Total South Africa and Tosaco

1
Total South Africa and Tosaco

• TSA is a signatory to the Liquid Fuels Industry
  Charter.
• TSA was proactive in the creation of Tosaco, a
  BEE consortium
• established for acquisition of 25 of TSA.
• In compliance with the Charter the transaction
  covers all of TSAs areas of operation (including
  refining).
• Transaction is based on fair value, future TSA
  cash flows with external funding and strong
  support from TSA.
• Transaction completed on 30 April 2003

2
Tosaco

• TOSACO PRESENTATION TO THE PARLIAMENTARY
  PORTFOLIO COMMITTEE ON ENERGY
• PURPOSE OF PRESENTATION
• To highlight potential detriment of proposed
  legislation (in
• Its current form) to SAs inland refineries and
  to BEE oil
• Industry entrants who are/may be in partnership
  with inland
• refiners.
• To make a case and representations in favour of
  maintaining the
• Principle of Transport Cost Neutrality, whereby
  product
• transport costs are currently equalised i.r.o.
  coastal and inland
• liquid fuel refiners.

3
Tosaco Constitution and Charter Compliance

• TOSACO is a BEE consortium constituted in terms
  of a Shareholders Agreement signed on 30 January
  2003
• Broad based (women the disabled new industry
  players)
• Leadership with industry expertise and focus
• Ability to provide value addition to TSA through
  operational participation
• 12 separate black empowerment entities - 91.8
• Development and Employee Trusts 8.2
• Strong leadership and control vesting in Calulo,
  SouthBase and Capital Oil (industry expertise,
  business acumen and womens representation).

4
Tosaco Constitution and Charter Compliance

• Ability to call on all other consortium members
  on an ad-hoc basis to assist TSA and Tosaco with
  various initiatives.
• Strong transformation tools in the Development
  and Employee Trusts
• facilitating skills development in the SA Oil
  Industry
• (scholarships and community projects).
• Mechanism for incentivising and retaining key
  employees.
• Share allocation in Trust under control of Tosaco
  control pool with input from TSA.

5
TOSACO Consortium - Shareholding
6
Tosaco/TSA - a value adding partnership

• Tosaco transaction is structured to ensure
  sustainability, Charter compliance and to enhance
  both the BEE participation in the Liquid Fuels
  Industry and the TCS/TSA value.
• Active involvement of Tosaco in TSAs business
  oil industry (TCS) is core to the deal
• Board and management involvement (JMC).
• Actively securing existing and future wholesale
  and retail market share through the establishment
  of a new marketing company.
• Mechanisms to ensure close co-operation with
  Government and Industry in the determination of
  policy decisions affecting the Oil and Gas
  industries.
• Facilitating transformation within TSA
  (procurement employment equity etc.).

7
Tosaco a value adding partnership

• Tosaco, through its stake in TSA is now an active
  participant in the entire value chain of the SA
  petroleum industry. Which means
• An interest in Natref and crude oil refining.
• An interest in the petroleum pipeline industry
  (this provides product to depots and crude to our
  refinery).
• An interest in ensuring the profitable growth of
  the SA Oil Industry through appropriate Gvt
  interventions, especially for the benefit of
  HDSAs.
• Support for Gvt policies and legislation, e.g.
  the Pipeline Bill, insofar as these promote the
  above.

8
Tosaco Petroleum Pipeline Bill

• Tosaco agrees with stated objectives of the Bill
  which are compatible with the countrys vision of
  a transformed SA Oil Industry.
• However, the Bill, is not completely supportive
  of some BEE initiatives i.r.o. new BEE
  investments and in its current format it will
  seriously prejudice these investments.
• The Bill should take the BEE concerns into
  account and avoid unintended consequences
  regarding the Gvts stated policy on the
  participation and promotion of businesses of the
  HDSAs in the South African Oil Industry.
• From Tosacos viewpoint the Bill does not
  adequately address serious potential transport
  diseconomies to be faced by inland refiners as a
  result of the Bills promulgation.

9
Tosaco - Pipeline Bill - Entreaty

• Tosaco would like the maintenance of level-fields
  and competitiveness between Coastal and Inland
  refineries, especially from a transport cost
  point of view.
• The reasons for this entreaty are, inter alia
• SAs geography makes inland oil refinery
  investment distinctly uneconomical.
• The interests of the previous SA political regime
  imposed an investment distortion i.r.o.
  refineries. This was relieved through the cost
  Neutrality arrangement.
• The proposed regulatory framework seeks to favour
  coastal refineries against Natref. Thus ignoring
  the basis on which past capital investments were
  made and on which cost neutrality was agreed.
• The legacy handed to SA via the promotion of
  synthetic fuels alternatives validates the
  maintenance of transport neutrality even in the
  new dispensation.
• This would require that for Natref, for example,
  at least no money would be made or lost on
  transport. This means that the money recovered
  from the customer on transport should, at a
  minimum, be equal to the total cost of transport
  to supply that customer with product - or, on
  aggregate, the cost of transport of crude oil
  plus the cost of transport of refined product to
  the customer should be more or less equal to the
  same cost of transport to that customer as if the
  product had been dispatched from the coast.

10
Tosaco - Pipeline Bill - Entreaty

• The Bill should provide for inland refiners to be
  in a neutral transport cost position vis-à-vis
  coastal refiners and it should consider that the
  arrangement was an investment incentive which
  needs to be maintained whilst the investment
  subsists.
• This would mean, e.g. that, at least, Natref
  would make neither profit nor loss on transport.
  The money recovered from the customer on
  transport should, at a minimum, be equal to the
  total cost of transport to supply the customer
  with product - or, on aggregate, the cost of
  transporting crude oil plus the cost of
  transporting refined product to the customer,
  should be equal to the same cost of transport to
  that customer as if the product had been
  dispatched from the coast.

11
Pipeline Bill
Principle to be established The cost of
transport of crude, adjusted for yield (C) plus
the cost of transport of product from Natref to
aggregate depots (B) should at least be equal
to the cost of transport from Durban to the same
aggregate depots (A). In this way, from a
transport perspective, Natref would not be at a
disadvantage compared to a Durban refiner.
Natref to depots Cost of transport B
Depots
Natref
Durban to depots Cost of transport A
Durban to Natref Cost of crude transport C
Durban
12
Tosaco - Pipeline Bill - Entreaty

• Without these provisions the Bill and its
  implementation will be detrimental to the future
  of Natref and Tosaco, in that Natrefs overall
  transport cost of product will be more expensive
  than that of any coastal refinery.
• These extra expenses will give coastal refineries
  an unfair competitive advantage over Natref.
• This situation will have a direct bearing on the
  success or failure of Tosacos investment in
  Total South Africa.
• The unintended consequences will be BEE
  investment into an industry with shrinking
  margins due to the introduction of the BFP and
  escalating capital investment (clean fuels) and
  now transport costs.

13
Natref neutrality

• The entreaty is that Natref should not be
  disadvantaged relative to coastal refineries
• The proposed principle is that the dispatch
  pattern must be such that the monies recovered on
  transport ex -Durban to destination should equal
  the monies expended on crude ex-Durban to Natref
  and monies expended on product transfer ex-Natref
  to destination - however in practice a small
  amount of money is recovered.
• Future Achilles heal because of the present
  grace of regulatory authorities - principle
  could be threatened under a new pipeline
  regulatory regime