1. 10/20/11 Briefing TO The SELECT COMMITTEE ON ECONOMIC DEVELOPMENT liquid fuels industry charter (LFC) PROGRESS REPORT 18 OCTOBER 2011 11

2. 10/20/11 OUTLINE Brief history of Liquid Fuels Charter Progress to date LFC Strategic Focus Areas Description Implementation Challenges DoE Role in addressing challenges Conclusion End 22

3. 10/20/11 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 33

4. 10/20/11 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… 44

5. 10/20/11 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… 55

6. 10/20/11 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 66

7. 10/20/11 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 77

8. 10/20/11 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.. 88

9. 10/20/11 LFC STRATEGIC FOCUS AREAS STRATEGIC 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) 99

10. 10/20/11 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 Labour 1010

11. 10/20/11 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 suppliers 1111

12. 10/20/11 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/Wh olesaling 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 1212

13. 10/20/11 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..) 1313

14. 10/20/11 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 1414

15. 10/20/11 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 1515

16. 10/20/11 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 1616

17. 10/20/11 END Questions Comments Thank you!!!!!! 1717