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Greg Salzwedel RFA M - PowerPoint Presentation

VIEWS: 30 PAGES: 20

									          Impact of the
Petroleum Products Amendment Act
                (PPA)
       On Transport Operators
           in South Africa
                  Greg Salzwedel
                      May 2007
Discussion Points

         o    Outline of the PPA
         o    Diesel and the transport operator
         o    Potential outcomes
                 •    Scenario 1 – Total Ban
                 •    Scenario 2 – Amended supply mechanism
         o    Strategic Options
         o    Conclusion




RFA Conference May 2007
Outline of the PPA


  o    Role Players:
          •    Department of Minerals & Energy (DME) – regulator, driving the process
          •    Oil Companies – wholesalers, with on-road payment mechanisms
          •    SA Petroleum Industry Association – oil industry body
          •    Retail Sites – retailers, provide service to wholesaler for fee
          •    Fuel Retailers Association (FRA)- fuel retailer body
          •    Transporters – end users of on-road payment mechanisms


  o    Key Driver:
          •    Retail dealer margins
          •    Fuel Retailers Assoc. lobbying with DME


  o    Key Legislative Issue:
          •    Wholesaler cannot be a Retailer
          •    1500 litre transactional cut-off
          •    No oil company may transact < 1500 litres

 RFA Conference May 2007
Outline of the PPA cont…


  o    Impact on Transport Industry
  •    DME regards all oil company on-road payment mechanisms as “illegal”
  •    Payment mechanisms include:
                          BP Fuelmaster
                          Caltex Star-Card
                          Engen EDC
                          Total Route-Africa
                          Shell D-Card
  •    DME’s intention to stop the above payment mechanisms




 RFA Conference May 2007
Outline of the PPA cont…


  o    Current Situation
          •    License application by 16th September 2006
                           •   Manufacturer
                           •   Wholesaler
                           •   Retailer


          •    250 day “grace” period to enable:
                           •   DME to process application
                           •   Oil companies to comply with on-road payment mechanism requirements


          •    Period expired 23rd May 2007


          •    Stand-off between DME & Oil Industry


          •    DME & SAPIA – established a Joint Task Team
                           •   Economic Impact
                           •   Explore alternatives
                           •   Recommend a way forward




 RFA Conference May 2007
Diesel and Transporter




 RFA Conference May 2007
Potential Outcomes


    Depends on recommendations of the Joint Task Team



    Total ban on all oil company on-road fuel payment mechanisms
                                             OR
    Oil company on-road payment mechanisms allowed to continue, but
      with amendments to the current practices


    Either way, there WILL be an impact on the price of fuel purchased on-road.




 RFA Conference May 2007
Scenario 1: Total ban on all oil
company mechanisms

           o    Understand pricing implications.




 RFA Conference May 2007
Scenario 1: Total ban on all oil
company mechanisms




 RFA Conference May 2007
Scenario 1: Total ban on all oil
company mechanisms




 RFA Conference May 2007
Scenario 1: Implications


  o    No oil company payment mechanisms in any form i.e. card & tags
  o    Fuelling options limited to:
                   •       On-road – deal directly with retailer
                   •       Home-base – bulk supply deal
                   •       Differential significant ( +55 cpl in example)

  o    Alternative on-road payment through:
                   •       Bank cards:
                                      Pay full retail price
                                      Interest charges
                                      Transaction fees
                                      Management systems
                                      Fraud issues?


                   •       Cash:
                                      Pay full retail price
                                      Admin of cash slips
                                      Cash flow
                                      Management systems
                                      Fraud issues?


 RFA Conference May 2007
Implications cont..


          •    Deposit Accounts:

                              Better pricing?
                              Multiple Accounts
                              Admin burden
                              Cash flow
                              Fraud issues?




  o    Economic Impact
          •    Depends on home-base vs. on-road purchases split
          •    Profit:
                           •   SMME calculation:
                           •   Only on-road refuelling
                           •   40 cpl fuel increase
                           •   20% reduction in net profitability
          •    Management Resources




 RFA Conference May 2007
Scenario 2. Amended Pricing
Mechanism

 o    Understand on-road pricing mechanism (generic)




RFA Conference May 2007
Scenario 2. Amended
Mechanism




RFA Conference May 2007
Scenario 2. Amended
Mechanism




RFA Conference May 2007
Implications


  o    Pricing:
          •    Can expect 4 – 6 cpl increase in price
          •    Will be passed onto Retailer to increase handling fee


  o    Transaction process:
          May be changes to:
          •    Transaction processes
          •    Invoicing formats
          •    Agreements



  o    Business as usual




 RFA Conference May 2007
Strategic Options



  Some obvious strategies
  Surprising how little attention is paid to fuel strategies




  o    Coastal vs. Inland Supply
          •    Durban vs. Johannesburg:                    13.8 cpl differential
          •    Long range tanks
                           •   R11 500 for 240 litres



  o    Concentrate on existing Home-base Supply
          •    Differential between home-base and
                           •   Full retail price
                           •   Oil company on-road price
          •    Long range tanks
          •    Be aware of false economies where cpk to get to “cheaper”
               home-base fuel outweighs the cpl pricing benefit


 RFA Conference May 2007
Strategic Options cont..



  o    Expanding Home-base Network
          •    Legislative Hurdles
                              National Environmental Management Act of 1998 (NEMA)
                              Underground tanks require EIA
                                                  cost:      R8000-R16000
                                                  time:      8 + months
                              Amendment for above ground tanks < 30m3


          •    Local Authority Requirements


          •    Costs
                              New 23m3 above ground tank:               R115 000
                              Transporter ultimately carries cost




 RFA Conference May 2007
Strategic Options cont..



  o    Alternative Networks & Co-operatives
                   •       Commercial network development
                   •       Exclusively for trucking
                   •       Supply base below zone WSLP
                   •       Pricing benefit to transport operator


  o    Bulk Storage Co-operatives
                   •       Out-sourced home-base
                   •       Co-op supplies storage facility for a fee
                   •       The transporter supplies fuel on consignment stock for own use


  o    Reciprocity
                   •       Between co-operating transport companies & subbies
                   •       “wet” contracts




 RFA Conference May 2007
Conclusion


 o   Future unclear
            •   Await DME & SAPIA task team recommendation
            •   Meeting 31st May 2007



 o   RFA Action Plan
            •   Lobbying DME
            •   Mobilizing other stakeholders e.g. SABOA
            •   Require members active support
                      •   Written submissions
                      •   Memorandums
                      •   Meeting

            •   Questionnaire
                      •   Confidential
                      •   Return by Friday 1st June 2007



 o   Consult with your Fuel Supplier
            •          Keep yourself informed
                  • Understand their system

                  2007 Understand your costs
RFA Conference May•

								
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