AMEF welcomes the proposed amendments for the following reasons:

· If used correctly, the licensing system will go a long way in facilitating participation by Historically Disadvantaged South Africans in all wholesale and retail operations.

· The Licensing system introduces control over development of sites, which is currently not in place since the lapse of the RATPIAN.

· The assurance that vertical integration will be prohibited to the extent that such integration restricts the small business development and that focus should be placed on the promotion of small business opportunities and employment within this sector of the economy.

Overall, we believe the proposed amendments create the potential for a balanced industry and provides mechanisms to move from a regulated to de-regulated environment in keeping with the arms of the white Paper.

However, there are two areas where, although we agree with the motivation behind the provisions, we would like the Department to take note of our concerns:

I. Powers bestowed on the Minister are excessive, however these are in line with government strategy and overall principle of legislation making provisions for rapid developments.

2. Regulations to be created as a result of this Act will be the key to the way in which the industry is managed and controlled. Whilst this does create investor uncertainty, this is the preferred route to manage the proposed "controlled liberalisation" of the industry. We wish to specifically request that AMEF be consulted and play a role in formulating such regulations, as these will fundamentally affect the current structures and workings of AMEF members.

As requested, we wish to make the following commitments and highlight a few observations made with regard to the draft bill.

AMEF's response to the draft bill is based primarily on the following principles, some of which are already embodied in the criteria for granting licences:

· Any act or regulation should also take into account disparities that exist between the multinationals and the black oil companies regarding participation in the value chain. Most black oil companies at this stage are concentrated in the wholesale and retail part of the value chain. As a result of this disparity, black oil companies do not have access to refining margins. Black oil companies therefore need protection against new entrants in the form of non-fuel industry players. These players have other profit centres and will use fuel (the core business of black oil companies) as a loss leader to augment their other profit centres.

· Any act or regulation should not only promote the development of HDSA's but also tilt the playing field in favour of HDSA's.

· The objective of building small businesses must balance with the objective of creating sustainable black oil companies. The number of small business introduced should ensure that margins for small businesses are not eroded through proliferation, specifically in a deregulated environment. At the same time to ensure that black oil companies survive in a deregulated environment they need to have sufficient economies of scale to compete with the multinationals.

We think that the minister will be facing a large number of objections and lawsuits based on the power and discretion that lies with the minister:

· The role of the minister as the regulator remains too broad and all encompassing. Where previously the industry was to a large extent self-regulating in respect of business activities, the regulations are now at the sole discretion of the Minister.

· Although the minister delegates the authority to a position within the ministry, the fact that the minister is the first point of appeal is of great concern. Once the Minister has ruled, there is no further appeal other than to take the application to court. The possibility of many court cases is very likely.

· The delegation of the authority,- to an individual within the ministry, may result in a distortion of fulfilling the stated aims of the issuing of licenses.

An alternative would be to set up a review board to handle objections and appeals. The minister can consider the review boards decision before making the final decision. The objecting party must then use the normal judicial system to appeal against the minister.

The review board must be independent of the minister, to be credible. Assuming a credible review board, the process of appeal should be short and much cheaper than going to court.

In terms of Section 2B I, the objectives of the issuing of licences are set out. We believe that these objectives should be specific criteria and contain more detail. The objectives as stated are broad and open to interpretation.

This section provides an ideal opportunity to tilt the playing field in favour of HDSA's. The current RATPIAN provides for quota allocations to black oil companies only. The licensing should be based on the same mechanism.

We propose that licenses should only be granted to black oil companies. Multinationals who wish to expand their current business should only be allowed to do so through a BEE partner.

To ensure there is no misunderstanding, specific regulations that promotes and tilts the playing field in favour of HDSA's can be captured in a separate section to regulations.

The entry of new participants in the industry is not mentioned in any of the objectives of either the act or the regulations. AMEF believes that it is vital that current players in the industry such as Sasol, Mossgas and Petrosa must be provided with mechanisms to enter the industry. It is more important that this entry, occurs in an orderly and controlled manner. Should this not occur, the players that stand to lose the most will be the existing black oil companies that can least withstand a "bloodbath" in the market.

In entering the market however, these companies must be facilitating growth and the empowerment processes. The Act must set specific criteria in this regard so that the entry is transparent, orderly and occurs in manner that facilitates empowerment.

The bill should also make provision for the entry of international companies that may want to enter this market. These companies should only be allowed to enter through a BEE vehicle and with specific objectives to promote IIDSA's in line with the Liquid Fuels Empowerment Charter.

A separate retail licence can be used as a tool to promote HDSA's as entrepreneurs, and we support it for that reason. Separate licences however can also hinder progress if they are not handled efficiently

The new licensing regulations should also complement existing regulations required to run a typical petroleum business. For example, there are numerous regulatory requirements that must be complied with in order to build a retail site. Regulations such as EIA approvals, zoning, access approvals and compliance with health and safety already exist and take up considerable time and resources for approval. Therefore, when compiling regulations for granting licences, existing procedures must be taken into account to avoid duplication and creation of new barriers, particularly for HDSA's.

The department has an opportunity to favour granting of licences to NDSA's. To ensure there is no fronting, accreditation criteria to qualify as a HDSA can be set up. Once this criterion is fulfilled, the granting of the licence should be automatic. We appreciate fully that the latter would be incorporated in regulations and propose that a "scorecard" system be used to evaluate potential candidates.

This definition will create certain problems, as it is unclear in the overall licensing process as to who will hold the licence i.e. a person, an entity or the site. If the ownership of the licence vests with certain entities, this licence will potentially become a tradable commodity. The further complication in this instance is that unless it is clearly defined who is able to own the licence, that one piece of property could have a number of applications for licensing e.g. as envisaged, to "hold" means to own or lease the property. Naturally the owner and lessee will be separate parties so the ownership of the license will come under question.

Whilst it is more appropriate that the licence vests with the site, there are further complications around this issue, particularly when the underlying reasons for the licensing of the site are taken into consideration. If a license is issued for a site, there will only be a set number of licences issued in one given period, in an attempt to regulate and prevent the proliferation of ser'4ce stations.

However, if developers or oil companies become unwilling to develop the site, they must be penalised or Jose the license.

We therefore believe that the definition should be modified to ensure that the license for the site rests with the property. The other concerns should then be addressed through the appropriate regulations, which will be devised.

4.2 Section 1(e) - Definition of Wholesaler

This category opens certain problems in respect of the of business methods currently operating / followed in the liquid fuels environment. The description for Wholesaler does not adequately cover the full range or alternatively leaves areas open for wide interpretation.

Responsibilities of a wholesaler must be carefully considered and addressed when preparing conditions for licences, as indiscriminate issuing of licences can cause enormous problems for existing investors. Issues such as payment of levies and duties, control of product quality, Environment and Safety issues, particularly in respect of transportation of product etc must be taken into consideration

When considering the reality of the current operating environment of oil companies, there has been the emergence of a new sen4ce provider within the industry. This is the reseller, router or agent. These are small businesses primarily involved in the distribution of petroleum products to end consumers that have their own storage facilities, but are not retailers. The core business is primarily a distribution function, where in oil companies in the traditional sense (oil majors) sell product directly to the reseller in bulk. The reseller then distributes on his own account and to his own customer to commercial customers, agricultural facilities, illuminating paraffin etc.

As a first point of departure, the term bulk needs to be defined. The quantity

recommended is 210 litres and above to be classified as bulk. Larger quantities provides enormous scope for "unlicensed" operators to work outside the Act and regulations.

The broad definition will lead to a proliferation of wholesalers who will become difficult to control. This in turn will create enormous problems relating to the Health, Safety and Environment.

A further concern is that wholesalers will be allowed to sell indiscriminately to

any retailer. Although this is desirable in promoting SME's it creates the

following unintended consequences:

· Oil companies rely on the service station network to improve cash flows. Black oil companies rely more heavily on such cash flows whilst they are trying to penetrate the commercial market. Service stations are built on long term lease commitments, which are jeopardised as a result of "free for all" legislation.

· Black Oil companies will be the hardest hit if this issue in not properly legislated in a regulated environment.

· Oil Companies and specifically Black Oil companies will not be able to develop a viable retail network under this scenario.

· As mentioned above a proliferation of wholesalers will also increase the level on health safety and environmental problems.

This issue forms the cornerstone of the current legislation, which is aimed at promoting BEE and in practice will instead lead to its premature demise.

We therefore propose the inclusion of an additional licence category, which will be the reseller. The reseller will be defined as - "sale of petroleum products purchased from a wholesaler for sale in bulk to an end consumer for own use

We propose that any reseller caught delivering fuel into a retail site that is not linked will stand to pay heavy fines and risk losing their licences for repeated offences.

The legislation allows for price control in all legs of the value chain, which in our opinion is far too broad. Price control should be limited to control at the pump for sales to motorists / end consumer since this will be more in line with the objective of moving towards a deregulated environment. This approach will also create the flexibility for deals to be made between manufacturers, wholesalers, reseller and retailers.

The holding of stock will have a greater negative impact on BEE Oil companies who do not own any storage facilities and therefore the implications of such a prescription must be carefully considered. Provision for such a step is acceptable, but the implications such as costs of stock holding and impacts on various participants must be considered.

The definition of vertical integration needs to be included for clarity and full understanding. We believe that this section should be re-worded as it currently' reads that a manufacturer, wholesaler and retailer will have to be separate entities. Whilst the industry is moving towards separate entities, it is concerning that the manufacturing and wholesaling sectors will be forced to operate as separate entities and that vertical integration is prohibited. If separate entities for manufacturing, wholesaling and retailing are required, substantial changes will have to be made within the industry. Changes required as a result of separate entities will lead to higher transaction costs and diminished profitability. Having stated our concern, we still believe that it is acceptable to prevent vertical integration into retailers, as the opportunities for small businesses remain an important consideration for BEE

It is not clear whether the list of objectives to be taken into consideration is listed in order of priority or whether the importance of each objective will be left to the discretion of the Controller. The reason for raising this is that some of the objectives are naturally in conflict with each other. Where this is the case the issuing of licences will become a highly contested matter, resulting in a high percentage of appeals.

Our proposed prioritisation of the objectives is as follows:

I. Promoting advancement of historically disadvantaged South Africans

2. Creation of employment opportunities and development of small businesses in the petroleum sector

3. Ensuring countrywide availability of petroleum products at competitive prices

4. Promoting an efficient petroleum industry (Omit retail - refer below)

5. Facilitating an environment conducive to commercially justifiable investment

The word "retail" should be omitted from this objective, as the entire industry is required to be efficient. The licensing relates to all aspects of the industry and therefore to refer to retail only is restrictive.

Provision is made for validity, of a license as long as the licensee remains active in the licensed activity. More clarity, is required as to when and under what circumstances a licensee will be declared "inactive".

4.7 Transitional Licensing Provisions Reason for Provision

Whilst it is understood that provision is made for a transitional licensing system, the concern with the proposed mechanism is that it will not alter the status quo in any way. Changes and objectives to be reached in terms of this Act will only be applicable to new entrants. Provision should be made to enable regulation to encourage existing operators to meet the objectives of the Act.

The definition of "hold" includes the wording "approved by appropriate authorities for use of a site".

This provision is vague as there are numerous approvals which are required by various authorities before a site is finally able to operate. Approvals include items such as occupation certificates; permission to store fuel, etc. Since these approvals will only be provided after the service station is complete it is impractical to implement the above provision. The words highlighted above should therefore either be omitted, or enhanced to include the specific approvals anticipated, e.g. principal access approval, approval of EIA scoping report.

We suggest that zoning will be adequate, as the period provided for the process of developing is 540 days, any sites which are not constructed within this period will either lose the licence or alternately apply for an extension, in which case the extension will be considered only if progress has been made in approvals process

If a person is not in compliance with all legal requirements, this should not automatically prevent the granting of the licence, but there should be an opportunity to rectify the non-compliance within a stipulated period of time (say 6 months).

We are concerned that the appeal is again referred to the Minister. Whilst it is conceivable that a separate body will be set up to hear matters on appeal, the potential that the same or similar parties will make the recommendations to the minister, hence there will be no substantial changes in the appeal bearing. The risk that this creates is that the issue will then be referred to the courts, creating a long legal process.

therefore recommend that appeal hearings be referred to an independent body such as the National Energy Regulator.

According to section 12 A (3) the time taken by the Minister to decide will be prescribed in regulation. We agree with this provision, however, we request that the time allocated for such a decision be reasonable and not hinder the progress of the applicant.

The objective of the Bill clearly signifies that the Department is committed to bringing about orderly change to the industry and promoting BEE.

We would like to thank the Department and the PPC for the opportunity to present our views on a critical piece of legislation that has far reaching implications for both the industry and the country.