1. 03 September 2015 SAMSA OFFICES, Pretoria SAPIA Presentation on Cabotage

2. Presentation Outline SAPIA Overview Coastal Shipping Operations SAPIA Response to the Cabotage Regime

3. SAPIA OVERVIEW SAPIA represents the collective interests of the South African petroleum industry. The association plays a strategic role in addressing a range of common issues relating to the refining, distribution and marketing of petroleum products, as well as promoting the industry’s environmental and socioeconomic progress. SAPIA fulfils this role by proactively engaging with key stakeholders, providing research information, expert advice and communicating the industry’s views to government, members of the public and media. Objectives are to: – understand the needs of its stakeholders; – provide expert information and assistance to government, the petroleum industry and all South African citizens; – contribute to policy formulation; – promote transformation, environmental leadership and a fair regulatory framework for all; – facilitate security of supply; and – enhance the reputation of the industry by communicating its contribution to economic and social progress.

4. Coastal Shipping Operations  A total of eight vessel move liquid fuels along the coast of South Africa  Five of these vessel are operated by SAPIA members directly on time charter. The other three are operated by Unicorn tankers.  Two bunker barges one in Richards Bay and the other in Cape Town to refuel visiting ships in these ports.  These vessel are dedicated to coastal movements (all grades) excluding imports to the depots in the coastal ports i.e. PE, EL, DBN, MB and CTN  The industry shipped a total of 314 million litres of liquid fuels in 2014.

5. SAPIA Cabotage Response SAPIA members understand the desire of Government, led by SAMSA to transition to a coastal cabotage regime and is supportive of this process given the following provisos: 1.The cabotage policy needs to recognise the importance of Coastal Shipping to maintaining security of supply in South Africa, particularly to the coastal markets on the Eastern seaboard The policy therefore needs to support the continued use of coastal shipping to supply product by incentivising the local flagging and crewing of ships 2.Given the limited number of vessels used during coastal shipping it is essential that the cabotage policy does not raise barriers to entry of introduce inefficiency or costs to this operation The policy needs to have sufficient flexibility to allow for continued operations during unplanned events such as shipping outages or crew downtime 3.The cabotage policy need to take cognisance of the regulated nature of the petroleum sector Given that petroleum products are price regulated, any costs associated the implementation of the policy must be recouped through the pricing mechanisms to ensure ongoing supply.

6. SAPIA Cabotage Response Several engagements between SAMSA and SAPIA narrowed the issues to the following: 1.No Finalised Cabotage Policy o SAPIA is concerned that the department of transport has not finalised/promulgated the revised maritime transport policy. o Without a cabotage policy SAPIA members have difficulty in making definite decisions to whether to register their ships in South Africa or Not. A lot of ground work has been done by SAMSA to guide the industry however it is through formal policy where decisions will be made. 2. Cabotage Implementation Proposals o SAPIA proposes that the legislation allows for phased timeline for introduction and compliance. For example: 2016-2020: flagging vessels. Sufficient time needs to be given for the reflagging of vessels by existing ship owners. Existing contracts need to be honoured. 2020-2030: Move into a mix of junior and senior officers and crew with SA nationality and foreign nationality to make the SA flag more attractive Crew matrix targets to allow for required training and experience Offer flexibility in employment, where SA nationals are employed by the same company on international voyages

7. SAPIA Cabotage Response continues 3.Registration Process o Develop a list of eligibility requirements for ship registration under the cabotage regime o International shipping activities to be kept separate from cabotage operations 4. Exemptions, Incentives and Waivers o Inadequate Manpower: Waiver the requirements of the SA crew target under cabotage, granting utilisation of foreign seafarers, where industry is unable to locate or reposition suitable SA Nationals o Exemption Process: Shipping companies will need quick resolution to any exemption requests. A suggestion is to duly document the exemption process in the legislation and once granted has a set time period for expiry or renewal. o Permit System: Proposal for an initial introduction of a ‘Permit system’ similar to Australia, where a foreign flagged vessel can continue to be engaged in coastal trade on a set route by paying ‘licence fees’ for a limited period, in absence of SA flagged vessels. o Corporate Income Tax: The current rate (28%), is disincentives owners from trading their ships in SA waters as any SA owner would rather charter their ships offshore (international) where current SA tonnage tax (s12Q) legislation allows for zero corporate tax on international voyages. o BBBEE Scoring Options: Suggestion that some incentives should be considered around BBBEE scoring options for use of South African flagged vessels and crew; i.e. if a vessel is compliant with the targets before the deadlines then the complete spend by the member attracts the highest available points on the scorecard

8. END Thank you