South African Petroleum Industry Association (SAPIA) : Spotlight

The South African liquid fuels industry has become an economic powerhouse. We take a deep dive into this eminent industry and how it is continuing to drive the nation’s economy on a robust and sustainable level.

SPOTLIGHT ON THE SOUTH AFRICAN PETROLEUM INDUSTRY ASSOCIATION

Located on the southernmost tip of Africa and regarded as a hotspot of biodiversity boasting some of the most diverse plant and animal life around the globe, South Africa is one of the most sought-after locations for tourists and entrepreneurs alike. 

In addition to the miles of turquoise coasts, lush winelands, and jagged cliffs that characterise the landscape for many, South Africa boasts a strong and consistently growing economy. 

While the country’s economic history has been mostly focused on mining and agriculture, there has been a steady shift towards new industries, highlighted by significant growth, high profitability, and low consolidation. 

The petroleum industry, which is one of the most influential sectors across the world, plays a major role in the South African economy. 

In response to its unparalleled importance, the South African Petroleum Industry Association (SAPIA) was established in 1994 under the auspices of former President, Nelson Mandela, in order to represent the collective interests of the South African liquid fuels industry and guide it into a new era of prosperity and collectiveness. 

The association plays a strategic role in addressing a range of common issues relating to the refining, distributing, and marketing of petroleum products, as well as promoting the industry’s environmental and socioeconomic progress. By proactively engaging with key stakeholders, providing research information and expert advice, and communicating the industry’s views to the government, the public, and the media, SAPIA has successfully fulfilled this role for three decades. The association continues to lead the way for the future of the sector. 

Headquartered in Johannesburg and overseen by a board of governors from the member companies, SAPIA is a voluntary trade association that represents its members on common interest issues in the petroleum industry. 

With important values that encapsulate the foundation of the association, including partnership, integrity, transparency, sustainability, and transformation, SAPIA prides itself on being a trusted partner within the petroleum sector for unions, associations, the government, and citizens. 

SAPIA’S VISION AND MISSION

• Vision: To be a respected, reputable, and value-adding industry association.
• Mission: Working together within the petroleum industry to promote inclusive socioeconomic growth.

Q&A WITH AVHAPFANI (FANI) TSHIFULARO, EXECUTIVE DIRECTOR, SAPIA

Avhapfani (Fani) Tshifularo, Executive Director of the South African Petroleum Industry Association, provides us with an insight into the organisation’s long-standing history and efforts to usher South Africa’s vital liquid fuels industry into a new era 

Tasked with the monumental responsibility of representing the collective interests of the South African petroleum industry, SAPIA aims to ensure that all interested parties clearly understand the contribution that the industry makes to the socioeconomic development of the country, and assist them accordingly. 

The association’s strategic objectives include understanding its stakeholders’ needs; providing expert information and assistance to stakeholders; contributing to policy formulation and implementation; promoting industry transformation, health, safety, security, and environmental (HSSE) leadership, and a fair regulatory framework for all; facilitating security of supply; and enhancing the reputation of the industry by communicating its contribution to socioeconomic progress. 

Celebrating its 30th anniversary in July 2024 – the same year that South Africa celebrates three decades of freedom and democracy – SAPIA is looking towards the future of the industry with optimism and expectations of further advancement and collaboration with its many petroleum industry members. 

Firstly, could you discuss the origins of SAPIA – when was it founded, and what was its initial vision?

Avhapfani (Fani) Tshifularo, Executive Director (AT): SAPIA was founded in 1994 with the primary purpose of representing the interests of the oil industry. Initially, it comprised five founding members: BP, Caltex, Engen Petroleum, Shell, and Total. Notably, PetroSA and Sasol were not part of the original founding group because the original five were compelled to enter into supply agreements with the latter two due to the structure of the industry at the time. Accordingly, the interests of these groups would not be aligned.   

However, in the early 2000s, both PetroSA and Sasol joined SAPIA, further expanding and strengthening the association. Over the subsequent decade, SAPIA expanded its membership to include other smaller wholesalers and liquefied petroleum gas (LPG) marketers. Today, SAPIA plays a pivotal role in advocating for the collective interests of the South African liquid fuels industry. Its mission is to foster inclusive socioeconomic growth within the sector.

What is your current take on oil production and exploration in South Africa?

AT: SAPIA primarily focuses on representing the downstream interests of oil companies and seldom comments on upstream activities. Nevertheless, we recognise that the current landscape presents challenges in terms of an insufficient regulatory framework to promote oil production and exploration. 

A compelling comparison can be drawn with Namibia and Mozambique, both of which have made significant strides in upstream developments. Regrettably, South Africa lags behind in this regard. It is imperative that we address these disparities and work collaboratively to enhance our nation’s position in the oil and gas industry. 

With the association’s 30th anniversary coming up, how has SAPIA seen the industry evolve over the years, and how do you see the South African energy sector developing over the future?

AT: The restructuring of the liquid fuels industry was largely outlined in the energy white paper published in 1998. This document envisioned three phases to be completed before achieving full deregulation of the industry. The first phase included several key objectives: 

• Sustainable representation: Ensuring the sustainable presence, ownership, and control by historically disadvantaged South Africans in approximately a quarter of all facets of the liquid fuels industry. This goal was achieved by adopting the Liquid Fuels Charter in the early 2000s, and subsequently incorporated into law via amendments to the Petroleum Products Act. 
• Synfuels arrangements: Facilitating arrangements between synfuels producers and marketers of crude oil-based fuels to uplift and market synfuels. This objective has also been successfully met.   
• Legislation implementation: Introducing legislation to give effect to the cornerstones of government policy, including protecting “full service” and the equitable participation of small businesses in the industry. The Petroleum Products Act underwent amendments in 2003 and again in 2005 to achieve these aims. 
• Institutional capacity and regulation: Establishing suitable institutional capacity and implementing measures to license and regulate oil and liquid fuel pipelines, and potentially storage facilities if deemed necessary. This milestone was accomplished through the adoption of the Petroleum Pipelines Act and establishment of the National Energy Regulator of South Africa (NERSA), responsible for regulating pipelines and storage facilities, excluding electricity. 

In summary, synthetic producers have significantly evolved from mere product suppliers to active market participants over the intervening period.   

Additionally, we’ve witnessed the growth of smaller independent marketers of petroleum products, often operating in specific areas, as well as the implementation of rational price regulation for petroleum products.   Initially, this involved replacing the In Bond Landed Cost (IBLC) with the Basic Fuel Price (BFP), better reflecting market conditions. Subsequently, after several years, the Regulatory Accounting System was introduced to determine permissible margins through the petrol value chain, downstream of refining and importation. Despite these challenges, the market does evolve over time, which means regular review of price regulation is essential to ensure fairness to consumers and marketers. 

Getting back to the Energy White Paper of 2018, two further stages were envisaged that provided for market forces to set prices; in effect, price deregulation of the industry, and then finally a post-deregulation phase that would be characterised by government monitoring to address any issues and provide corrective action if required. However, in terms of transitioning to cleaner energy, especially for road transport, South Africa lags behind. Several factors contribute to this situation, including the spending power of South Africans and infrastructure development. 

Consequentially, liquid fuels will continue to dominate the South African market for years to come, maintaining its role as the primary source of transportation energy. Meanwhile, the landscape of transportation energy remains dynamic, with original equipment manufacturers (OEMs) exploring various avenues such as electric vehicles (EVs), hybrids, hydrogen development, biofuels, and other green energy sources like ammonia.

Can you outline your strategy map and what it entails for the collective interests of the South African petroleum industry?

AT: The strategy map outlines several goals for SAPIA, identifying key stakeholders and defining internal processes to achieve the vision and mission of the association. These goals encompass issues such as promoting transformation, ensuring security of supply, and establishing a fair pricing framework. Our internal processes involve gathering information and facilitating the exchange of relevant data within the bounds of competition law. This enables us to position ourselves effectively regarding key aspects that impact the liquid fuels industry. 

In terms of price regulation, our objective is to promote a fair price regulatory framework. This benefits all stakeholders, including the government, the general industry, consumers, and the liquid fuels industry. In practical terms, we engage with individual members regularly to ensure that the pricing framework accurately reflects market conditions. If this is not the case, we advocate for necessary changes through government lobbying. 

When the price of petroleum products surged following the invasion of Ukraine, the government decided to reduce the 15 percent freight premium to lower fuel prices. However, it’s essential to recognise that the freight premium was initially implemented for a specific reason. The cost of freight to South Africa is higher due to insufficient petroleum product trade in the region. That is, ships sailing south are often full of fuel for two weeks and return empty, unlike other regions with active trade, such as the North Sea, the Mediterranean, or the Arab Gulf, where ships do not find themselves unutilised to this extent. 

Consequently, importers were unable to recover their costs. Through effective lobbying, the necessary amendments were made to ensure that the freight element is accurately reflected in the BFP.

How does SAPIA play a strategic role in promoting the industry’s environmental and socioeconomic progress?

AT: SAPIA maintains several committees with specific focuses. One of these includes the HSSE committee, sharing best practices and insights to achieve the ambitious goal of zero harm. Additionally, we have a dedicated transformation committee that focuses solely on industry efforts. Its mission is to ensure that government regulations accurately reflect the realities of our industry. 

Beyond these collective efforts, individual companies within the sector undertake their own socially-oriented projects and initiatives. These programmes span a wide range of activities, including education, female empowerment, poverty alleviation, and environmental conservation. 

Finally, what are SAPIA’s key priorities in order to continue promoting inclusive socioeconomic growth within the country?

AT: Our priorities are as follows: 

1. Maintain a strong HSSE focus: We will continue to prioritise HSSE to ensure the provision of a clean and sustainable environment.
2. Fair price regulation: Our commitment is to establish price regulations that are equitable for both consumers and liquid fuel suppliers. Overcharging consumers is detrimental to their well-being and can hinder economic growth. Conversely, undercharging consumers jeopardises the industry’s stability, threatening the security of supply and overall economic growth.
3. Contributing to the energy transition: We actively participate in the ongoing energy transition, aiming for a just and balanced shift towards cleaner and more sustainable energy sources.

SOUTH AFRICAN PETROLEUM INDUSTRY ASSOCIATION (SAPIA) PARTNER