AFRICAN MINERALS AND ENERGY FORUM

1. AFRICAN MINERALS AND ENERGY FORUM BEE IN THE OIL INDUSTRY MAURICE RADEBE 19 August 2002

2. OVERVIEW • Current Context • Progress • Policy Framework • Practical experiences • Issues & Concerns • Expectations • Short Term • Long Term • Way Forward

3. WHO IS AMEF? • Established to assist and promote BEE in mineral and energy sectors of SA Economy • Mission – To create an environment wherein Black entrepreneurs can compete on an equal footing in a globally competitive sector • Key sectors covered are: • Oil, Gas & Exploration • Liquid Fuels • Power & Electricity • Minerals

4. AMEF OBJECTIVES • To promote active participation of Black Business in the Minerals and Energy sector • To assist in overcoming barriers to entry and building capacity of AMEF members • To create forums for networking with government, industry and other BEE initiatives • To address disparities in the availability of energy services • To promote training and development programmes

5. Black Economic Empowerment OWNERSHIP CONTROL MANAGEMENT TRANSFER OF SKILLS • Equity participation • Asset ownership • Acquire rights to and obligations • Ability to exercise legal rights associated with ownership • 51% shareholding or majority shareholding • Control of the Board • Black management cadre running the businesses • Responsible for day to day running of operations • Entrepreneurial/Innovative thinking • Capacity Transfer • Skill Transfer • Employee training DEFINITION OF BLACK ECONOMIC EMPOWERMENT A true black economic empowerment deal must contain ALL four main aspects Window dressing and empowerment of the few must be avoided

6. AMEF ACHIEVEMENTS • RATPLAN quotas for service stations have been allocated to HDSA oil companies • Access to distribution and storage facilities • Permission to import products if there is a shortage • Participated in the White Paper process leading to the 25% BEE target • Participated in the Ministerial task Team leading to the Charter • Signatory and major stakeholder of the Charter

7. AMEF ACHIEVEMENTS • Presented papers at the following gatherings : • Three Annual Oil Industry Conferences organised by Global Pacific - 1998, 1999 and 2000 • Liquid Fuels Summit - 2 November 2000 • Liquid Fuels Procurement Workshop - 23 March 2000 • Regular lecturing at MEETI / MEPC Training Programmes • Board representation in WPC and Mineral & Energy Policy Centre. • Parliamentary Portfolio Committee for Minerals and Energy • BEE Electricity Summit – 19 August 2002

8. AMEF ACHIEVEMENTS • Submitted AMEF input on the following studies and legislative processes: • Electricity restructuring process • Input into Oil industry pricing, MPAR, IBLC etc • Current RATPLAN allocations • Import Control on petroleum products • Pipeline Tariffs • Influencing procurement strategies • Petroleum Products Act • Minerals and Petroleum Resources Development Bill

9. CURRENT CONTEXT • Industry highly regulated • Controlled by multinational companies • Numerous barriers to entry • BEE companies only operating in marketing sector of the value chain • BEE companies have 14% ownership of the industry and share in 11% of the operating profits

10. Upstream Oil & Gas Exploration Worldwide Mvelaphande Petrosa Liquid Fuel Pipelines SBM’s Depots Storage Tanks Refining Genref Sapref Calref Natref Synfuels Tepco Product Supply And Logistics MSA Accommodation & Supply Agreements Trading Import & Exports Trading in Crude Oil Mvelaphanda Mvume Petro-Energy Wholesale Marketing Afric Oil Total Rennaisance Exel Tepco Mic/WDBSA Sanoco Econ Retail Sites Country wide 5000 Sites 120 Various BEE Companies OIL INDUSTRY VALUE CHAIN End Consumer Motorist Controlled Pump Price

11. POLICY FRAMEWORK • White Paper on Energy Policy – Dec 1998 • Policy Challenges - The need to Achieve: • An efficient and internationally competitive industry • An environment conducive to synergistic investment in the liquid fuels industry • Meaningful inclusion of those interests that have been historically disadvantaged • Vision for the future: • South African black interests will assume their rightful place in the affairs of the industry.

12. POLICY FRAMEWORK • White Paper on Energy Policy – Dec 1998 • Cornerstones of future Government policy: • Black Economic Empowerment reflected in the composition of the industry at all levels and significant domestic black ownership or control in all facets of the industry. • Tariff protection for vulnerable sectors where justified by cost-benefit analysis. • Key milestone for phasing in of deregulation: • Sustainable presence, ownership or control by historically disadvantaged South Africans of approximately a quarter of all facets of the liquid fuels industry or plans to achieve this.

13. PRACTICAL EXPERIENCES • Liquid Fuels Empowerment Charter – Nov 2000 • Stemming from the White paper, the charter was developed to provide: • “Framework for progressing the empowerment of historically disadvantaged South Africans in the liquid fuels industry” • Definitions of HDSA, ownership, control and sustainability are incorporated • Areas are identified which will assist in reaching these goals, eg, Supportive Culture; Capacity Building; Public and Private Sector Procurement

14. PRACTICAL EXPERIENCES • TWO MODELS FOR EMPOWERMENT • BEE owned and controlled from inception - grow business through strategic partners and contracts • Exel • Calulo/Total Renaissance • Sanoco & Econ • Various smaller service providers to the industry • Equity purchase by BEE group into existing Oil Majors • Worldwide/Engen/Afric Oil • Thebe/Shell/Tepco • MIC/WDBSA/BPSA

15. ISSUES & CONCERNS • Policy is heading in right direction • Amendments to Petroleum Products Act eagerly anticipated • Mineral & Petroleum Resources Development Bill – access to BEE in upstream activities • Definitions and accreditation system for BEE must be finalised (BEECom, BEE Act etc)

16. ISSUES & CONCERNS • Minister’s proposed Compliance & Monitoring Advisory Committee to create system for overall recognition, incentives & penalties • Problem now is to ensure that policy is implemented

17. ISSUES & CONCERNS • Unintended Consequences • Price formulation changes (IBLC) • Cross-cutting issues • State Procurement of Liquid Fuels • Refunds on slate levy • Duty at source and import/export policies • Provincial legislation/regulations (Environmental Impact Assessments) • Role & influence of strategic partners • Home-grown small BEE companies must not be destroyed in merger processes.

18. EXPECTATIONS • SHORT TERM • Actively take steps to be aware of and avoid unintended consequences and cross-cutting issues • Timing is vital for BEE sustainability, don’t delay interventions where identified • Formalise BEE policy • Establish accreditation system

19. EXPECTATIONS • LONG TERM • Tilt the playing fields • Closely monitor progress • Ensure policy is flexible to meet changing needs • Incentivise & reward genuine empowerment undertakings

20. WAY FORWARD • Continue and improve dialogue & interface between government and industry • Always be aware and act swiftly on cross-cutting issues and unintended consequences

21. AMEF THANK YOU