Petroleum Licensing

Parliamentary Portfolio Committee Briefing

14 March 2007

DME Team

• Victor Sibiya• Magdeline Rasego• Zibele Sokabo

Licensing

Definitions

• “ ‘bulk’ means a 1500 litres, per transaction, of petroleum product”

• “ ‘retail’ means the sale of petroleum products to an end-consumer at a site”

• “ ‘wholesale’ means the purchase and sale in bulk of petroleum products– by a licensed wholesaler to or from another licensed

wholesaler, or to or from a licensed manufacturer, or sale to a licensed retailer or to an end-consumer for own consumption”

• “ ‘manufacture’ means the manufacture of petroleum products for commercial purposes, and includes the blending and re-refining of petroleum products”

Challenges

• Wholesaling small quantities of less than 1500 litres per transaction

• Distribution and Storage facilities used for retailing• Joint ownership of manufacturing facility

Section 2A Prohibition Of Certain Activities

• 2A. ( 1 ) A person may not-(a) manufacture petroleum products without a

manufacturing licence;(b) wholesale prescribed petroleum products

without an applicable licence;(c) hold or develop a site without there being a

site licence for that site;(d) retail prescribed petroleum products without an applicable retail wholesale licence;

issued by the Controller of Petroleum Products

Challenges

• Development of site without site licences• Concluding sale agreement without an appropriate

licence• Retailing prescribed petroleum products without

an applicable retail licence;

Objectives of licensing

• Give effect to the Charter;• Promote an efficient manufacturing, wholesaling

and retailing petroleum industry;• Facilitate an environment conducive to efficient

and commercially justifiable investment;• Create employment opportunities and the

development of small businesses in the petroleum sector;

• Ensure countrywide availability of petroleum products at competitive prices;

• Promote access to affordable petroleum products by low-income consumers for household use;

Challenges

• Evaluation of licences based on the objectives of the Act

• Promoting an efficient industry (Controller’s discretion)

The “System” Basis

• Predictable Margin –(RPI – X) basis

• Predictable cost structure

–Linked to indices

• Based on Cashflows

Licensing System

• Retail licence satisfies a number of conditions

–Viable business–Compliance to all

relevant laws

Prudent Investment Level

• Prudent value of business

–determines prudent investment levels

–Determines the appropriate type of infrastructure

Prudent Value

• Use NPV methodology

–Gives a realistic value of the business

–Determines appropriate “key moneys”

Retail licensing ‘system’

What NPV means

• Future cash flow discounted to the present value

Challenges

• Lack of understanding of the NPV

• Assumption used in calculating NPV

• Forecourt vs Convenience store

Who should apply?

• Section 2A(4) :-a) Manufacturing licence be owner of

property concerned or written permission of the owner

b) Site licence be the owner of property or written permission if a public owned land

c) Retail and Wholesale be owner of the business entity concern

Challenges

• Joint ownership of manufacturing facilities e.g. Sapref (BP & Shell); Natref (Sasol & Total)

Applicant lodge an application

Process of applying for a license

Application accepted?

Evaluation stage

DecisionAccept Decision

License issued

Appeal

Return application

LicenseDecline

NO

YES

Licensing under the PPA

90 days

(250 days )

By PostWalk in

• September crisis – last minute rush

• Annual information

Licensing under the PPA

Challenges

Conditions of licensing

• Manufacturing– activity must remain a going concern– manufacturer may only manufacture

petroleum products• within the maximum design capacity stated on its

licence

– maintain minimum working stock levels in compliance with applicable regulations

– comply with Charter– comply with the provisions of the fuel

specifications

Timelines

• Act operationalised – 17th March 2006

• End of transitional period -15th September 2006

• Evaluation period – 1st six months – 250 days – 2nd six months and after - 90 days

Licensing under the PPA

Section 2D - Transitional licensing provisions

• The Petroleum Products Amendment Act, 2003 – commenced on the 17 March 2006

• Any persons who qualify according to Section 2D must apply within six months from 17 March 2006 to be deemed a holder of a licence

Licensing under the PPA

Challenges

• Late applications

• Wrong documents attached

• Section 2D(4)(a) – e.g. Tax compliance

Licensing under the PPA

Section 2D

(2) Any person who, at the time of commencement of the Petroleum Products Amendment Act, 2003

(a) holds and is in the process of developing a site; or

(b) manufactures or wholesales petroleum products, or retails prescribed petroleum products;

Shall, subject to subsection (3), be deemed to be the holder of a licence for that activity.

(4)(a) An applicant contemplated in subsection (3) shall, on application, be entitled to be issued with a licence for the operation of the activity concerned if the applicant is in compliance with all national, provincial and local government legal requirements, that are in force immediately prior to the commencement of this Act for the operation of the activity concerned.

(b) Such applicant shall be subject to the general conditions of a licence set out in this Act, but not to any financial security requirement prescribed by regulation.

Licensing under the PPA

License Type Conversion New Evaluated Issued

Site 5587 194 500 70

Retail 5576 244 500 70

Wholesale 415 128 13 3

Manufacturing 27 2 1 0

Number of License applications accepted, evaluated & issued

Current focus is evaluation and issuing

Total number of applications received 12 173

Licensing under the PPA

Monthly targets for issuing License applications

Licence Type January February March April May

Site

5781

250 400 425 600 600

Retail

5820

250 400 425 600 600

Wholesale

543

0 25 45 100 150

Manufacturing

29

0 5 5 5 14

Challenges

• Compromise of BBBEE and SMME policies through fronting e.g. Cipro information differ from info contained in the Memorandum of understanding & Articles of association

• Lack of legal and law enforcement support in concluding prosecutions of transgressions successfully

• Applicants applying after due date• Temporary Licence applicants• Additional information

Challenges

• Applicants not providing correct information; e.g Telephone numbers; postal address

• Language barriers

• Use of agencies and oil companies by applicants

• Applicants using different business names

Challenges

• Traditional oil companies not paying the required licence fee

• Applicants threatening us

• PPAA not taken seriously by some industry players

• Resellers & “small” farmers

Way Forward

• Give applicants due date to provide information

• Give applicants due date to pay and collect licensing e.g traditional oil Co

• Set time line to use of application reference numbers

• Task 141 (Regulatory accounts & review price methodology)

• Prioritise new applications

Annual Submissions and Licence Renewal

• A licensed retailer, wholesaler and manufacturer must submit to the Controller, not later than the end of February of each year, information determined in the regulations.

• Pay the annual licence fee determined in the regulations before the anniversary date of the licence issued.

Challenges

• Non compliance to the regulation• Enforcement of penalties• Annual licence fee vs Annual information• Last minute rush

Future regulations

• Conditions relating to the advancement of HDSAs

• Obligation to hold, keep, furnish records and frequency

• Continuity of supply of petroleum products

• Specifications and standards of petroleum products

Fines

• As a last resort• 12. (1) Any person who contravenes a

provision of this Act, shall be guilty of an offence and be liable on conviction to a fine not exceeding R1 000 000,00, or to imprisonment for a period not exceeding 10 years, or to both such fine and such imprisonment: Provided that if a directive issued in terms of section 2A(2)(c) or (3) is complied with within the period specified therein, the person concerned shall be absolved from criminal liability.

Additional benefits of licensing

• Data provision & publication

• Improved security of supply

• Planning

• Secrecy avoidance

• Tourist information/Navigation (GPS)

• Authorise the Minister of Minerals and Energy to make specific regulations