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

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

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

4. Retail Fuel Industry Overview Highly Regulated Industry Regulatory Accounting System(RAS) to be implemented by December 2013 Approx. 4200 Service Stations Approx. 6000+ retail licenses issued Competition is Brand Based High Price Volatility Importance of Security of Supply

5. 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

6. 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. 56 000 attendants Approx. 17 000 other staff Very high employee turnover Constant investment in training

7. 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

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

9. 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

10. 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 = R400 000 Average 8 drops per month = R3 200 000 Increasing cost to do business

11. 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

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

13. Stakeholders Inconsistency with RAS implementation Increase in vertical integration Increase in cross subsidisation No guarantee on security of supply Bank guarantee to cover 1-2.5 drops Tenure not adequate to secure ROI No standard “Business Valuation” model No security on goodwill Retailer to insure Oil company equipment

14. 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

15. Health, Safety & Security

19. 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

20. 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

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

22. Financial Impact On Fuel Retailers Security of Supply - Standing dry on 6 000 litres per month for 12 months @.992cpl = R71 424 per annum

23. Financial Impact On Fuel Retailers Fuel Price Changes - R1 increase in price per litre @ 40 000lt per delivery = R40 000 extra for next fuel delivery and an increase in the fuel guarantee

24. Financial Impact On Fuel Retailers Different Payment Methods - The use of Credit Cards have changed the cost of cards by approx. 200%. On a 300 000 lt service station the real increase is approx. R11 000 to R33 000 per month as a result of the use of credit cards

25. Financial Impact On Fuel Retailers Armed Robberies - One major armed robbery could close the doors for 2 weeks = R170 000 loss in income

26. Financial Impact On Fuel Retailers Armed Robberies - One major armed robbery could result in an actual loss in fuel sales of 50 000 litres per month = R600 000 loss in income per annum

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

28. 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

29. 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

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

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

32. 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

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

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

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