Aug 15, 2022

The Evolution of Fuel Retail Transformation

More than 20 years ago, the industry set itself a target for transformation, aiming to benefit South Africans who had been excluded from opportunities for decades. But how far have they come since then?

Transformation has been a mandate for all major industries in South Africa, with the goal of empowering historically disadvantaged individuals with opportunities. The Petroleum and Liquid Fuels Industry was the first industry to embark on transformation by signing its own transformation charter in 2000, aiming to address the imbalances of the past. The progressive move was not welcomed by many who perceived transformation as a destabilising force for the country’s economy.

Charter for transformation

The Liquid Fuels Charter (LFC) was written with the following intention: “Companies undertake to foster a supportive culture with regard to all aspects of this Charter when dealing with HDSAs (historically disadvantaged South Africans). Companies subscribe to incorporating and driving a process of transformation and a change of culture in their statements of business principles.”

Progress of fuel retail sector compliance

In 2006, the Minerals and Energy Committee reported on progress regarding transformation and compliance against the goals of the liquid fuels empowerment charter. Delegations from Total, SASOL Oil and PetroSA presented their findings.

At the time, women and disabled people were under-represented within the industry as a whole, and the organisations stated that they were determined to effectively address the issue. The report further stated: “As there are virtually no Black Economic Empowerment (BEE) South African crude oil suppliers, crude is imported primarily from Iran, Qatar and Saudi Arabia, and thus crude oil expenditure has been excluded from the percentages of BEE spend illustrated by the companies.” The fuel companies involved (Total, SASOL Oil, and PetroSA) spent between 30% and 40% on BEE enterprises in 2005 and 2006.

The LFC aimed for approximately 25% presence, ownership and control by historically disadvantaged South Africans across the liquid fuel industry by 2010. Ten years after the signing of the LFC by the seven major oil companies in South Africa, Moloto Solutions (mandated by the DMRE) conducted an audit to determine the levels of compliance with the Charter. The result of the audit was published in 2011 and is known as the Moloto Report.

The report tested the compliance of each element of the LFC, and an analysis of the report by Dentons resulted in the following notable conclusions:

  • The two top performing elements in the LFC were management control and ownership;
  • The worst performing elements were enterprise development, skills development, employment equity and preferential procurement;
  • Some key Charter requirements, such as crude oil purchases, were ignored by the BBBEE Codes and treated as exclusions.
  • Furthermore, no incentives are provided in the BBBEE Codes for some key LFC requirements such as procurement from HDSA wholesalers;
  • A compliance assessment mechanism must be implemented by the DMRE to monitor and measure compliance by the oil companies;
  • Insufficient training resulting in technical skills transfer to historically disadvantaged South Africans remains a challenge and a barrier to entry for specific positions in oil companies;
  • And finally, the Moloto Report recommended that a sector-specific code is required for the liquid fuels industry “to ensure that all ideals of the Charter are accommodated within a measurable consistent framework”.

More recently, a 2019 analysis by Tryphosa Malatsi at the University of Pretoria found that the state of transformation in the fuel retail industry has stalled. According to Malatsi, in March 2018 there was only one HDSA racial group above the 25% ownership goal at 27%, with historically advantaged South Africans holding 52%.

Getting back on course

SAPIA recommended that the following issues need to be addressed in order for the Charter to be successful:

  • alignment of the BEE Codes and the LFC;
  • establishment of a framework for skills development;
  • access and licences to logistics infrastructure;
  • and transformation in the retail sector.

Other challenges to transformation were identified by as: cost of skills development and low retention of employees; the cost of BBBEE compliance for wholesalers and retailers is not justified by their operation sizes; and access to affordable and practical financing mechanisms available to wholesalers and retailers.

Further threats to the progress that has been made in the industry are the current debates around deregulation of the petrol price. The ability to provide discounts has a direct impact on the new entrants who compete with established players, but cannot afford to provide discounts.

Find your transformation solution

PetroCONNECT offers a balanced perspective on transformation as a thought leader in the fuel retail industry. With experienced consultants on our team who have worked on transformation solutions in the energy sector, we are able to guide dealers in developing business strategies.

Our solutions for fuel retailers include:

  • A balanced perspective focused on sustainability.
  • Connecting dealers with the right equity investors or strategies.
  • Offering a clear, realistic and implementable strategy for a win-win business solution.
  • Evaluation of your existing business and current compliance status.
  • Buyers include vetted and trained candidates from PetroCONNECT Academy.

In addition, we have designed a Partnership offering that is designed to take out the frustration and sometimes expensive mistakes of partnerships. We use our Alumni database of investors to identify suitable partners that meet your needs.

We walk the FULL journey with you:

  • Identifying the importance of strategic partnership and value-adding black shareholders with preferential BEE points that 51% black owned, skilled and experienced investors who are willing to step up to the challenges and opportunities,
  • Having the experience in helping you in selecting the right partner driven by transformation and existing markets,
  • Structuring to maximize your BEE impact.

Contact us today for a tailor-made solution - we can help you find the right path forward as either a buyer or a seller.