Written submission to the Portfolio Committee on

NIC Submission
Submissions on to the Petroleum Products Amendment Bill (B25 – 2003)

The National Industrial Chamber (NIC) is affiliated to the National African Chamber of Commerce (NAFCOC).

We represent the small and medium sized manufacturers, predominantly from the ranks of previously Historically Disadvantaged South Africans (HDSAs).

Our constituents are the self-employed or owners of small manufacturing concerns. It is acknowledged by Government that this sector of the economy is of vital importance. It is from our ranks that future black-owned large manufacturing and manufacturing services companies will emerge.

We are writing to the Portfolio Committee as a matter of urgency and with regard to the Petroleum Products Amendment Bill. In the memorandum published as an attachment to the bill some of its objectives are stated as follows:

Objects of the bill

One of the main objects of the Bill is to give effect to the said White Paper and in doing so to provide for a licensing dispensation that includes refiners, wholesalers and retailers conducting business in respect of petroleum. The Bill seeks to authorise the Controller of Petroleum Products to issue the licences. In issuing a licence the Controller will have to give effect to the following objectives:

Promoting an efficient and competitive retail petroleum industry

Facilitating an environment conducive to commercially justifiable investment

Promoting advancement of historically disadvantaged South Africans

Creating employment opportunities and the development of small businesses in the petroleum sector, and

Ensuring countrywide availability of petroleum products at competitive prices

The Bill seeks to extend the Minister’s power to make regulations. In terms of this provision, the Minister will be able to prohibit business practices which are in conflict with the objectives referred to in paragraph 1.3 above.
In terms of the regulations envisaged, the Minister will be able to—

ensure the continuity of the supply of petroleum products;
prescribe the specifications and standards of petroleum products;
prohibit the blending or mixing of petroleum products with other substances which will affect the standards of petroleum products or which is done in order to avoid a tax, duty or levy;
prescribe measures for the rehabilitation of land used in connection with any licensed activity.

Our submission focuses on the second, third and fourth objectives of paragraph 1. 3 of the memorandum that we wholeheartedly support. What it proposes is welcomed as a critical step in the ongoing implementation of the Charter for the South African Petroleum and Liquid Fuels Industry on Empowering Historically Disadvantaged South Africans in the Petroleum and Liquid Fuels Industry.

NIC’s constituents have the skills needed by the oil industry and the refiners in particular as we represent welders, boilermakers, fitters and turners and others involved in SMME metal working and small engineering activities.

It is widely acknowledged that these are among the skills lacking in South Africa and any opportunity to expand this skills base must be taken advantage of. We believe that there is tremendous opportunity in the petroleum industry for the advancement and development of these skills.

We strongly welcome Government’s commitment to assist in developing opportunities for us to play a more significant role in the South African economy, which has hitherto been extremely difficult.

Our concern however is over the ramifications of points 1.7 and 1.8 of the memorandum. In terms of the regulations envisaged, the Minister will be able to, inter ala-

prescribe the specifications and standards of petroleum products.

This objective is given effect to in the new section 12C introduced by the bill in which it states the Minister (of Mineral and Energy) may, without derogating from his or her general regulatory powers, make regulations regarding the specifications and standards of petroleum products.

To understand our concern we draw the Portfolio Committee’s attention to the Department of Mineral and Energy Affair’s budget speech in 2002 in which it was announced that the Cabinet had recently approved the phase out of lead from petrol by 2006. It is our understanding that the Petroleum Products Amendment Bill will give effect to this decision.

However this decision to phase lead out of petrol by 2006 needs to be reviewed as a matter of major significance.

While everyone recognises the environmental benefits of a lead phase out (LPO) we do not believe that this has been done scientifically in South Africa.

In addition we do not think the LPO has been properly assessed with regards to its regulatory impact on facilitating an environment conducive to:

commercially justifiable investment

promoting advancement of historically disadvantaged South Africans

or in creating employment opportunities and the development of small businesses in the petroleum sector.

The phasing out of lead has many social and economic consequences particularly on HDSA’s.

Accordingly we submit that the LPO Cabinet approved date of 01 January 2006 directly contradicts the objectives as laid out in point 1.8 of the Petroleum Products Amendment Act.

We therefore urge the Portfolio Committee to ensure that the Bill is not amended without a firm commitment from the Minister that the Lead Phase out date of 01 January 2006 will be reviewed, and that proper and due process is followed with regard to the assessment of this decision across the full range of its socio-economic and job creation impacts.

As mentioned earlier, a proper assessment of the impact of the LPO has not been conducted. However, since the Department first publicly announced it, its impact has become clearer in that:

the South African Petroleum Industry has announced it will cost R10 billion and that this cost "will be passed on to consumers". We understand that this colossal cost may in fact increase to R 15 billion as the deadline approaches.

In the Petroleum Products Amendment bill its states the financial implications for the State are of the magnitude of R 600 000 for additional posts. NIC says in fact the financial implications are between R 10 and R 15 billion for the South African motorist. Before that cost burden is transferred to us we would like process to be transparent, diligent and proper.

In addition, the South African Petroleum Industry has said that faced with a 01 January 2006 deadline refiners will have to chose between trying to reconfigure their refineries to produce only unleaded petrol by then, or to import or "simply to close down".

To make the 01 January 2006 deadline refineries also estimate that 50% of the money spent will have to go to the importation of foreign skills to make up for the skills shortfall as all refineries try to meet the deadline. One refiner concedes this may in fact rise to 75%.

This means that a cost of between R 10 to R 15 billion is going to be passed on to the South African motorist, while between 50 - 75 % of those proceeds are going to flow out to overseas skilled contractors.

NIC would like to voice its strongest possible objection to this.

If we must remove lead from petrol then the LPO is a once off opportunity to develop a skills base of welders, metal workers, boiler-makers and the like – NIC’s constituency - and then keep these skills in South Africa.

We doubt that the environmental concerns are so great that a 01 January 2006 deadline must be met at a cost of R10 to R 15 billion to us. There are plenty of more dangerous products around. Lead has been used in petrol since the 1940s, it has a track record of product stewardship and can be safely managed in South African over an extended deadline for its removal.

However if it is environmental concerns driving LPO then we draw the Committee’s attention to the National Environmental Management Act, 107 of 1998 that provides that the principles set out apply to all organs of state that may affect the environment, and shall apply alongside all other appropriate and relevant considerations including the State’s responsibility to respect, protect, promote and fulfil the social and economic rights in Chapter 2 of the Constitution, and in particular the basis needs of categories of persons disadvantaged by unfair discrimination.

An extended deadline for the LPO, which would naturally track the introduction of catalytic converters over the next three to five years, would allow South Africa to develop a much needed skills base. It would also save the motorist money as the reconfiguration could be done more cost effectively with each refiner working to a timetable that allows them to maximise efficiencies.

We trust in the Portfolio Committee to give our submission their full and due consideration and we sincerely hope our concerns are factored into a final decision,

Yours sincerely

Cleo Mtshali

CEO

The National Industrial Chamber