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Black economic empowerment in the South African petroleum and liquid fuels industry: Alignment with the B-BBEE Acts and Codes

Liquid Fuels Charter

The Charter for the South African Petroleum and Liquid Fuels Industry on Empowering Historically Disadvantaged South Africans in the Petroleum and Liquid Fuels Industry, known as the Liquid Fuels Charter (LFC), was signed by the industry in 2000. It aimed to ensure the sustainable presence, ownership and control by approximately 25% of historically disadvantaged South Africans across the industry value chain by 2010. As the first industry to sign such a charter, most members have prioritized the critical need to correct the imbalances of the past, long before the Broad-Based Black Economic Empowerment Amendment Act of 2013.

The goal of 25% ownership of the South African petroleum industry by historically disadvantaged South Africans (HDSA) is being met by some members. All privately owned, integrated members have concluded transactions, in differing arrangements, to facilitate HDSA ownership of their companies or to assist in the development of qualifying small enterprises. The implementation of the LFC includes much more than ownership. Procurement, employment equity, capacity building and the creation of a supportive culture are also vitally important.

Being the first charter in the country there are some disadvantages for the industry. One of these is that the LFC does not have a balanced scorecard. The concept of balanced scorecards was only developed later and was fine tuned in subsequent charters in line with the 2007 Broad-Based Black Economic Empowerment 

(B-BBEE) Codes of Good Practice.

The absence of a balanced scorecard has been a distinct problem for the industry. It has meant that all the good results achieved by the industry have been overlooked by critics of the industry and attention only focused on areas where performance has been perceived to be relatively weaker. The industry has never hidden the weaker areas in its performance. Some of these weaknesses are the advancement of women in the industry and the procurement of crude and products from empowered suppliers. To reduce regulatory compliance burden, the industry is working on the alignment proposal of the LFC to the 2013 B-BBEE Codes of Good Practice.

BEE transactions in the Industry

All integrated, privately owned members have concluded equity ownership deals. Most of these are in respect of 25% of the full value chain, including both refining and marketing. Most are also broad-based and include women’s groups and the community. Good progress has been made with equity participation. Most of the members have already engaged black partners in either the full value chain or in important parts of it. Most importantly, the international oil companies have equity deals. Multinationals in other sectors of the economy are not entering into broad-based black economic empowerment transactions but rather opting for the Equity Equivalent Investment Program in terms of the B-BBEE Codes of Good Practice.

Compliance to the Broad-Based Black Economic Empowerment Amendment Act, 2013

Petrosure’s assessment of the industry’s achievements to date show that industry is making significant strides in respect of the pillars of the 2007 B-BBEE Codes of Good Practice. However, there are some challenges in the transformation journey which ultimately aims to achieve B-BBEE. These include procurement of crude oil, the need to increase credible B-BBEE suppliers, availability of accredited petroleum industry learning programs and increasing the representation of people with disabilities. 

Petrosure Underwriting Managers as a black owned entity and underwritten by one of the best papers in the industry Old Mutual Insure, is well poised to offer solutions in terms of procurement of short term insurances services.

If you want to do more business with the state, then procuring your services and products from empowered entities to improve your score card is the way to go. 

 

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