Presentation to the Select Committee on Economic Development on Jet Fuel Shortages and Challenges facing the Petroleum Industry:

1

• Presentation to the Select Committee on Economic
  Development on Jet Fuel Shortages and Challenges
  facing the Petroleum Industry
• 25 August 2009
• Committee Room E540, Fifth Floor, National
  Assembly Wing
• 1000AM

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ABOUT SAPIA SAPIA represents the common
interests of the petroleum industry and aims to
promote an understanding of the industrys
contribution to economic and social progress.
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About SAPIA

• Membership
• The current SAPIA members are
• BP Southern Africa (Pty) Limited
• Chevron South Africa (Pty) Limited
• Engen Petroleum Limited
• PetroSA (Pty) Limited
• Sasol Limited
• Shell SA (Pty) Limited
• Total South Africa (Pty) Limited

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About SAPIA

• SAPIAs objectives are to
• find solutions to the many pressing issues facing
  the industry
• be a source of information
• encourage co-operation among members and
• encourage good ethics and governance.
• SAPIA supports
• a liberalised market, reached by an orderly, fair
  and inclusive process
• the empowerment of historically disadvantaged
  South Africans by member companies
• the upliftment of rural areas
• the sustainable development of our nation
• co-operation with Government in the achievement
  of national economic objectives
• an economic climate that fosters competitive
  efficiency and
• continuation of world-class standards in our
  petroleum industry.

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RECENT JET FUEL SHORTAGES
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Industry issues

• OR Tambo International Airport Jet Fuel shortage
• OR Tambo International Airport receives product
  from the Transnet refined products pipeline from
  Durban to Johannesburg (DJP) through the
  dedicated feeder pipeline, the dedicated AVTUR
  pipeline from NATREF refinery and rail tank cars
  from the coastal refineries
• Existing fuel storage and distribution facilities
  consist of nine tanks with a combined storage
  capacity is 46,500 m3
• NATREF and Rail Tank Cars supply 22,500 m3
• Multi-products pipeline (DJP) supply 24,000 m3
• Chevron South Africa (Pty) Ltd manages and
  operates petroleum facilities on behalf of the
  consortium consisting of BP Southern Africa (Pty)
  Ltd, Chevron South Africa (Pty) Ltd, Engen
  Petroleum Limited, Exel (Pty) Ltd, Shell South
  Africa Marketing(Pty) Ltd and Total South Africa
  (Pty) Ltd
• Stakeholders collaboration is required

7
Industry Challenges

• Jet fuel supply shortages
• During early August supply shortages of jet fuel
  were experienced at O R Tambo International
  Airport (ORTIA)
• These shortages resulted from a number of
  potential factors including, inter alia
• Low opening stock holding at ORTIA jet fuel
  terminal coming into July due to production
  problems at an inland refinery during June
• A number of logistical problems experienced by
  Transnet during July leading to inadequate and
  irregular supply to ORTIA and a gradual depletion
  of stock
• Cessation of joint supply planning due to
  Competition Act considerations leading to slower
  independent reactions
• Stocks dropped from the normal working level of 5
  days down to 2 days.
• Through a concentrated logistics programme,
  including increased road haulage and tankering
  by airlines stock levels are now back to normal
• The Minister of Trade and Industry designated the
  petroleum industry for the purpose of the
  relevant section of the Competition Act
• SAPIA is preparing an exemption application to
  allow interaction between members of the industry
  teams dealing with issues such as products
  supply, logistics planning, pipelines operations,
  shipping, etc to maintain current and ongoing
  security to supply
• The Minister of Energy has established a Supply
  Task Team, headed by DoE, to further investigate
  the shortages and the jet fuel supply plans for
  the 2010 Soccer World Cup

8
Industry issues

• 2010 FIFA World Cup South Africa preparation
• Objective for RSA successful event without fuel
  supply disruption
• Kick-off 8 June to 14 July 2010
• 37 days duration
• 64 Matches _at_ 10 Venues
• Expected 450 000 International Visitors (based
  on ticket sales)
• This is the single largest event for RSA!
• Competition Act exemption is required urgently
  for industry wide planning to happen!

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INDUSTRY CHALLENGES
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Industry Challenges

• The industry faces a number of short long term
  challenges including
•  
• Current global economic situation
• Economic regulation and legislation
• Skills shortage
• Infrastructure development
• Environmental issues
• Future fuels requirements
• Socio-economic issues
• Crime and security
• Industry transformation

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Industry Challenges

• Current global economic crisis
• The global economic crisis underscores the
  urgency of sustainable development mutually
  reinforcing the balance of economic, social and
  environmental progress
• Highlights the urgency to work efficiently and
  cooperatively to develop the policy and financial
  drivers required to provide energy access and
  security
• The following are key issues identified by the
  International Chamber of Commerce Commission on
  Environment and Energy
• All energy options are important no one size
  fits all solution exists
• Sector wide changes can take decades
• Coordinated international effort is needed to
  ensure an enabling framework and markets
• National policies have to take current realities
  and international agreements into account
• Long-term investments should be facilitated in
  light of the need for global and local capital
  allocation
• Energy efficiency should be a key focus and needs
  to be promoted
• Technology cooperation and deployment should be
  fostered
• A variety of market mechanisms fit for national /
  local circumstances have to be identified

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Industry Challenges

• Economic regulation and legislation
• The oil industry is a vital component to the
  South African economy operating in a highly
  regulated environment.
•  Energy is the blood that runs through the veins
  of every economy. It is to the survival of an
  economy what water is to the survival of the
  human body- Executive Summary, Energy Security
  Master Plan, Department of Minerals Energy.
• In order to meet the countrys liquid fuels need
  now and into the future
• The industry needs predictable regulations to
  encourage investment by existing and new entrants
• The return needs to sufficiently reward
  investment across the value chain
• Investment returns need to be sustainable
• Skills shortages need to be urgently addressed
• Industry is currently working with the Department
  of Energy and their consultants to develop a new
  mechanism that will meet the above objectives
• Shortage of capacity within Government to handle
  regulatory requirements (licences, approvals,
  etc) severely hampers development and increases
  costs

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Industry Challenges
Industry cost / demand squeeze
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Industry Challenges

• Infrastructure development
•  
• Additional petroleum product pipelines and
  tankage capacity are needed to serve the major
  vital inland market
• fuel shortages will harm the countrys economy
  and derail the Governments projected growth
  target.
• The Governments Energy Security Master Plan
  calls for investment in the building of new
  pipelines and tankage facilities, which will
  include some participation by the private sector.
  
• Beneficial conditions should be created by
  Government for the industry and other private
  players to invest in new tankage and pipeline
  capacity.
• Discussions with Competition Authorities are
  under development to allow stakeholders to
  jointly discuss security of supply issues in the
  short to long term.
• Regulatory certainty and increased capacity is a
  necessity for efficient development of required
  infrastructure

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ENVIRONMENTAL CHALLENGES
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Environmental Performance

• Future fuels requirements
•  
• Why clean fuels?
• Improve air quality in sensitive areas
• Reduction in CO2
• Enable cleaner more efficient vehicle
  technology
• SAPIA has developed a long-term roadmap for
  discussion with the relevant regulators (ie DoE,
  DWEA, DoT, DTI, NT). The roadmap outlines a
  suggested approach that would be in the best
  interests of SA as a whole.

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Future Fuels Roadmap
All vehicles Euro 5 compliant
RSA Clean Fuels 3 Inline with EN 2009
specs
All new models Euro 5 compliant
Inspection Maintenance for all vehicles
All vehicles Euro 4 compliant
RSA Clean Fuels 2 Inline with EN 2004 specs
All new models Euro 4 compliant
Inspection Maintenance for new vehicles
All New Vehicles Euro 2 compliant
RSA Clean Fuels 1Lead Phase Out (LPO)
Black smoke roadside testing
TIME

• Costs to industry R20 to R40 billion for SA
  refiners
• Design, construction and commissioning will take
  5 years from time of agreement on specifications
  and conditions

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SOCIO-ECONOMIC CHALLENGES
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Industry Challenges

• Crime and security
•  
• Crime continues to escalate
•  
• Categorise crimes against the petroleum
  industry into three main groups
•  
• Violent crimes including robberies, ATM crimes on
  service station forecourts perpetrated with
  explosives, attacks on drop-safes with explosives
  and cash-in-transit robberies on forecourts.
• Bulk fuel thefts and other thefts including
  housebreaking.
• Commercial crime including fraud and corruption.

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Industry Challenges

• Crime in 2008
• Robberies at service stations on an upward trend.
  
• SAPS crime statistics indicate a 23 increase in
  violent crimes perpetrated against the business
  sector.
• Service station robberies increased from 590
  incidents in 2007 to 785 incidents in 2008.
• The total number of violent crimes increased from
  875 in 2007 to 1139 in 2008.

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Industry Challenges

• What is being done?
•  
• Oil Industry Security Forum focuses on crime
  prevention, security issues and crime fighting
  projects.
• Monthly meetings attended by SAPIA members,
  retail representative bodies and South African
  Police Service (SAPS). 
• Co-operative action among industry bodies to
  address crime problem.
• Oil companies and service station owners are
  managing strict cash-handling procedures. 
• Introducing innovative cash handling equipment
  and procedures.
• Enhanced service station design, centred on the
  installation of improved forecourt lighting and
  access restriction to sensitive areas.
• Minimum standards for closed circuit television
  (CCTV) installations which now provide clear
  images of perpetrators.
• Installation of bullet-proof glass at some
  convenience store point-of-sale areas.
• Installation of panic buttons, safety locks and
  enhanced video surveillance equipment.
• Establishment of emergency response links with
  armed response companies and the SAPS.
• Enhanced SAPS sector and Community Policing Forum
  approach.

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Industry Challenges

• What is being done? (continued)
•  
• Sharing examples of best practice within
  industry.
• Closer liaison with the SAPS senior management,
  SAPS Hitech Unit, national and provincial JOCOMs,
  Crime Information Centre, local clusters and
  provincial management.
• Full investigation of every crime related
  incident and the incorporation of the relevant
  findings into security procedures.
• The formulation of useful security, safety, crime
  prevention and governance guidelines for the
  industry and its security service providers.
• Specialised training programmes for service
  station personnel in the area of robbery
  prevention and survival techniques.

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Socio-economic Performance

• Industry transformation
•  
• The goal of the Liquid Fuels Charter, signed by
  the industry in 2000, is to ensure sustainable
  presence, ownership and control by approximately
  25 of historically disadvantaged South Africans
  (HDSAs) across the industry value chain by 2010.
• SAPIA members are the first industry in South
  Africa to enter into a voluntary charter
  committing itself to advancing black economic
  empowerment.
• All privately owned members have concluded equity
  ownership deals.

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Socio-economic Performance
Management control Board of Director and senior
management levels are steadily increasing with
36 black board members and 11 black women
participation Preferential procurement  The
industrys BEE procurement spend is 42 of total
budget for goods and services excluding BEE spend
on crude oil and petroleum products. Enterprise
development Historically disadvantaged South
Africans operate 38 of the industry retail
network.   Socio-economic development The
industrys average spend on Corporate Social
Investment (CSI) is over R175 million. CSI spend
includes areas of national and sector priority.
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Socio-economic Performance

• Employment equity
• Black representation is steadily increasing at
  mid and senior levels
• Top management 32.4
• Senior management 37.1
• Specialists mid management 55.6
• Skilled technical 70.9
• Total all staff 70.9
• Skills development 
• Leadership in Oil and Energy Programme
• 147 industry employees graduated since the
  programmes inception in 2006.  
• Artisan Skills Training Project
• currently 1 400 learners in the system
• 209 learners have qualified at NQF Level 4 trade
  qualification
• project is currently structured to produce in
  excess of 500 NQF level 4 certificated learners
  per year from 2009 onwards 
• Identifying scarce and critical skills

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Socio-economic Performance

• Challenges in the transformation journey
•  
• The need to increase credible BEE suppliers
• Availability of accredited petroleum industry
  learning programmes
• Increasing the representation of people with
  disabilities 
• Despite all of these challenges, industry remains
  on track to achieve the Liquid Fuels Charter
  aspirations and is confident of meeting the other
  challenges discussed today