Petroleum Licensing

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Petroleum Licensing

• Parliamentary Portfolio Committee Briefing
• 14 March 2007

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DME Team

• Victor Sibiya
• Magdeline Rasego
• Zibele Sokabo

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• Licensing

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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

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Challenges

• Wholesaling small quantities of less than 1500
  litres per transaction
• Distribution and Storage facilities used for
  retailing
• Joint ownership of manufacturing facility

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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

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Challenges

• Development of site without site licences
• Concluding sale agreement without an appropriate
  licence
• Retailing prescribed petroleum products without
  an applicable retail licence

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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

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Challenges

• Evaluation of licences based on the objectives of
  the Act
• Promoting an efficient industry (Controllers
  discretion)

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Retail licensing system
The System Basis
Prudent Investment Level
Prudent Value

• Predictable Margin
• (RPI X) basis
• Predictable cost structure
• Linked to indices
• Based on Cashflows

• Prudent value of business
• determines prudent investment levels
• Determines the appropriate type of infrastructure

• Use NPV methodology
• Gives a realistic value of the business
• Determines appropriate key moneys

Licensing System

• Retail licence satisfies a number of conditions
• Viable business
• Compliance to all relevant laws

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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

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Who should apply?

• Section 2A(4) -
• Manufacturing licence be owner of property
  concerned or written permission of the owner
• Site licence be the owner of property or written
  permission if a public owned land
• Retail and Wholesale be owner of the business
  entity concern

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Challenges

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

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Process of applying for a license
Applicant lodge an application
By Post
Walk in
Application accepted?
NO
Return application
YES
Appeal
Evaluation stage
90 days (250 days )
Decision
License issued
License Decline
Accept Decision
Licensing under the PPA
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Challenges

• September crisis last minute rush
• Annual information

Licensing under the PPA
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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

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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

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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
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Challenges

• Late applications
• Wrong documents attached
• Section 2D(4)(a) e.g. Tax compliance

Licensing under the PPA
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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
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Number of License applications accepted,
evaluated issued

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
Current focus is evaluation and issuing Total
number of applications received 12 173
Licensing under the PPA
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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
Licensing under the PPA
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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

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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

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Challenges

• Traditional oil companies not paying the required
  licence fee
• Applicants threatening us
• PPAA not taken seriously by some industry players
• Resellers small farmers

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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

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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.

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Challenges

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

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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

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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.

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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