Briefing
TO
The SELECT COMMITTEE ON
ECONOMIC DEVELOPMENT
liquid fuels industry charter (LFC)
PROGRESS REPORT
18 OCTOBER 2011
10/20/11 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
10/20/11 22
BRIEF HISTORY OF LFC
• 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.
10/20/11 33
BRIEF HISTORY OF LFC cont…
• 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
10/20/11 44
BRIEF HISTORY OF LFC cont…
• 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
10/20/11 55
PROGRESS TO DATE
• 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
10/20/11 66
OBJECTIVES OF THE AUDIT
• 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
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OBJECTIVES OF THE AUDIT cont..
• 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
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LFC STRATEGIC FOCUS AREAS
STRATEGIC
MEANS OF
FOCUS EXPLANATION/DEFINITION
MEASUREMENT
AREA
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, Legal and effective
not less than 25% of the aggregate value of the black shareholding,
equity of the various entities that hold the through voting
Ownership
operating assets of the South African oil industry. rights, rights to
The parties to the Charter agree that the economic interest
measurement of the extent of the achievement of and sustainability
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.
Percentage of
Control of a business entity can be achieved in a
black people in
number of ways; (a) a majority shareholding
directorship
Control position, i.e. 50% + 1 share; (b) an effective
positions (both
controlling shareholding; (c) a majority of a board of
executive & non-
director; and/ or (d) a shareholders agreement.
executive)
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LFC STRATEGIC FOCUS AREAS Cont…
STRATEGIC
MEANS OF
FOCUS EXPLANATION/DEFINITION
MEASUREMENT
AREA
Appointment of managers who will understand the spirit
and background under which these policies were Qualitative analysis of
conceived in order to create a supportive & enabling criteria which facilitate
Supportive
environment for business success. Undertaking to foster a the creation of a
Culture
supportive culture with regard to all aspects of this Charter transformative
when dealing with HDSA’s and incorporating and driving a business environment
process of transformation and a change of culture.
Quantitative analysis
of skills spend on
black employees,
Building skills of employees and reporting annually on
Capacity learnership
progress as well as interfacing with statutory bodies such
Building opportunities for black
as SETA
employees training
opportunities for black
employees
Focus on HDSA’s when identifying candidates for Quantitative analysis
overseas placement and training; identifying a talent pool of Employment Equity
Employment
and fast tracking it; ensuring inclusiveness of gender; reports submitted to
Equity
implementing mentorship programmes and setting and the Department of
10/20/11 publishing demanding targets. 1010 Labour
LFC STRATEGIC FOCUS AREAS Cont…
STRATEGIC
MEANS OF
FOCUS EXPLANATION/DEFINITION
MEASUREMENT
AREA
Implementation of internal and external financing
mechanisms for giving HSDA companies access to equity Debt schedules of
Financing
ownership within the South African context; engaging in BEE participants
viable, strategic partnerships with HDSA companies.
Supportive procurement policies to facilitate and leverage Analysis of BEE
the growth of HDSA companies, including supplies (e.g. procurement spend
Preferential
crude ) , products and all other goods and services; and criteria for the
Procurement
accordance of preferred supplier status to HDSA selection of BEE
companies. suppliers
Quantification of the
Terms of
effective benefit of
Credit to
Preferential Payment Terms for Suppliers.. preferential payment
HDSA
terms to BEE
Companies
10/20/11 1111 suppliers
LFC STRATEGIC FOCUS AREAS Cont…
STRATEGIC
MEANS OF
FOCUS EXPLANATION/DEFINITION
MEASUREMENT
AREA
Access and
Ownership of Analysis of BEE
Access to ownership opportunities by BEE participants
Joint ownership percentage
Facilities
Refining Analysis of BEE
Access to ownership opportunities by BEE participants
Capacity ownership percentage
Access to ownership
Retailing/Wh
Access to ownership opportunities by BEE participants opportunities by BEE
olesaling
participants
Medium to long-term viability and adaptability through a
presence across all facets of the liquid fuel value chain; Analysis of financial
Sustainability
ventures with prospects of long term profitability, and indicators and ratios
requisite levels of skills and access to technology.
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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
10/20/11 1515
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
10/20/11 1616
END
Questions
Comments
Thank you!!!!!!
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