Oil firms are finding their way around empowerment
May 25, 2004
By Edward West
The problem with doing something first is one lacks the benefit of hindsight to guide one's decisions.
So it is with the petroleum industry's black economic empowerment charter, drawn up in November 2000 - the first of a host of such charters.
The charter basically spells out, on a voluntary basis, empowerment targets for market participants.
A problem with the charter is that the department of trade and industry later adopted its own proposals that raise empowerment targets above that stated in the oil charter.
Because these charters are voluntary, on the face of it, the target mismatch doesn't seem like a big deal.
But a recent complaint about the mismatch in the shareholding targets highlights some of the problems.
The charter proposes a black shareholding target of 25 percent over 10 years, while the department of trade and industry says it has to be over 50 percent.
The problem, of course, is that most of the large oil companies - BP, Shell and Caltex - are subsidiaries of international groups.
Any shareholding above 50 percent and the parent loses control over its asset - a far different investment decision than selling off a 25 percent stake.
Then there are the problems caused by the two targets.
Consider a tender to supply fuel to a large parastatal. Normally all the oil companies would tender for it.
But in one instance, the allegation goes, the tender was won by a 100 percent black-owned group, even though its tender was a few cents more than the competing tenders.
The oil firms had met their charter empowerment targets but they had missed the state's targets. And the fact that the black-owned group bought the fuel from one of the oil majors, as it must have done, was irrelevant.
All that happened was the enrichment of the middleman and the parastatal paid a higher price. The oil group was none the worse off.
Which is why, no doubt, the issue of procurement is being revisited by the oil industry. The intention is to include crude oil procurement in the charter empowerment targets.
It goes like this: if a black trader, and there are several of them, procures crude oil or exports fuel, then the oil company can automatically designate the deal as being empowered.
It will not be so easy for the large oil groups to use black oil traders, mainly because most of their procurement is through an international, centralised procurement plan and many oil groups have been burnt by fraudulent traders using fake letterheads and such-like to procure an oil deal.
But talks on the formation of an industry-funded supplier development programme mean oil firms can now theoretically train their own traders - so they can win government tenders by paying an independent black trader a commission. PetroSA, the state fuel group, followed this principle when it recently awarded a feedstock tender to an empowerment firm.
You don't need infrastructure to trade crude oil, just the internet and some other good connections, usually political, to source or supply the oil. EW
Illovo
This sugar producer's 41 percent plunge in attributable profit for the year to March sounds a warning knell for the industry as drought, the strong rand and a low world sugar price combine to threaten the industry.
Tongaat-Hulett, whose first half ends in June, could report an even grimmer set of financials as its sugar production is down 25 percent from the comparable period last year, while Illovo's was only cut by about 14 percent.
While the two groups have very different profiles, sugar remains the pivotal pillar in the Tongaat-Hulett business unit triangle, which includes African Products and a half-share in Hulett Aluminium.
Tongaat-Hulett has had a rough first half, with continuing forward maize contract problems adding to its not-so-sweet sugar outlook.
However, aluminium looks set for a fairer future, as volumes and margins improve in line with the world market, which has already lifted profits for competitors Alcan and Alcoa.
While there is room for improvement, the multibillion-rand Hulett Aluminium expansion in Pietermaritzburg could soon start reaping the rewards of the investment.
Crookes Bros, the agricultural group with significant interests in sugar, reported a 21 percent drop in profit for the six months to September and recently cautioned that headline earnings for the full year would lower.
Retrenchments have already started, with Tongaat-Hulett tightening its belt at its administrative centre and closing the Entumeni mill.
Illovo managing director Don MacLeod said last week that the strong rand was threatening some of its local expansion projects and operations.
While shareholder profits must be protected, the trend in an industry that provides so many jobs is extremely worrying. MI
American Airlines
This carrier has parted company with the agent that represented American in this country since the 1970s. Its business is now being conducted from a Mind Pearl call centre in Cape Town - one of five worldwide.
No doubt the information the call centre gives out on behalf of its customers, which include several airlines, is clear and comprehensive. But a request for information about the call centre itself seemed to cause panic.
After several calls, including pleasant discussions with a manager who promised return calls from people better placed to give details, Business Report succeeded in talking to an employee of American Airlines from London. She gave only her first name and said that questions and an outline of the story to be written would first have to be approved by the corporate press office.
The information that the story was to be about the call centre itself resulted in a similar response: questions should be e-mailed to the sales manager, who was away, and he would arrange for the article to be written by the Mind Pearl press office.
A surprisingly paranoid response from people in the communications industry. Other call centres, including that of Lufthansa in Cape Town, are only too happy to talk about themselves. AD
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