves to the wholesale sector.

Mr Morgan replied that their only concern was that the companies not join the sector by building more stations. A better approach would be to get rid of contracts that make it difficult to switch suppliers. This would encourage competition.

An ANC member asked that the Associations say more on skills transfer.

Mr Morgan replied that they did not believe that a new entrant could be trained in a two-week course for such a difficult environment. Instead, they should be exposed to the environment over a longer period. Currently, most just paid key monies and were then left to fend for themselves.

An ANC member stated that unfair competition often resulted from the relations between oil companies and retailers.

Mr Morgan responded that the Associations were in favour of the arbitration Clause in the Bill so that contracts could be examined for fairness.

The hearing was adjourned.

Appendix 1 : Liquefied Petroleum Gas Safety Association

PETROLEUM PRODUCTS AMENDMENT BILL : B25 - 2003

We act in conjunction with the LPGas Industry. As such we wish to comment and to propose the following amendments to the above Bill.

Section 2 "Prohibition of certain activities" 2A. (1) (c)
Comment
The DME and the LPGas Industry is seeking to extend the supply chain for LPGas in order to make LPGas more available through creating more retail outlets by removing barriers to entry.

Most LPGas retailers are SMMEs that sell LPGas as a supplementary product to their main range of products and are not dependent on its sales for the existence of their business.

There are thousands of SMMEs selling LPGas in one form or another. The licensing of all these outlets will not only add costs in licence fees but will become impossible to police and control.

If licensing becomes too burdensome or troublesome to a retailer it will form another barrier to entry and may even cause many existing SMMEs to exit the LPGas business and focus on the less problematic parts of their business.

Proposed Amendment
Clause 2A (1) (c) should have an exclusion added to protect the small trader

2A. (1) Subject to section 2B, no person may without a manufacturing, wholesale, site or retail licence issued by the Controller of Petroleum Products -
(c) conduct the business of a wholesaler or a retailer, excluding LPGas.

Section 2 "Prohibition of certain activities" 2A. (4) (a)
Comment
1. PGas is a gas, but unlike other petroleum products it is kept under pressure and cannot be stored in simple containers. This means that specialised capital intensive equipment and containers (cylinders) are required for safe handling and use of the product.

The containers have to comply with stringent national safety standards that are called up in the OHS Act.
Because the cost of the container is five times the cost of the product it holds, they are therefore not disposable as is the case of other petroleum products, where the container is of little intrinsic value.
Coupled to this is the weight of the container that is about equal to the weight of the LPGas product it contains.

The LPGas supply chain is unique in that the assets used to service it are not confined on a specific site and are often in the hands of uninformed users.

These factors have tremendous logistical implications that are best solved by a vertically integrated infrastructure that can effectively control, manage and maintain the assets in the supply chain.

The OHS Act, Vessels Under Pressure Regulation, Section 15 Maintenance, requires that vessels under pressure or gas fuel systems are at all times maintained in a safe condition proved by regular testing. And
Section 16 Modification and Repair, requires that the repairs be properly carried out under the supervision of an Authorised Inspection Authority.

A vertically integrated supply chain is the best way of meeting these legal requirements.

The prohibition on vertical integration in the LPGas supply chain is not practical as vertical integration is an essential element to the proper management of the assets and in getting LPGas to the more remote areas of the country cost effectively. The remote depots and branches of the manufactures and wholesalers provide an existing network that forms a natural, cost effective outlet for the LPGas product.

Proposed Amendment
2A. (4) No person may make use of business practice, method of trading, agreement, arrangement, scheme or understanding, which is aimed at or would result in:
(a) vertical integration of ownership in respect of manufacturing, wholesaling or retailing of petroleum products unless assets that require legally imposed maintenance and testing are used throughout the supply chain

Section 2 "Prohibition of certain activities" 2A. (4) (c) New clause requested
Comment
The LPGas Safety Association's primary concern is safety and the DME's issuing of a licence should reflect a similar concern.

As previously stated the OHS Act regulations require vessels under pressure or gas fuel systems to be maintained in a safe condition proved by regular testing.

A dangerous and unfair business practice, is the use of other people's assets without the owner's permission. The assets are then no longer under the control of the owner, so this practice denies the owner the opportunity of fulfilling his legal obligation of ensuring that his assets are safe for customer use. As the assets are no longer being tested or regularly maintained, gas related accidents happen for which the owner of the asset is held unfairly accountable.

We therefore request that a new clause (c) be inserted to ensure that the Petroleum Products Act will address this dangerous business practices, as follows:

Proposed Amendment
2A. (4) No person may make use of business practice, method of trading, agreement, arrangement, scheme or understanding, which is aimed at or would result in:
(c) the unauthorised use of any petroleum product asset.

Section 2 "Licensing" 2B (1) (f) - New clause requested
Comment
The Controller of Petroleum Products should recognise safety as a factor when issuing a licence. The obtaining of a licence must not be seen as the DME's stamp of approval to sell LPGas regardless of the safety standards or to operate an unsafe site or practice.

Compliance with the SABS National Safety Standards must be a prerequisite to the issuing of a licence. And if after obtaining a licence the site or operation then becomes non-compliant or dangerous, the licence must be revoked.

We therefore request that the Petroleum Products Act cross references the OHS Act and that a new clause (f) be inserted to ensure that the Controller takes cognisance of the National Safety Standards before issuing a licence or in the controlling of licences, as follows:

Proposed Amendment
2B. (1) In considering the issuing of any licence in terms of this Act, the Controller of Petroleum Products shall give effect to the following objectives:
(f) ensuring compliance to, and the ongoing compliance with the relevant National Safety Standards as defined in Section 44 of the Occupational Health and Safety Act.

Section 2 "Licensing" 2B (1) (e)
Comment
The Petroleum Products Amendment Act must not create a monopoly for any one brand in any town.

Currently there are four LPGas wholesaler product brands that dominate the market but this situation will change with the entry of new wholesalers and probably even Sasol into the market.

The DME has a stated objective to make LPGas accessible, available and affordable to all communities and open competition is the best way to achieve these goals. The Act must therefore not limit competition and stifle accessibility, every wholesaler must be allowed to compete in every town and village in RSA if it is economical viable to get his product there.

Proposed Amendment
2B. (1) In considering the issuing of any licence in terms of this Act, the Controller of Petroleum Products shall give effect to the following objectives:
(e) ensuring countrywide accessibility and availability of petroleum products at competitive prices, allowing a minimum of one licence per product brand per town or city suburb.

Section 2 "Transitional licensing provisions" 2C. (3) (a)
Comment
The Petroleum Products Amendment Act must not be a mandate to remove people's livelihood.

All existing operators in the LPGas supply chain should automatically receive a licence if their sites and operations are safe, as evidenced by a Certificate of Compliance or a Certificate of Registration issued by the local Fire Prevention Authority.

The conditions of 2 B (1) should only apply to new licence applications and to existing operators after a suitable period of grace to meet the conditions of 2B (1)

Proposed Amendment
2C (3) (a) Any person referred to in subsection (2) shall, within a period of six months from the date of commencement of this section, apply for a manufacturing, wholesaling, site or retail licence, as the case may be, in terms of section 2A. Notwithstanding the provisions of section 2B(1), all safe site applications made within the required period will be issued with a licence.

We trust that you will bring the above to the attention of the members of the Portfolio Sub-Committee.

We may wish to make representation during the hearings envisaged to take place between 4-8 August 2003.

Yours faithfully
R H TOWNSEND
MANAGING DIRECTOR

Appendix 2 : COSATU Statement

MEDIA STATEMENT
Petroleum Products Amendment Bill
13 August 2003

The Congress of South African Trade Unions (COSATU) and its affiliate the National Union of Metalworkers of South Africa (NUMSA) are opposed to the liberalisation of the liquid fuels industry. The Department of Minerals and Energy's proposed amendments to the Petroleum Products Act No. 120 of 1977 represent an intermediate stage in the "managed liberalisation" process intended to eventually diminish the state's role in this strategic sector whilst increasing the role of the private sector and phasing-in free market pricing. This is part of the government's long-term vision stated in the White Paper on Energy Policy intended to completely liberalise the liquid fuels industry.

In terms of this vision, in the long-term the government's plan to restructure the liquid fuels industry envisages;
- A deregulated and "internationally competitive" liquid fuels industry.
- Commercially based retail pricing without inter-fuel and rural-urban cross subsidies.

In pursuit of these goals, the Bill provides for;
- A licensing system regulated by the Controller of Petroleum Products geared at "ensuring countrywide availability of petroleum products at competitive prices".
This means that without subsidies, the introduction of "transparent" cost-reflective pricing will be prohibitively expensive for the poor, in particular those in the interior and far-flung rural regions.

We welcome the Petroleum Products Amendment Bill's provisions;
- prohibiting self-service at retail outlets, thereby helping to protect the petrol pumps jobs.
- prohibiting vertical integration in the petroleum industry as a way of promoting small business in the retail industry.
- Extending the Minister's power to determine the price of petroleum products.
- Providing the Minister with powers to introduce regulations prescribing measures to be taken regarding energy-related environmental and health impacts.

However, we insist that as in the present and medium term, even in the long-term;
1. Tariff protection particularly for the vulnerable synthetic fuels industry must be maintained.
2. Given the chronic instability in the currency exchange rate and the crude oil price; price control of industry margins, at wholesale and retail level, subsidies and cross-subsidies must be maintained.
3. There should be consultation with organised labour to deal with any labour related consequence of these amendments and further plans to restructure the liquid fuels industry at NEDLAC as stated in the White Paper.

Sidney Kgara
Deputy Head of Cosatu Parliamentary Office

Appendix 3 : ENF Attorneys

PETROLEUM PRODUCTS AMENDMENT BILL
B25 - 2003

We act on behalf of Afrox Limited. As such, we wish to propose the following amendments to, and
comments as to, the above Bill insofar as it relates to liquified petroleum gas.

1. DEFINITION OF " PETROLEUM PRODUCTS" IN THE PETROLEUM PRODUCTS ACT NO 120 OF 1977
1.1 Proposed Amendment:
"Section 1 of the Petroleum Products Act 1977 (hereinafter referred to as the principal Act) is hereby amended ………

(d) by the substitution for the definition of "petroleum product" of the following definition :

"'petroleum product" means any petroleum fuel and any lubricant, whether used or unused, and includes any other substance which may be used for a purpose for which petroleum fuel or any other lubricant may be used but does not include liquified petroleum gas'".

1.2 Comment
1.2.1 It is submitted that liquified petroleum gas does not fall properly within the scope of the Petroleum Products Act.

1.2.2 In this connection, it is pointed out that "liquified petroleum gas" is included in the definition of "gas" in Section 1 of the Gas Act 48 of 2001.

2. In the alternative to the proposed amendment in 1 above, Afrox Limited would propose the following amendment and insertion:

2.1 Proposed Amendment to the proposed insertion of Section 2A and proposed insertion of Section 2E in Act 120 of 1977
2.1.1 Proposed Amendment to Section 2B(4)

"No person may make use of a business practice, method of trading, agreement, arrangement, scheme or understanding which is aimed at or would result in -

(a) vertical integration of ownership in respect of manufacturing, wholesaling or retailing of petroleum products but does not include vertical integration in the use of vessels under pressure in the liquified petroleum gas industry."

2.1.2 Comment: Since liquified petroleum gas is a gas, unlike any other petroleum product, because it is transported, stored and used under presussure, it requires capital intensive and specified equipment in the form of tanks and cylinders.

Depots and branches of the manufacturers and wholesalers are a natural outlet for the liquified petroleum gas product. These vessels under pressure have, for safety reasons, to be inspected, tested and maintained in accordance with the Regulations regarding "Vessels under Pressure" under the Occupational Health and Safety Act No 85 of 1993. These containers are used as a pool for the various suppliers of liquified petroleum gas.

It is therefore proposed that this form of vertical integration be excluded from the prohibition against vertical integration of ownership.

2.2 Proposed Insertion
"The following sections are hereby inserted in the principal Act after Section 2 …

"Liquified Petroleum Gas not to be subject to licensing

2E Notwithstanding the provisions of subsections 2A, 2B, 2C and 2D, no person who is engaged in the manufacture or wholesale or retail sale of liquefied petroleum gas, or in the holding or development of a site in connection therewith, shall require a licence".

2.2.1 Comment: In view of the very decentralized and wide-spread nature of the liquified petroleum gas industry, it is submitted that it should not be subject to licensing.

We trust that you will bring the above to the attention of the members of the Portfolio Committee.

Our Client may wish to make representations during the Hearings envisaged to take place between 14-18 August 2003.

Please advise us if there is any change in the dates.

Yours faithfully
Derek Bostock