Managing the total change
July 12, 2003
By Max Gebhardt
Total South Africa and its chief executive, Didier Harel, have three reasons to celebrate this month - the company has just completed its black economic empowerment (BEE) equity transaction, Paris-based parent TotalFinaElf has changed its name to Total and Bastille Day happens next week.
As the largest French investor in South Africa, the company has been at the forefront of transformation in the R80 billion-a-year oil industry, in which Total is a significant player with a 12 percent market share.
In the 25 years he has worked for oil companies in Africa, Harel says the past couple of years have been the most challenging and exciting, mainly because of the spice added by the need to transform the company in line with the liquid fuel charter.
As head of a company in a closely regulated sector of strategic importance, Harel has to manage a sophistcated business that ranges from oil refining to fuel retailing and that handles products from liquid gas, petrol, diesel and aviation fuel to lubricants, cosmetics and agricultural fertilisers.
---------------------------------------------------------------
BR Oil is quite an emotive topic the world over. How do you as a major player in this industry see these debates?
DH It is true that over the years oil has become a very hot topic because one, it is a strategic commodity [and] two, supply and demand can be affected by sociopolitical and geopolitical upheavals.
It is true that everyone's eyes are focused on the oil price on a daily basis. What we are seeing right now is a lot of volatility in prices. The markets are quite nervous.
I think new Iraqi production expectations have not quite materialised just yet and international developments can add to the volatility.
It is particularly important to realise that when you look at developing countries this volatility can have negative developments.
As far as South Africa is concerned the strengthening of the rand has helped us considerably. You might have noticed over the past couple of months that despite the Iraqi war and ensuing volatility [our] prices have been relatively stable.
I think South Africa has been spared from this volatility due to the rand strengthening.
BR You have been working in Africa for a long time, first with Exxon and now Total.
DH I think I have been in Africa about 25 years - 14 with Exxon, 11 with Total - either working in the field or based in the African headquarters of these two multinational groups.
BR Is there a difference in working for a multinational in emerging markets?
DH This is the fascinating part about the African continent insofar as the oil industry is concerned, as it is a very diverse field in terms of regulatory frameworks, in terms of the specifics of the markets.
For example, some markets in Africa, such as Morocco and Senegal, have very high growth in liquid petroleum gases (LPGs) and others less. If you take LPG consumption per capita you will see wide variations. There is also a wide range of types of markets and degrees of sophistication.
But I would say my current assignment in South Africa is absolutely fascinating for many reasons.
You have the whole spectrum of refineries and marketing activities in South Africa - sophisticated refiners and a nationwide network of distribution terminals. [It is] a very sophisticated market but with fairly modest growth overall, mainly centred on diesel but stagnant on gasoline.
At the same time what makes the oil industry in South Africa a little bit more spicy than elsewhere is that you have got a big transformation element that goes with it, which makes it fascinating.
BR I want to come back to transformation but it strikes me as interesting that you say there has been no growth in the petrol market. Why is that?
DH The new vehicle growth is more and more centred on dieselisation of what we call the vehicle park, especially with the taxi recapitalisation plan on the cards. You see a fairly significant growth in diesel - you can average it around 4 to 5 percent [a year] - so I think there is a shift in additional growth from gasoline to diesel.
Also I think gasoline is linked to purchasing power and people tend to be more conscious about how much gasoline they spend on their car, which they tend to relate to their net disposable income. [That is] one plausible reason for the slow growth.
BR With fuel prices regulated, how do you gain market share if you can't compete on price?
DH That is an interesting question. You are quite right, but let's not lose sight of the fact that while gasoline prices are regulated, diesel prices are not. So you have a certain amount of price influence on the whole retail segment game.
I reckon there are two main areas where you can differentiate yourself from your competitor.
The major one is service. I think service at the pump, what we call forecourt service, is absolutely key to this market environment. This is definitely an area where as a consumer you feel the difference.
Then there is a certain amount of differentiation through products, although you are sometimes constrained at refining level and logistics. You can market leaded and unleaded gasoline although that is sold by everybody and you have to a certain extent the ability to market low sulphur diesel, but that is mainly around Gauteng and Mpumalanga as the production is located there.
BR Would you like to see the petrol price deregulated?
DH Well, this is the final objective but you have to be aware that this would be accompanied by substantial rationalisation of the service station network. Only the big stations would survive and that would be at the cost of jobs. Moreover self service is a final consequence of deregulation and this could result in even more job shedding.
You've also got black economic empowerment initiatives being implemented right now. All that has to be viewed in context.
Most probably deregulation will come although I'm sure that the government will be looking closely at the potential socioeconomic problems related to job losses.
BR The oil industry appears to have implemented black economic empowerment quite smoothly when compared with other industries like the mining industry and the financial services industry, which is only now discussing black empowerment. Why was that?
DH The oil industry has been a pacesetter in sectoral implementation of black economic empowerment. I would like to pay particular tribute to the minister of energy and minerals, who presided over the process that kick-started the transformation of the oil industry with a great deal of wisdom and foresight.
I think the whole starting point was in November 2000, when a voluntary liquid fuel charter was signed by the government and the oil industry, after frank and productive negotiations.
It is extremely clear that that charter is the road map for transformation in our industry and within our company.
I think it was such a clear and realistic framework, to which all parties were firmly committed, that was conducive to getting empowerment implemented in the industry. This charter looks at three major components - equity, human resource development and procurement.
We must not lose sight of the fact that the charter did not just spell out the road map for equity restructuring with a milestone figure of 25 percent within 10 years.
The transformation scope was much wider than just that. It was a very broad brush approach and I do think it is a very sensible road map for transformation.
BR Your empowerment partners have a 25 percent stake. How did the Paris head office react to giving away 25 percent of the equity in one of its subsidiaries? Did it accept that this was the way it had to go?
DH Total as a group has a very long experience in Africa. The birth of the group in 1922 was in the Middle East and in North Africa, and the Middle East and Africa became the cradle of its development in the 1960s.
The characteristics of Total are that it is a pragmatic multinational and is extremely sensitive to local specifics. Last not but least, Total has a lot of commitment to the African continent as a whole and to South Africa in particular. For Total as a group to embark on an empowerment initiative was a logical step in its strategic development to assist its subsidiary in fulfilling the social challenges of modern South Africa.
It was something that was considered normal.
BR As you said there are three aspects to this transformation. You have done the one - found an equity partner - how far down the line are you on the others?
DH We have achieved significant headway in promoting employment equity within the company. In management, professional and technical staff, that is middle management and high management, our starting point was 16 percent in 1999. At the end of May 2003, 44 percent of that key segment of our staff, the key population of our staff, came from previously disadvantaged groups.
On affirmative procurement the percentage of our annual spend on goods and services sourced from affirmative suppliers in 2000 was only 2 percent. We boosted that figure at the end of last year to 21 percent, which is quite commendable.
A lot has been achieved but I'm convinced that we must and can make greater strides in these fields.
The current transformation drive resulting from the recent implementation of our black empowerment transaction will certainly contribute to our company making further significant inroads in these areas.
After three years in South Africa I think this has been the most important part and the most exhilarating part of my managerial challenge and probably the biggest learning part for me has been the whole implementation.
The managerial challenge I face here is an extremely daunting one because of the many facets involved. The challenge we have embarked on is to radically transform and change a company to fully adapt to a multiracial and multicultural environment.
BR Brain Joffe, the chief executive of Bidvest, said the other day that empowerment was a business imperative. What was it like when you sat down with your newly constituted board and you now had people from different backgrounds?
DH More than being a business imperative for Total South Africa, it is a great opportunity for growth in the new sociopolitical context of South Africa.
I think that diversity at board level significantly enriches the debate. It must be pointed out that the new Total South Africa board, after the finalisation of our black empowerment transaction, now contains four black directors, including the chairman, out of a nine-member board.
This gives different perspectives of the business and alignment of views on where we need to go. It generates very interesting and productive discussions on where we are going as a company. That is a fact.
The other shareholder in Total South Africa is Remgro.
If you take the league of oil industry participants that are controlled by a foreign-based parent multinational, Total Group has the highest South African equity component in its share capital.
As I'm talking to you today, Total, the French group, has a 50.1 percent share, Tosaco has a 25 percent stake and Remgro has a 24.9 percent stake. So we have a 49.9 percent South African stake and we are extremely proud of that.
|
|
