Portfolio Committee on Energy “Downstream Liquid Fuel Sector” SAPRA - Gerrie Lewies 24 July 2013

Agenda Retail Fuel Industry Overview Challenges Facing Fuel Retailers Financial Impact on Fuel Retailer Our Way Forward Our Strategic Intent

Agenda Retail Fuel Industry Overview Challenges Facing Fuel Retailers Financial Impact on Fuel Retailer Our Way Forward Our Strategic Intent

Retail Fuel Industry Overview Highly Regulated Industry Regulatory Accounting System(RAS) to be implemented by December 2013 Approx Service Stations Approx retail licenses issued Competition is Brand Based High Price Volatility Importance of Security of Supply

Retail Fuel Industry Overview Diesel not regulated Use of Diesel Cards – vertical integration Fuel cross subsidisation 20% Increase in price per litre Price increase results in decrease in sales Retail margin is 7,5% of price per litre Currently large focus on convenience – not regulated

Retail Fuel Industry Overview Approx. 60% of sites are Oil company owned These account for about 70% of the volume NB - RAS developed for Retailer owned sites Approx attendants Approx other staff Very high employee turnover Constant investment in training

Retail Fuel Industry Overview Fuel Retailer most of the time on receiving end Regulatory lag with margin increases Fuel Retailer is the collection agent Service station (24/7/52) not a normal business

Agenda Retail Fuel Industry Overview Challenges Facing Fuel Retailers Financial Impact on Fuel Retailers Our Way Forward Our Strategic Intent

Challenges Facing Fuel Retailers V&SM BMR&CM SA&LM OPS/M HCM I&TM A&FM Labour Stakeholders H, S & S Competition Government Global & Local Economy Financial Institutions Service Station 24/7/52 Culture Relation ships Leadership Values

Global & Local Economy Increasing cost per barrel of oil Weakening of Rand/Dollar exchange rate Increase in Repo Rate Increase in CPI/PPI Average cost per fuel drop = R Average 8 drops per month = R Increasing cost to do business

Financial Institutions Rising interchange costs as a result of different methods of payment Rising insurance costs Excess insurance payments High overdraft charges Increasing finance costs Increasing cash deposit fees

Labour Increase in labour unrest Unintended consequences of strikes Unreasonable Union demands High unemployment Increase in shoplifting Increase in armed robberies

Stakeholders Inconsistency with RAS implementation Increase in vertical integration Increase in cross subsidisation No guarantee on security of supply Bank guarantee to cover drops Tenure not adequate to secure ROI No standard “Business Valuation” model No security on goodwill Retailer to insure Oil company equipment

Health, Safety & Security Increase in cost of health, safety & security standards & requirements Cost of contamination and/or spillage Unemployed target service stations for life support Financial impact of armed robberies

Health, Safety & Security

Competition Financial impact of new sites on current sites Oil companies compete with own brand Regulated environment prevents conditional selling Cost of marketing constraints Cost of Oil Companies competing

Government Administration barriers in the start up and running of a service station Cost of non compliance Lack of regulation enforcement Increase in rates & taxes Margin erosion Cost and/or safety of zone differentiation

Agenda Retail Fuel Industry Overview Challenges Facing Fuel Retailers Financial Impact on Fuel Retailers Our Way Forward Our Strategic Intent

Financial Impact On Fuel Retailers Security of Supply - Standing dry on litres per month for 12 = R per annum

Financial Impact On Fuel Retailers Fuel Price Changes - R1 increase in price per lt per delivery = R extra for next fuel delivery and an increase in the fuel guarantee

Financial Impact On Fuel Retailers Different Payment Methods - The use of Credit Cards have changed the cost of cards by approx. 200%. On a lt service station the real increase is approx. R to R per month as a result of the use of credit cards

Financial Impact On Fuel Retailers Armed Robberies - One major armed robbery could close the doors for 2 weeks = R loss in income

Financial Impact On Fuel Retailers Armed Robberies - One major armed robbery could result in an actual loss in fuel sales of litres per month = R loss in income per annum

Agenda Retail Fuel Industry Overview Challenges Facing Fuel Retailers Financial Impact on Fuel Retailers Our Way Forward Our Strategic Intent

Our Way Forward First of all we would like to take this opportunity to thank the Government Officials for their dedicated effort and hard work with the implementation of the Regulatory Accounting System

Our Way Forward To continue to work closely with Dealer Councils and Government Officials to implement the principles of RAS to help fuel retailers to secure their future

Our Way Forward To engage positively with all Stakeholders to develop win-win solutions to address the challenges facing the fuel retailers

Our Way Forward To work closely with all Government Departments to address the barriers to do business to ensure speed of service delivery

Our Way Forward To engage the Setas, Stakeholders, Government, Service Providers and the SA Fuel Retailers’ Network to continue to utilise service stations for the employment of the (18.2) unemployed, training & education and placement in the Fuel Industry Value Chain

Agenda Retail Fuel Industry Overview Challenges Facing Fuel Retailers Financial Impact on Fuel Retailers Our Way Forward Our Strategic Intent

To make a difference to the Fuel Industry Value Chain to unleash the power of potential of the SA Economy

Thank you for listening Gerrie Lewies - National Chairman - South African Petroleum Retailers’ Association