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Briefing TO

The SELECT COMMITTEE ON ECONOMIC DEVELOPMENT

liquid fuels industry charter (LFC) PROGRESS REPORT 18 OCTOBER 2011

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OUTLINE• Brief history of Liquid Fuels Charter• Progress to date• LFC Strategic Focus Areas Description• Implementation Challenges• DoE Role in addressing challenges• Conclusion• End

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• It’s a pioneer of all charters

• It was signed in November 2000

• It became law by being annexed to the Petroleum

Product Amendment Act (PPAA),2003

• It is a framework for progressing the empowerment

of Historically Disadvantaged South

Africans(HDSA’s) in the liquid fuels industry.

BRIEF HISTORY OF LFC

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• The Charter embraced:

• Black Economic Empowerment (BEE) definition of

empowerment • Preferential Procurement Framework Act (5 of 2000)• Employment Equity Act (No 55 of 1998)• Competition Act (No 89 of 1998)• Skill development Act (No 97 of 1998)• Constitution

BRIEF HISTORY OF LFC cont…

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• The Charter objective as espoused in the Energy Policy White Paper, is to achieve over a ten year period ‘sustainable presence, ownership or control by Historically Disadvantaged South Africans of a quarter of all facets of the liquid fuels industry, or plans to achieve this’.

• The Charter has 13 Strategic focus areas

BRIEF HISTORY OF LFC cont…

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• Assessment of Compliance audits conducted until 2006

• Department commissioned LFC Compliance audit in November 2010

• Compliance Audit finalized in April 2011• Issued individual oil company audit reports • Final audit report with recommendations is in

circulation for Cabinet’s attention

PROGRESS TO DATE

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• To have a comprehensive, independent and representative assessment of the state of transformation within the industry against the set Charter targets

• To determine whether signatories of the Charter are in

compliance with the initiatives embarked on according to

the 2002 BEE evaluation report (taking into account the

findings of the previous audit reports)• To identify bottlenecks in the implementation of the

Charter and interventions required

OBJECTIVES OF THE AUDIT

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• To develop standardised criteria to asses and monitor transformation and compliance with petroleum and liquid fuels industry charter throughout the value chain

• To develop and implement skills transfer critical to

strengthening of the Department‘s capacity to conduct an

annual survey of the industry to monitor and evaluate

progress on achieving the objective of the Charter• To develop an implementation strategy that will optimally

contribute to achieving transformation in the industry

OBJECTIVES OF THE AUDIT cont..

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LFC STRATEGIC FOCUS AREASSTRATEGIC

FOCUS AREA

EXPLANATION/DEFINITION MEANS OF MEASUREMENT

Ownership

The 25% ownership and control of all facets of the industry that the parties to this Charter are seeking to bring about over a ten year period means HDSA’s owning in total, by the end of that period, not less than 25% of the aggregate value of the equity of the various entities that hold the operating assets of the South African oil industry. The parties to the Charter agree that the measurement of the extent of the achievement of this target of 25% if the aggregate value of the equity will be based on the asset values as per the audited accounts of the entities concerned.

Legal and effective black shareholding, through voting rights, rights to economic interest and sustainability

Control

Control of a business entity can be achieved in a number of ways; (a) a majority shareholding position, i.e. 50% + 1 share; (b) an effective controlling shareholding; (c) a majority of a board of director; and/ or (d) a shareholders agreement.

Percentage of black people in directorship positions (both executive & non-executive)

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LFC STRATEGIC FOCUS AREAS Cont… STRATEGIC

FOCUS AREA

EXPLANATION/DEFINITION MEANS OF MEASUREMENT

Supportive Culture

Appointment of managers who will understand the spirit and background under which these policies were conceived in order to create a supportive & enabling environment for business success. Undertaking to foster a supportive culture with regard to all aspects of this Charter when dealing with HDSA’s and incorporating and driving a process of transformation and a change of culture.

Qualitative analysis of criteria which facilitate the creation of a transformative business environment

Capacity Building

Building skills of employees and reporting annually on progress as well as interfacing with statutory bodies such as SETA

Quantitative analysis of skills spend on black employees, learnership opportunities for black employees training opportunities for black employees

Employment Equity

Focus on HDSA’s when identifying candidates for overseas placement and training; identifying a talent pool and fast tracking it; ensuring inclusiveness of gender; implementing mentorship programmes and setting and publishing demanding targets.

Quantitative analysis of Employment Equity reports submitted to the Department of Labour1010

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LFC STRATEGIC FOCUS AREAS Cont…

STRATEGIC FOCUS AREA

EXPLANATION/DEFINITION MEANS OF MEASUREMENT

Financing

Implementation of internal and external financing mechanisms for giving HSDA companies access to equity ownership within the South African context; engaging in viable, strategic partnerships with HDSA companies.

Debt schedules of BEE participants

Preferential Procurement

Supportive procurement policies to facilitate and leverage the growth of HDSA companies, including supplies (e.g. crude ) , products and all other goods and services; accordance of preferred supplier status to HDSA companies.

Analysis of BEE procurement spend and criteria for the selection of BEE suppliers

Terms of Credit to HDSA Companies

Preferential Payment Terms for Suppliers..

Quantification of the effective benefit of preferential payment terms to BEE suppliers1111

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LFC STRATEGIC FOCUS AREAS Cont…

STRATEGIC FOCUS AREA

EXPLANATION/DEFINITION MEANS OF MEASUREMENT

Access and Ownership of Joint Facilities

Access to ownership opportunities by BEE participants Analysis of BEE ownership percentage

Refining Capacity Access to ownership opportunities by BEE participants Analysis of BEE

ownership percentage

Retailing/Wholesaling Access to ownership opportunities by BEE participants

Access to ownership opportunities by BEE participants

Sustainability

Medium to long-term viability and adaptability through a presence across all facets of the liquid fuel value chain; ventures with prospects of long term profitability, and requisite levels of skills and access to technology.

Analysis of financial indicators and ratios

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CHARTER IMPLEMENTATION CHALLENGES

• LFC Compliance not monitored regularly, and no serious consequences of non-compliance

• Success not consistent though the value chain: e.g no crude oil

procurement, toll process involvement etc• Financial sustainability of BEE deals• Complex Fronting• Oil companies not supporting HDSA wholesalers• Access to infrastructure for importing HDSA wholesalers( e.g.

berthing facilities, storage facility etc..)

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CHARTER IMPLEMENTATION CHALLENGES

• Continued barriers to entry:• Access to finance• Access to infrastructure• Lack of pricing transparency• Skills transfer to retailers

• Narrow-based BEE eg. Enterprise and supplier development• Women representation• Abuse of HDSA definition: Inclusion of white females has seen

transfer of ownership from white males to white females

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DoE ROLE IN ADDRESSING CHALLENGES

• Prioritize recommendations on the compliance audit report whilst awaiting finalization of BBBEE codes review

• To start with the development future empowerment

framework• Capacitate a framework for monitoring, evaluation and

compliance, and keeping up-to-date• Standardize transformation empowerment criteria across

the value chain• Continue collaborating with the DTI to align the Charter

with the revised BBBEE codes of good practice

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CONCLUSION

• The future Empowerment framework will ensure measurability and preservation of the cornerstones of the previous charter that are not adequately catered for in the generic Codes

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END

Questions

Comments

Thank you!!!!!!

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