Black Economic Empowerment in the Liquid Fuels Industry

Meeting report

MINERALS AND ENERGY PORTFOLIO COMMITTEE
3 September 2003
BLACK ECONOMIC EMPOWERMENT IN THE LIQUID FUELS INDUSTRY

Acting Chairperson: Mr S Louw (ANC)

Document handed out:
Empowerment Evaluation Committee: Progress Report to the Parliamentary Portfolio Committee 3 September 2003 (PowerPoint presentation)

SUMMARY
The Empowerment Evaluation Committee outlined its role as an advisory body to the Minister. It evaluates the industry by value chain segments, with aggregate information for companies and industry-wide, using information from the Department's survey supplemented by information requested from companies. With the evaluation framework and matrices in place, the Evaluation Committee intends to complete its evaluation of equity transactions and first phase evaluation of procurement and employment equity; to start on an in-depth evaluation of procurement and employment equity; to reframe the Department questionnaire for better information extraction; to develop a procurement database with the Department; and work on a three year review of industry progress compared with the Charter.

The Committee asked about evaluation results thus far. The Evaluation Committee explained that the evaluation was still in process and that they could only give limited raw results from the Department survey. The Acting Chair asked that the Evaluation Committee return for future interactions when they had an account of industry progress.

MINUTES
Briefing by Empowerment Evaluation Committee
Ms B Mabuza (member of Empowerment Evaluation Committee) briefed the Committee. The Evaluation Committee's mandate is to advise the Minister on matters concerning the implementation of the Charter, including business transactions and transformation of the industry. It is a non-interventionist, advisory body; mostly independent, with industry representatives and consultants on the Evaluation Committee.

The Evaluation Committee appreciated the issues raised by the Committee at their previous meeting since these had informed its work. Key issues included the lack of transparency in oil companies and the impact this had on evaluations; since most oil companies are unlisted, their information is private. The Committee had also raised the importance of skills transfer and access to resources for historically disadvantaged South Africans; the importance of broad-based empowerment; the need for integrity and conflict avoidance by the Evaluation Committee; the need for the Evaluation Committee to be cost-effective. The Evaluation Committee tried to follow this advice.

The evaluation framework broke the industry value-chain down into segments. Each segment was described according to its key characteristics, its local features, opportunities and risks for historically disadvantaged entrants to the segment, the means necessary to enter the segment, and criteria were developed to quantify success of historically disadvantaged entrants. Opportunities and risks considered were those associated with ownership and control, procurement and support, and human resources.

The evaluation matrix comprises two matrices. The first is for evaluating transactions and addresses ownership and control in the industry segments. The second matrix addresses the four major Charter objectives: ownership and control, employment equity, procurement, and external business and capacity development. The objectives on the matrices have specific measures according to which progress is compared with the Charter target for 2010. Intermediate targets are set to reduce the risk that the 2010 targets will be missed. Progress can then be categorised on a five point scale: 1. exceeds Charter commitments; 2. meets Charter commitments; 3. Charter commitments not met, but substantial progress and reporting against measurable targets; 4. Charter commitments not met, reasonable progress but no measurable targets; 5. Substantial non-delivery of Charter commitments.

Transactions are referred to the Evaluation Committee by the Minister for evaluation. The evaluation reports are then considered by the Minister in tandem with other information to reach a decision. The Minister's decision is communicated to the Company and the Black Economic Empowerment partners. The transaction may then be modified and referred back to the Minister, who may comment without further reference to the Evaluation Committee.

Companies are evaluated annually using the results of the Department's survey, which includes information on skills development and employment equity. The questionnaire for the survey is to be modified to provide better information. The companies are then evaluated according to the matrix. The Chairperson of the Evaluation Committee may request information from the Company CEO for the assessment. Each company is assessed on each segment of the value chain to arrive at an overall assessment.

The industry evaluation also uses the results of the Department's survey. Results are aggregated for all companies in each segment of the value chain. A comprehensive report will detail the progress by each company, and industry-wide progress by value-chain segment. Key opportunities and common obstacles to progress will be highlighted.

The Evaluation Committee interacts consistently with the Department, and all its work is done on direct request from the Minister. The Department provides the secretariat for the Evaluation Committee and Department information is used as outlined above.

The Evaluation Committee's work programme to the first quarter of 2004 includes: evaluation of equity transactions (it is halfway through these currently); first phase evaluation of procurement and employment equity; starting on the in-depth evaluation of procurement and employment equity; reframing the Department questionnaire for better information extraction; developing a procurement database with the Department; a three year review of progress compared with the Charter.

Discussion
Mr J Nash (ANC) asked what methodology was used to asses empowerment deals to gauge whether the Charter and White Paper objectives were met, and what the results of evaluations were thus far.

Ms Mabuza replied that there were two objectives to the Charter - to use Black Economic Empowerment to contribute to long-term, sustainable growth; to use Black Economic Empowerment as an opportunity to create globally-competitive small and medium enterprises in South Africa. The common denominator used in evaluations was net asset value in equity transactions. The evaluations were still in process so she could not give a precise indication of progress. However, one could get a rough idea from the figures from the Department's survey. According to this, seventeen percent of net asset value has been transferred, and, if crude procurement is included, four percent of procurement goes to Black Economic Empowerment companies. These figures have still to be interrogated by the Evaluation Committee.

Mr D Natha (member of Empowerment Evaluation Committee) added that instead of looking at the industry as one, the Evaluation Committee had broken it up into segments. This allowed the study of each segment to determine its nature, opportunities, procurement, and how historically disadvantaged South Africans could participate. Inconsistency of data is a problem - companies have different definitions. The Evaluation Committee was redefining the Department's survey questionnaire for greater accuracy. The Committee had to appreciate that the Evaluation Committee was working with confidential, commercially sensitive information, so the relationship had to be between it and the Minister.

Prof A Eberhard (member of Empowerment Evaluation Committee) noted that the figure of seventeen percent of net asset value was based on the questionnaire and the Evaluation Committee could definitely say that the true figure was below seventeen percent. For example, a company might say that twenty-five percent of its shares were held by a Black Economic Empowerment company, but the Black Economic Empowerment company does not hold twenty-five percent of the value, or the shares might be preference shares.

Mr M Singh (member of Empowerment Evaluation Committee) stated that the data from the survey had to be substantially purified. There were definitional issues - for example, some companies counted state owned companies as Black Economic Empowerment companies, others did not. The questionnaire was being re-examined for the third quarter of 2003.

Mr Nash asked what the way forward was to take Black Economic Empowerment in the oil industry to a new level.

Ms Mabuza replied that the Evaluation Committee's role is advisory. There is constant and consistent engagement between it, the Department and industry. The commitment is there.

Mr Nash stated that he wished to highlight the plight of people working in the industry, such as drivers and bulk-carriers. They want to be empowered but received no cooperation from the oil companies. How could the companies be forced to speak to their own employees about Black Economic Empowerment and procurement?

Prof I Mohamed (ANC) noted that there are concerns that Black Economic Empowerment benefits only the upper strata - major empowerment companies. Was it part of the Evaluation Committee's brief to look at the lower strata, such as artisans who could get into low scale tendering?

Ms Mabuza replied that the Minister had repeatedly indicated that procurement is the most important focus since higher level transactions were more confined in nature.

Mr E Lucas (IFP) stated that one had to consider what the points of entry to the industry were. It was easy to enter it at the lower end where there was no 'meat' to be had.

Mr Lucas asked what the Broad-based Black Economic Empowerment Act meant to the Evaluation Committee and how Black Economic Empowerment could be sped up.

Mr Natha replied that the Evaluation Committee had had a meeting with the Minister on this and agreed to harmonise their efforts with the Act.

Mr G Oliphant (ANC) stated that the Committee should not be in a hurry for results. He wondered at what stage the Evaluation Committee would have a true picture, noting that the information is confidential. Oil companies said they could not disclose their information in discussions, so the Committee remained in the dark. The Committee looked forward to the preliminary results.

Mr Natha responded that the Evaluation Committee was trying to build confidence around information. It received global results and had to break these down.

Mr Oliphant asked what degree of cooperation the Evaluation Committee was getting from oil companies on employment equity and what the Evaluation Committee's relationship with the Department of Labour on this question is.

Ms Mabuza replied that the information filed on equity was in line with Department of Labour information. The numbers suggested some progress.

Mr Singh stated that the Evaluation Committee had a good relationship with the oil companies. Incorporating the Charter into law gave it greater weight. Whilst there were difficult issues such as those raised by Mr Nash, it would be unfair not to make the point that the Evaluation Committee had a good relationship with SAPIA (South African Petroleum Industry Association).

Mr Nash noted that the Committee had passed the Petroleum Products Amendment Bill with the Charter attached. Had the Evaluation Committee taken this into account and how would it operate in future?

Mr Natha replied that the Evaluation Committee appreciated the Bill - giving the Charter legal force would help its work.

Mr Nash stated that the Evaluation Committee should consider the way delivery truck drivers were treated - companies would have to become more responsible.

Mr Natha responded that breaking the industry down into segments for consideration would make it easier for the Evaluation Committee to look at this segment.

The Acting Chair stated that it was clear that there were on-going negotiations behind the scenes. The Committee would like to engage with the Evaluation Committee and would like a product from it, so that one could say that in a certain segment, a certain degree of progress had been achieved. Mr Nash's issue was a real issue - one of concern to black families. Drivers could not be drivers forever; they had to be empowered and taken through the steps in the industry. The Committee would like the Evaluation Committee to return with a product that gave a clear account of progress.

The meeting was adjourned.