The South Africa petroleum and liquid fuels industry has achieved a compliance rating of 48% during the ten years since the Department of Energy (DoE) tabled the charter designed to transform the industry, an audit has found.

The report, undertaken by independent audit firm Moloto Solutions, found that the industry has deteriorated to below 2006 levels with regards to the Petroleum and Liquid Fuels Charter (LFC) guidelines on enterprise development, skills development, employment equity and preferential procurement, said Energy Minister Dipuo Peters on Thursday.

The DoE commissioned Moloto in November 2010 to audit BP South Africa, Chevron, Engen Petroleum, PetroSA, Sasol Oil South Africa, Shell Marketing and Refining South Africa and Total South Africa, focusing on the period from 2000 to 2010.

The audit measured the companies against 13 elements within the charter, namely ownership, management control, supportive culture, capacity building, employment equity, private sector procurement, access to joint facilities, refining capacity, retailing, wholesaling, financing, terms of credit and synfuels supply within the companies.

The intention of the audit was to measure the extent of compliance with, and effectiveness of, the LFC for the ten-year period, as well as any bottlenecks encountered in its implementation.

The audit found that the average compliance level for each element examined was 3.5 out of 7 companies, or 50%.

“Overall, the findings of the audit are extremely disappointing, given the timelines since the signing of the charter in 2000,” Peters said at a media briefing, in Midrand.

She commented that, since 2000, the petroleum industry achieved a black-ownership level of 18.91%, as opposed to the 25% target set by the LFC, and that only one of the audited firms fully complied with the requirements of ownership by black shareholders.

Management control and ownership emerged as the two top performing elements in the LFC audit. Each company met the minimum requirements of ownership in their firms, but only 50% met the 25% charter target, and while not fully compliant with regards to management control, the oil groups had historically disadvantaged South African (HDSA) representatives in executive, nonexecutive and independent director positions.

Despite some achievement in ownership within the industry, the establishment of serial investors not actively participating in key operations was a “drawback on this knowledge-intensive industry” and adversely impacted on black economic-empowerment (BEE) imperatives.

The continued focus on compliance with the BEE framework has been detrimental to some of the key LFC elements, particularly enterprise development, Peters said, adding that the performance-rate gap between the two frameworks is 22%. The audited companies achieved 70% compliance in terms of the BEE framework, compared with the 48% compliance with the LFC.

The audit exposed capacity building or skills development, employment equity and access to infrastructure as the three elements of the assessment in which performance was worst.

Technical skills transfer to HDSAs, which Peters dubbed the largest “lost opportunity”, suffered the biggest setback at all levels during the past ten years. Further, she noted a decrease in the percentage spent on skills training and learnerships for HSDAs.

The audit also found that, during the ten-year period, only two of the companies procured crude oil from previously disadvantaged entrepreneurs.

However, in efforts to mitigate the shortfalls in meeting the charter targets, Peters would, within the next three weeks, speak to each CEO individually to discuss and negotiate a timeframe to allow the company to rectify its compliance.

Any areas identified as bottlenecks would be addressed and remedies and solutions would be suggested in meeting the new deadlines set.

Peters warned that should the offending companies continue to disregard compliance with the charter, they could face having their operating licences revoked.

A unit within the DoE has been established to fully focus on ensuring industry complies with the charter.

The department also aimed to analyse where elements of the current broad-based BEE codes of good practice could be incorporated into the LFC and where elements were lacking in both frameworks.

While the frameworks held notable synergies, both had shortcomings - the LFC lacked uniform measurability, while the codes of good practice failed to embrace certain key sectoral imperatives, Moloto explained in its report.

“The key recommendation is that the department facilitate the development of a sector code in line with the BEE framework or a process that could achieve similar objectives, taking into account the expected changes to the broad-based BEE codes,” the report stated.

Moloto made several other recommendations, which the DoE would consider, along with Cabinet’s view, when moving forward with the LFC, said Peters.

South African Petroleum Industry Association executive director Avhapfani Tshifularo noted the findings of the charter audit. "Once we have had a chance to thoroughly review it, we will engage with the department directly to address any issues.”
 

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