2010 editionfuelretailers.co.za/uploads/forecourtimes-weblayout.pdf2010 issue/forecourt times/...

2010 Issue/Forecourt Times/ �

2010 Edition

/Forecourt Times/2010 Issue�

The Association: Walking The Transformation Journey

Who we areThe Fuel Retailers Association of Southern Africa (FRA) is a registered employers organisation under the provisions of the Labour Relations Act, 66 of 1995.

The FRA, is a financially independent and fully autonomous association that ensures the survival and success for all its members who are Fuel Service Station Owners in the retailing of fuel in South Africa.

The Association monitors and becomes involved wherever necessary with all aspects of retail fuel governance, distribution and sales in South Africa in order to protect and enhance Fuel Retailers’ interests. The Association’s income base is through membership fees.

VISIONTo create a robust, sustainable environment that provides a reasonable return on investment for all efficient Fuel Retailers.

The primary objective of the FRA is to promote and protect the best interests of Fuel Retailers and its members in particular.

MISSIONTo engage with all stakeholders to facilitate and promote open and transparent communications to ensure the industry is prepared for 2010 and beyond.

Reggie SibiyaChief Executive Officer BOARd MEMBERS

George NkosiGauteng ChairpersonFRA

Morgan GovindasamiKZN Chairperson FRA

Carin StrydomWestern Cape Chairperson FRA

Willem JurgensEastern Cape Chairperson FRA

Motlalepula Michael MotsoanePresident FRA

Bronwyn TaylorVice President FRA

Jaco StanderCentral (OFS/Northern Cape/North West) Chairperson FRA

Wayne GeddesNorth (Mpumalanga / Limpopo) ChairpersonFRA

Geoffrey HlabanganeNational ChairpersonFRA

Avishkar dukhiNational ChairpersonFRA


MANAGEMENT STAFF

Reggie SibiyaChief Executive Officer

Caroline BlythOffice Manager/Administration

Tshepiso KgokaneReceptionist/Administration

Rosinah FrekaanerOffice Assistant

Sifiso MdlaloseFRA Regional Representative

Terence WebsterFRA Regional Representative

The FRA acts swiftly and negotiates independently, collectively and individually with:

Department of Energy Government Groups Department of Labour Department of Environmental

Affairs Department of Tourism SAPIA Competitions Commission Banking Association/PASA

MARGINThe FRA is instrumental in working with the Government to secure increases for Fuel Retailers in the Profit Margin on fuel by “continually improving” margin investigations in order to improve the viability of FRA members.

PROLIFERATION OF NEW STATIONSThe FRA has successfully fought against numerous new sites being built, which would detrimentally affect existing Fuel Retailers. All members have to do is to contact us when they see the Municipal Notices.

The FRA is a watchdog in all matters relating to “environmental impact assessments” and has played an important role in the drafting of the new NEMA (National Environment Management Act)

SAFETY ANd SECURITYThe FRA participates in issues related to Safety and Security in the Industry which includes the Card Fraud Forum

The Labour Relations Act provides for the self-regulation of industries through the medium of Bargaining Councils. MIBCO is a Bargaining Council as envisaged in the Act whose mission it is to create and maintain industrial peace and stability in the motor industry

COMMUNICATIONThe FRA is in contact with its members through regular issues of:

FRA Updates (E-mail/Fax/ SMS) Website: www.fuelretailers.co.za Regular Forum meetings Forecourt Times

Office [email protected]: (011) 886 2664Fax: (011) 787 8719

Website: www.fuelretailers.co.za

LEGISLATIONThe FRA is proactive in ensuring that the Fuel Retailers’ voice is heard in all Government Legislation that affects the sustainability of our industry.

INdUSTRIAL RELATIONSMany cases have been successfully defended every month on behalf of FRA members

As a member you get access to our competitive rates towards IR services

FRA IR ConsultantsPlease phone FRA Office for regional contact details

MIBCOThe FRA is an official party to the Motor Industry Bargaining Council.


Message from the

PresidentMotlalepula Michael MotsoanePresident FRA

t’s always interesting to be a South African with such a wealth of ways of greeting or even an introduction of a topic to a Rainbow Nation, boasting eleven official languages with the hope that very soon a

twelfth one, Township Lingo, may also be considered … who knows!

Allow me to take this opportunity to congratulate the new FRA Board:

Bronwyn Taylor Vice PresidentGeorge Nkosi Gauteng Morgan Govindasami Kwazulu Natal Carin Strydom Western CapeWillem Jurgens Eastern CapeJaco Stander Central (OFS/Northern Cape/ North West) Wayne Geddes North (Limpopo/Mpumalanga) Geoff Hlabangane NationalAvishkar Dukhi National

I am confident that with such an experienced ‘cream of the fuel industry crop’, this team will produce fruitful results. Remember that, as Dealers Working for Dealers, we owe it to our colleagues in all nine provinces.

In the history of FRA, we have never had such a challenging year as 2009, which I can tell you was a very interesting learning experience. At the moment I really feel stronger than ever before to face 2010.

Quick update of 2009 key industry issues:

1. Violent crime involving ATM and drop safe bombings2. Fuel shortages and the Satawu strike3. Separation of energy from mining by the government4. Credit and debit cards introduced as a method of

payment5. Task 141 delays on which Reggie and his team are

keeping tabs. Well done Reggie!

How strong can we be as an organisation with the challenges of 2010? As FRA is the organisation of the future, it will not be difficult to handle these challenges - some of which are:

1. Wage negotiations2. Task 1413. Electricity and fuel hike in April - I wish it was an April

Fool’s joke!.

Membership improvement is one of our priorities as it is the only way to grow FRA and help us fight some of the industry challenges we are facing. FRA is also committed to gender equality and Bronwyn Taylor, my deputy, presented on this topic at the African Minerals and Energy Forum seminar.

The FIFA World Cup is almost upon us. We, as the FRA, welcome the world to our world, a beautiful rainbow nation. We urge retailers to represent the spirit of the nation through excellent customer service, showing them that we care by treating them with respect. As much as we have challenges with credit cards, we can show courtesy in many areas and by the way all credit cards should work at the ATM. Be extra vigilant on safety and security measures around this period.

The recent crime statistics on forecourts show a significant reduction on forecourt crime since the introduction of card acceptance, something we were hoping for.

Lastly, I would like to encourage all Dealer Council structures to work hard to allow dealers to grow even stronger. Good luck to all our members for 2010 and make the best of the World Cup where you can.

In ending, we would like to wish good luck and all the best to Bafana Bafana – Halala!

I“HEITA 2010 – WORLD CUP HEITA”

F


CEO’s FOrEwOrd

Reggie SibiyaChief Executive Officer

speaks and those who catch it run with it like fire, which is what I have experi-enced with the people who love this Association.

We have a lot to be thankful for - our President, Vice President, the Board and those retailers who represent us at MIBCO regional structures and Task 141 (Faizal Salajee and Avishkar Dukhi). This is the fire and passion for the industry that I am speaking about. I find myself surrounded by people where there is less politics and more action and what a joy that is. My year of being with the FRA has been a valuable experience, to say the least. Thank you very much for those encouraging emails and phone calls to me and my staff from FRA members, it just makes us wake up and face each day with renewed energy.

My special thanks to Caroline Blyth, our office manager, who has done a wonderful job in setting up our new systems and support in the office. She is ably assisted by the office administra-tion/assistance team who I would like to acknowledge for their contribution.

Thanks also for the efforts of the two newly appointed regional representa-tives. We are expanding in this area of regional representation and will be bringing in two new representatives for KwaZulu-Natal and the Western Cape. There are still a lot of retailers that we need to bring into the family and we want to ensure that we become a grass roots organisation.

There is a lot of good work done by the Industrial Relations team and we value the assistance you give to our members. The FIFA World Cup is likely to keep us busy with absenteeism and sick leave and we appreciate the work that Roark Ryan in KZN has initiated around this. We also welcome Gwala HR Consultants and Services into our portfolio of IR representatives.

A special acknowledgement is due to our new FRA members for the year 2009/2010. We trust that you will value being part of the FRA and of making this industry a true success. Without members, this organisation cannot exist and, without the FRA, the fuel retailing industry is doomed. So you are part of a bigger solution which goes beyond yourselves. The FRA is just that and exists for that ‘beyond ourselves’.

There is so much happening in our industry but we could not put it all in this magazine. We highlight the achieve-ments of the FRA in the past year, the

progress in some areas (Task 141, the Consumer Protection Act, credit cards, wage negotiations) and the challenges the industry faces if we do not unite and get these right. We give a brief overview of the legislative and regulatory frame-work with a special review on the 12B of the PPA Act by our legal partner, Mr Murray Kotze. Dr. Rod Crompton takes us through a topic of interest, which affect retailers in terms of differential zone pricing structures.

On the training side, we have a special advertorial by the CEO of Merseta, Dr Raymond Patel. There is a saying: ‘Motivation alone is not enough, otherwise you end up with a bunch of motivated fools.’ There is a proposed change in the landscape of the SETAs. FRA will keep you updated on the progress of this change.

We welcome and appreciate the work done by the Department of Tourism and their implementation of the second phase of the Tourism Service Excel-lence Initiative (TSEI). Knowing the importance of staff training, FRA members have registered their staff to attend the Department’s Service Excel-lence Readiness seminars for 250 000 frontline staff and 200 training providers across the retail sectors in preparation for the 2010 FIFA World Cup.

In conclusion, I would like to quote our President, Mr Mike Motsoane: ‘I often look and wonder why sometimes we, as this industry, are not united as we should be. I look at the trade unions and I come up with one answer and that is maybe we are not exposed enough to certain life challenges which lead to victims being more united.’ I hope that this picture will change soon as there is a lot at stake if there is no unity. Unity and numbers are our only strength to ensure we do not experience the story as told in the article Mysterious Death of the Service Stations. Just read it objectively and ask yourself how you, as the retailer reading this magazine, can prevent this from happening.

Are you a member of the Association? If not, you will find an application form on the last page of this magazine. I trust that you all enjoy reading the magazine and take something out of it.

To our long standing and valuable members, what can I say? You are the pillars of this industry in a way that no words can express. Thank you so much for making a difference in the lives of every retailer in this country.

Reflecting on the past year, I can truly say that I have survived the storms in this industry. Hardly two months

into my role as Chief Executive Officer of the FRA, I had a baptism of fire with the Satawu strike which carried on for a number of weeks, including over the Easter weekend. The FRA featured in every type of medium in what must have been a record in terms of media partici-pation over such a short time frame.

Just when I thought it was over, the cards regulation kicked in and again the FRA was in the media clarifying the regulation and why it was not profit-able for retailers to accept credit cards. Coupled with this was the panic and uncertainty around the approaching Confederations Cup. Well, we survived that and put our feet firmly on the ground against credit cards wanting to erode the retailer margin.

Shortly after this, pressures on the margin increase started mounting and retailers were saying enough is enough, it’s been a long wait - do something! The awarding of the margin was a team effort between FRA and PRAF and I want to emphasize that the FRA had a huge input into it, in which we pride ourselves. We are thankful, despite everything, that we still have an excellent working relationship with the DOE and particularly Deputy Director General, Energy (Mr Tseliso Maqubela) and the Chief Director of Hydrocarbons (Mr Muzi Mkhize).

Task 141 is still hanging around our necks but, again, we cannot compro-mise our position. It is crucial that we get it right the first time, as there may never be a second time. More details can be found in the magazine.

It can be seen from these and other challenges that the FRA has again proved that it is a rock that cannot be broken. The main reason for this is that the foresighted fathers of the Associa-tion built it on a solid foundation and principles, with the FRA Constitution being that foundation. The vision of this Association is simple and plain: it

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“ ” The challenge of leadership is to be strong, but not rude. Be kind, but not weak. Be bold, but not a bully. Be thoughtful, but not lazy. Be humble, but not timid. Be proud, but not arrogant. Have humour, but without folly - JIM ROHN


Special ContributionsAMEF, Willem Schoeder,

Andrew Sully, Rod Cromptom, Dips Naik, Caroline Blyth,

Laura Knight, Malcom Ratz,Murray Kotze, Nhlanhla Gumede

& Mark Beare

Photography Folorunsho David,Mthoko Hadebe

Layout Design Fmdplus Studio

www.fmdstudio.com

Editorial OfficeFuel Retailers Association

Mibco Building, 276 Oak Avenue, Randburg

P.O. Box 4816, Randburg, 2125Tel: (011) 886-2664Fax: (011) 787-8719

www.fra.org.za

This Journal is for information and record purposes. Editorial opinion

expressed are not necessarily those of the publisher. The publisher does not accept

responsibility for advertising content.

ContentsFRA Profile

Message from the President

CEO’s Foreword

Task 141

Franchising Agreements and the Consumer Protection Act

Section 12B of the PPA Act

Mysterious Death of the Service Stations

South Africa’s ongoing Recovery

Mibco 2010 Wages Negotiations

Numsa Jobs Conference Presentation

Credit Cards Acceptance Presentation

Interview with Mr. Dips Naik

Events Show

FRA Ex-CEO Farewell Party

Members Meetings

merSETA strides the training field

Media Releases

Developments in Petroleum Pipelines and Storage

Why be an FRA Member

Counteracting Fleet Card Fraud

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he regulatory accounting project (Task 141) has its origin in the 1998 Department of Minerals and

Energy (now Department of Energy - DOE) White Paper. The 1998 Energy White Paper (EWP) identified the strategic issues affecting the petroleum sector and the broad policy milestones to be achieved before full liberalisation of the downstream liquid fuels sector could be considered.

The following quotes from the EWP give clear insight into the foresight of policy makers at the time: ‘Progress towards these policy goals will be in three phases. Phase one will be preparatory and will phase in certain elements so that key milestones are achieved … and include significant black economic empowerment. Phase two will commence once the milestones have been achieved and will witness the simultaneous removal of price control, import control and ... Phase three will involve monitoring and corrections for price distortions.’ Task 141 is about correction of such distortions.

The DOE initiated the revision to the Marketing of Petroleum Activities Return (MPAR) and retail margin setting mechanisms. The impacts of these changes on both fuel supplies and retailers are still being investi-gated by all affected parties and there is a growing concern that there will be unintended outcomes for the retailers. These outcomes may significantly undermine the sustainability of businesses, ultimately destabilising the retail network and threatening employment in which this industry is key and strategically placed to be a solution.

The current method of retail margin calculation is based on a cost recovery, plus entrepreneurship

margin/compensation. The new method will look at efficient cost recovery and rate of return on retail assets. Although, at face value, this is a noble outcome, it is important that we understand how the ‘Benchmark Service Station’ (BSS) is determined, especially considering the concept of asset ownership and how the return on these assets will be shared. If this is incorrectly determined, it would put retailers under undue pressure and render most of the businesses unprofitable.

It is also important to understand how the wholesalers will respond to these changes. The current wholesale margin methodology (MPAR) is very different from the model that is proposed. Whilst in the MPAR approach there was little separation of costs and assets associated with regulated (retail business) and unreg-ulated (commercial and non-fuels businesses), the proposed approach proposes a clear separation between these businesses.

Task 141 therefore seeks to: eliminate inefficiencies in all

current methods of calculating margin;

introduce fairness in the treatment of all industry partici-pants;

promote (as demanded by the EWP) small and medium operators in the sector;

promote prudent investments, especially in the area of storage; and

eliminate cross subsidies in the value chain so that the end consumer (motorist) does not subsidise these inefficiencies at the pump price.

The other fundamental issue which Task 141 has to deal with is how the BSS will be determined in relation

to the major differences in terms of operational costs between urban, rural, township and freeway sites and even further differences between company owned and dealer owned sites. The way in which the opera-tional costs of the BSS are calculated will determine the level of profitability of retailers businesses in each sector. The fundamental question that FRA still has on the table is how the BSS determination will meet the needs across these differences. We cannot ignore realities that exist within our trading environment.

Being mindful of what the project intends to do, we are also aware of unintended consequences. We have to ensure that what has been lost from the wholesale margin is not unfairly taken back via structures such as franchise fees and rentals. Unintended consequences therefore become the major part of this project, leading to issues of regulation and policy factored into the retailer contractual agreements with the oil companies. This project goes beyond only the pricing mechanism. It is also about a change in the regulatory framework which will necessitate contractual agreements being changed to protect all interests.

1. Progress to date on Task 141The discussion regarding Task 141 and its impact on retailers now revolves around the following two areas on which FRA is focusing:

a) Strategic response to the developed BSS and regulatory framework

This involves continuous input and strategic engagement towards the developed BSS which will be used in determining the value for fuel retailers and how that value can be leveraged to yield shareholder value

By Reggie Sibiya

T

Task 141New Retailer’s Margin Model


through the proposed margin calculation and methodology.

b) Stakeholder engagement strategy and support This involves assisting in

strategic discussions with the regulatory authorities to ensure that our concerns are taken into account for the sake of ensuring the survival of the fuel retailing industry. This relationship is crucial for FRA and all the fuel retailing industry players. It also involves obtaining professional advice on, for example, macro-economic and legal matters.

2. Benchmark Service Station A large amount of work has already gone into the Benchmark Service Station (BSS) development and the current project plan is to finalise it. The new margin calculation model only recognises two elements in the build up of the retailer margin: Return on assets (ROA) and Cost recovery (CR). Simply put, ROA + CR = retailer margin.

The ROA is calculated based on a net asset base (or rate base) employed by the BSS using the Capital asset pricing model (CAPM). The CR is based on the input costs to the operation of the service station through a survey conducted on a number of sites by the University of the North West Small Business Advisory Bureau.

Since the BSS Model is based on a retailer owned, retailer operated (RORO) site, it assumes that the retailer owns the assets. Any capital investments (eg land, improvements, pumping equipment, computer equipment, HSSE equipment) will therefore generally be made by the retailer. Based on this, the ROA will go to the RORO site owner. This is good news for RORO site owners as in the past the ROA would go to the oil companies’ margin through the MPAR.

Company owned, retailer operated (CORO) assets are generally owned by the oil companies. It is therefore our contention that many franchised retail operators will theoretically get no ROA as the assets (even major working capital such as consignment stock in some cases) are owned by the oil companies.

We are arguing that there is a major investment made by CORO operators in the form of ‘goodwill’ or perceived

future value of the cash flows paid in advance in respect of the current value of the business. In the BSS process, the goodwill is specifically left out of the determination of the ROA because the model is based on a brand new RORO site. Regardless of the source of the goodwill, the BSS margin set will be based on net assets of a newly built site. Goodwill is not a tangible asset and is therefore not included in the net asset base (rate base) determination.

The big issue here is whether, in a franchise model, a retailer gets any share of the return that is earned on all net assets. Once a margin is set, how that margin is shared between a retailer and wholesaler is currently a function of the franchising (or any other contractual) arrangement between the two players. In FRA’s opinion, if this is allowed, many CORO site retailers would become de facto managers for the Oil Companies (OilCos) business receiving little beyond a ‘salary’ and ‘commission’ based on the gross profitability of the business. At best, the retailer would be a de facto partner with the OilCo sharing in the profits of the business. This would appear to be in contra-vention of Section 2A (5) of the PPAA. We are therefore strongly opposing this view in conjunction with PRAF.

However the conundrum is that a retailer in the current CORO environment does not receive any ROA. Therefore, if the future BSS rate of return (ROR) goes to another party who has ownership of the assets, they have theoretically ‘lost nothing’ and will continue to receive the CR component of the margin. If this is the case, this means that the CORO retailer will basically break even (i.e. if all costs are also correctly accounted for in this model), otherwise the worst can happen. Currently franchise fees which a CORO retailer incurs are not part of the cost recovery base (because this is a RORO site model). Our argument is that the retailer currently does receive the ‘entrepre-neurial margin’ (20% of the applicable retail margin).

Clarity is needed, for example, on whether the ROA portion is deemed to compensate for both rental and franchise fees. How is the regulator going to ensure there is no double dipping to the detriment of the retailer? What will be the mechanism of separating these margin elements between asset owner and asset operator?

The key to the above question is how every investor (irrespective of the investment source) will receive their fair share on the ROA element of the margin. In the last workshop which took place in April 2010, it became clearer to me that the ROA portion of the margin does not only reward for physical assets but also for the operation and net return profit from these assets. This wold then mean that the entrepreneurship margin sits in the ROA portion of the proposed margin. Since we are dealing with a regulated margin, we require that this portion due to the operator, be ring fenced and not be left to OilCos to decide how to apportion it to the retailers. If left to the OilCos this would be in itself suicidal and cannot be allowed as long as there is regulation and prohibition to vertical integration.

3. FRA Feedback Mechanism This is one of the significant changes in the history of our industry. The outcomes of Task 141 can either enhance the survival of fuel retailing or threaten the future survival of service stations in South Africa. As FRA, we are seeking professional advice as the stakes are too high to base everything on a few select viewpoints. We also need financial support when we undertake such big industry initiatives.

Throughout the process of Task 141, FRA has kept its members informed on the progress of this very important change to the fuel industry regulatory framework. We held two roadshows in March/April and October/November 2009 and also send regular updates to members.

This change is about you and your business and you have to know how you are going to be affected. We get a lot of feedback from members, which we value highly, as FRA is all about ‘Dealers working for Dealers’. Task 141 is about your future margin and the survival of your business – so please keep in touch with us.

Being an FRA member you can also get access (via our website) to the preliminary view of the BSS model. This will provide you with the make up elements of the new retailer margin calculation. F

/Forecourt Times/2010 Issue�0

Effect of the Consumer Protection Act on Franchisees

The Act is intended to serve as the “Bill of rights” for the consumers, protecting them from unfair, unreasonable and improper trade practices, as well as deceptive, misleading or fraudulent conduct.

Where does the Franchisee fit into the Consumer Protection Act

The Act creates five classifications for parties participating in the market for a particular good or service. These are, the producer, the importer, the distributor, the retailer and then finally the consumer. In order to ascertain how the Act will apply to franchisees, it is important to first establish which of these classifications is applicable to a franchisee.

In terms of the Act , franchisees are expressly included in the definition of ‘consumer’ and franchisors are said to be ‘suppliers’ . The relationship between the franchisee and the franchisor is therefore clearly a supplier/consumer relationship and this means that the protection afforded to consumers under the Act is quite obviously also afforded to franchisees.

The rights afforded to a franchisee therefore include the protection of chapter 2 of the Act, which allows for the right to equality in the consumer market, protects a consumer’s right to privacy, choice, access to information, a consumers right to fair marketing practices, fair and honest dealing, just and reasonable contractual terms and conditions, fair value and good quality, product safety and supplier accountability.

As is clear from the above mentioned rights, the Act places a heavy burden of accountability on market participants to the benefit of the consumers, which include franchisees. The scope of these rights means that franchisees will be protected in cases where they are pressured by franchisors to accept certain conditions, or where franchisors have presented misleading, or false facts or made deceptive misrepresenta-tions to franchisees.

The fact that franchisees are expressly considered consumers by this Act will contribute greatly in keeping franchisors accountable and furthermore encourage a closer, more honest working relationship between these parties.

Franchising Agreements and the Consumer Protection ActFranchising Agreements are expressly dealt with in section 7 of the Act which reads that:

(1) A franchise agreement must:(a) be in writing and signed by or on behalf of the franchisee;(b) include any prescribed information, or address any

prescribed categories of information; and (c) comply with the requirements of section 22.

(2) A franchisee may cancel a franchise agreement without cost or penalty within 10 business days after signing such agreement, by giving written notice to the franchisor.

(3) The Minister may prescribe information to be set out in franchise agreements, generally, or within specific categories or industries.

From section 7 it is clear that strict form requirements are created for franchising agreements and that in addition, the franchisee (the consumer) is afforded the additional protection of a cooling-off period of 10 days in which a franchisee can cancel – without penalty – the franchising agreement.

Traditionally franchising agreements have often resulted in lob sided relationships, stacked in favour of the franchisors when it comes to franchising terms and conditions. The harsh workings of the franchising-model have to some degree been curtailed by the Competition Act 89/1998, in particular with regard to the tying or bundling of unrelated products, the use of retail price maintenance by franchisors on franchisees, the creation of exclusive trading territories and exclusive dealing arrangements whereby franchisees are forced to purchase all products from the franchisor.

The provisions of the Competition Act, although effective, require parties to show that the infringing party has some measure of market dominance. The position created by the Consumer Protection Act, seeks to negate the need to prove a franchisor as having market dominance and therefore we see that an infringement of a consumers rights can occur irrespective of whether the infringing franchisor is dominant or not, unless the franchisor can show that (i) the bundling of products results in economic benefits for the consumers or (ii) that the convenience of bundling products outweighs any restriction on consumer choice.

Franchising Agreements and The Consumer Protection Act 68/2008

The Act as we understand it, is intended to serve as the “Bill of rights” for the consumers (and franchises are consumers in the Act), protecting them from unfair, unreasonable and improper trade practices, as well as deceptive, misleading or fraudulent conduct. The Fuel Retailers Association, asked for an opinion on the impact the Consumer Protection Act 68/2008 is likely to have on franchising in South Africa with particular reference to the Fuel Retailers.The purpose of this opinion is to highlight pertinent sections of the Act, evaluate the practical implications for the franchisees and to create a framework in which the Association will facilitate future discussion forums.

By Malcom Ratz

One of the most significant aspects of the Act is the fact that protection is afforded to consumer choice by providing that franchisors may not require as a contract condition that the franchisee purchase its goods or services from only the franchisor or from any other pre-determined supplier . The franchisor may offer as a defence to the limitation of the franchisees right to choose, the fact that the franchisee is required to purchase from the franchisor or designated third party due to the goods/services being related to the branded products or services of the franchisee which are the subject of the franchising agreement.

The protection afforded to the franchisee is apparent on a variety of levels, as we see that franchisees are given the rights of ordinary consumers participating within the market, despite the fact that they may well fall outside the threshold of the Act. Furthermore, franchisees are given express protection regarding their franchising agreement and the terms and conditions of these franchising agreements, to ensure that franchisors are kept accountable and not given the opportunity to exploit the franchisees.

Application of the ActIt appears that the provisions of the Act will not be applicable to franchising agreements concluded prior to the effective date of the Act, which is currently set to be in October 2010.

Exemption from the provisions of the ActSection 5(3) of the Act allows for a regulatory authority to apply to the Minister for an industry-wide exemption from one or more provisions of the Act, on the grounds that those provisions overlap or duplicate a regulatory scheme admin-istered by that regulatory authority in terms of any other national legislation or any treaty, international law, convention or protocol. The exemption to an industry, for example the South African fuel industry, will not include exemption from

the application of sections 60 and 61 of the Act relating to the liability of parties for damage caused by the good. Due to the status afforded to franchisees by the Act, namely that of consumer, franchisees would appear in any event not to be included under the auspices of sections 60 and 61 and hence do not carry the risk of incurring liability under these sections.

The Relationship between a Franchisee and its customers As mentioned above, for purposes of the Act, the franchisee has been defined as being a consumer. This therefore appears to exclude franchisees from the risks associated with supplying a good or service to the end consumer, particu-larly when considering potential liability for damage caused by the goods. However, if the Act were to be interpreted in such a way that the supplier/consumer relationship between franchisors and franchisees is limited to the franchise itself being the good (therefore the franchisor supplies the good and the franchisee is the consumer), then it may well be that when it comes to the product being supplied, namely in this case fuel, then the franchisee may take on a different status, namely that of retailer towards the consumer who will be purchasing the fuel from the petrol station. This obviously has significant implications on the franchisees as they will then be included as a party which can be held liable in terms of sections 60 and 61 of the Act dealing with product liability and will then have to rely of section 61(4) in an attempt to negate any liability for defective products.

ConclusionThe Franchisees are certainly afforded protection in terms of the Consumer Protection Act as they are expressly listed as consumers. However, careful consideration will have to be given to the nature of the relationship between the franchisees and the customers who purchase fuel from the franchisees, as we may see that franchisees are then classified as retailers and will then carry the responsibilities and risks associated with being a retailer in terms of the Act. F

/Forecourt Times/2010 Issue��

Section 12B of the Petroleum Products Act, 1977 (ACT 120 OF 1977)

Murray Kotzé, Venn & Muller Attorneys, Pretoria.

Section 12B provides:

12B. Arbitration:-

(1) The Controller of Petroleum Products may on request by a licensed retailer alleging an unfair or unrea-sonable contractual practice by a licensed wholesaler, or vice versa, require, by notice in writing to the parties concerned, that the parties submit the matter to arbitration.

(2) An arbitration contemplated in subsection (1) shall be heard

(a) by an arbitrator chosen by the parties concerned, and (b) in accordance with the rules agreed between the

parties.

(3) If the parties fail to reach an agreement regarding the arbitrator, or the applicable rules, within 14 days of receipt of the notice contemplated in subsection(1)

(a) the Controller of Petroleum Products must upon notifi-cation of such failure, appoint a suitable person to act as arbitrator, and

(b) the arbitrator must determine the applicable rules.

(4) An arbitrator contemplated in subsection (2) or (3)

(a) shall determine whether the alleged contractual practices concerned are unfair or unreasonable and, if so, shall make such award as he or she deems necessary to correct such practice, and

(b) shall determine whether the allegations giving rise to the arbitration were frivolous or capricious and, if so, shall make such award as he or she deems necessary to compensate any party affected by such allegations;

(5) Any award made by an arbitrator contemplated in this section shall be final and binding upon the parties concerned and may, at the arbitrator’s discretion, include any order as to costs to be borne by one or more of the parties concerned.

Section 12B is a provision in the Petroleum Products Act, 1977 (Act 120 of 1977) (‘Act’) which deals with ‘unfair and unreasonable contractual practices’ by a licensed whole-saler (an Oil Company) against a licensed Retailer (the Dealer).

This is the first piece of legislation which levels the playing field and gives the Dealers rights they did not have, prior to the implementation of the Act on 17 March 2006.

We are all aware that the Oil Company Lease and Franchise Agreements:

1. place extremely burdensome obligations on the Dealer;

2. do not constitute a fair statement of balances, rights and obligations between the Oil Company and the Dealer;

3. disregard the fact, the Dealer has built up an asset which is goodwill in and to the business;

Section 12B now provides a forum where contractual practices may be tested in terms of fairness and reason-ableness and not as, in the past, solely in terms of the letter of the agreement.

We presently do not know how far and wide, or how narrow the term ‘unfair and unreasonable’ will be inter-preted. However, we have had success, in that the Section 12B matters to which we are attending, have been settled. Alternatively, we are awaiting the Controller of Petroleum Products to exercise his discretion where the matters which have been referred to arbitration have either been appealed against by the Oil Company. We are awaiting the decision of the Minister of Energy or the procedures in implementing the arbitration are in process.

In all the pending Section 12B matters to which we are attending, the Dealers, despite litigation and the cancel-lation of the Agreements by the Oil Company, have remained on site and the Oil Company has not managed to evict the Dealers.

The enactment of the Consumer Protection Act, 2008 (Act 68 of 2008) and which takes effect in October 2010, will make available to the Dealer further rights which the Dealer previously did not have as the Consumer Protection Act is there inter alia to:

1. prohibit certain unfair and marketing and business practices;

2. promote a consistent legislative and enforcement framework relating to consumer transactions and agreement (Franchise Agreement).

From the foregoing, it is clear that a Dealer now has rights. These rights, however, are only of assistance when exercised by the Dealer.

Section 12B of the PPA ActPetroleum Products Amendment (PPA) Act objectives

(a) Promoting an efficient manufacturing, wholesaling and retailing petroleum industry; (b) facilitating an environment conducive to efficient and commercially justifiable investment; (c) the creation of employment opportunities and the development of small businesses in the petroleum sector; (d) ensuring countrywide availability of petroleum products at competitive prices; and (e) promoting access to affordable petroleum products by low-income consumers for household use.

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ResponsesI owned two fuel station businesses with 23 staff and £9m turnover. The government took about 85% of this in duty, tax, vat, NI etc. Staff wages accounted for the bulk of the rest and I earned less than an average wage for five years of 24/7 heartache. Anything left was stolen by motorists driving off or staff helping themselves. I eventually snapped, closed the business down and made the staff redundant. It cost me everything I had financially, but I retained my dignity, my self-respect, my marriage and my sanity. Others have not been so lucky.- John Clark, Laurencekirk, Scotland

I have been in the business for 40 years and have watched this situation unfold over the past 20 years. The public don’t look any further than the price on the pole sign. The supermarkets have been selling fuel below cost for years with the blessing of successive governments, which, has been the main reason for the closure of so many sites. Other factors are cost of labour, employment protection laws, health and safety, and environmental protection legislation. The public never seem to take their time into consideration or the motoring cost of the return journey to and from the supermarkets. When this is considered the so-called “value for money” at the supermarkets is not so attractive. - James Lawlor, Harlow, Essex

Most of the petrol stations within the North Wales coast’s holiday area (between Prestatyn and Conwy) have disappeared in recent years. Many are now selling caravans or planning permission applied for housing. Holiday makers who are returning a year later are at a loss as to where the nearest petrol station is. When all of the independent filling stations (with their staff full of local knowledge, personality and skills) have gone, then the super-markets can (and will) stop subsidising the fuel and charge what they like. Just remember this next time you drive past the local independent petrol station to save 1p/litre at the supermarket.- John, Colwyn Bay, North Wales

The Story:

Mysterious Death of the Petrol Stations

By Andrew SullyBBC News

It’s a hub of the community under threat in harsh economic climate. Along with the post office and the local shop, petrol stations are

disappearing. Fuel prices are high, so why are so many closing?

The fuel gauge reads empty and the warning light is on. Ahead looms a petrol station sign. But the forecourt is dark and fenced off, weeds crack the concrete and the pumps are long gone. Perhaps there is a sign announcing that the site will soon be luxury flats. If the above scenario sounds familiar, it’s not surprising. Since 2002, petrol stations have been shutting at an average rate of 600 a year.

Mysterious Death of the Service Stations

The Fuel Retailers Association, after spotting the article “Mysterious Death of the Petrol Stations in the UK”, is in touch with the Petrol Retailers Association in the UK with a view to establish a partnership to ensure we research the issues raised by this story i.e. credit cards and the evolution of supermarkets and their effects in our industry. We have to do what we can to ensure this story does not repeat itself here in our country. As the Association we cannot eliminate the view that deregula-tion in the long term may happen in South Africa. Our view however is that we are a unique country operating in a unique continent with challenges of past inequalities and unemployment. We trust that our government will view the issues of regulation in the light of protecting our industry and jobs.

I would like to repeat one of the statements made by one of the retailers in their response to the article. “I have been in the business for 40 years and have watched this situation unfold over the past 20 years.” Truly speaking we cannot afford to watch things unfolding and do noth-ing. The future is in our hands. Join the FRA to make things happen. Unity is our only strength.

- Reggie Sibiya CEO Fuel Retailers Association

We have to do what we can to ensure this story does not repeat itself here in our country. As the Association we cannot eliminate the view that deregulation in the long term may happen in South Africa.

2010 Issue/Forecourt Times/ �5

According to trade body the Petrol Retailers Association, there are now fewer people selling fuel to motorists than at any time since 1912.

But with the cost at the pumps reaching an all-time high, doesn’t this mean there’s more cash than ever in selling “black gold”? Not so, says Mark Bradshaw of the Federation of Petroleum Suppliers, a lobby group representing independent petrol retailers.

“Since 2000, we have faced a situation where the independent retailers cannot compete with the sites owned by major oil companies and the supermarkets.”

There are two main issues facing independent retailers, who still make up about two-thirds of the 9,500 plus petrol retailers in the UK.

Firstly, independently-owned stations - many of which are branded with the name of major oil companies - must buy their oil from independent fuel wholesalers, adding another layer of costs.

The second problem, Mr Bradshaw says, is the sheer cost of petrol. “Taxation accounts for about 75% of the cost of the fuel, and now petrol is costing retailers more than £1 a litre to buy in, this means the owner of a small forecourt with a 30,000 litre fuel tank needs to front £30,000 to keep it filled. That’s a lot of money to pay up front. The cash flow implications for smaller operators are horrendous.” With typical profit margins of 2 to 3p a litre, it is the attached shop, rather than the forecourt pumps, that keep most filling stations in business.

A motorist buying £10 worth of fuel by credit card will actually be a net loss to a retailer because of card charges. However, if that motorist buys a chocolate bar when he or she fills up, a small profit will be made.

Supermarkets are expanding into fuel and the rise of the supermarket filling station - up from 11% of the market in 1992 to 38% in 2006 - hasn’t helped. Other operators claim that the big supermarket chains sell fuel below cost price, creating a situation that is untenable for others in the market. Supermarket bosses argue that they are increasing public choice and giving the motorist value for money. “We aim to offer customers the best possible prices for petrol, and we regularly check our prices against competitors to make sure we are offering good value,” a Sainsbury’s spokesman says. “In addition, to stay competitive within their own local market, individual petrol stations may adjust their fuel prices in response to local competition.”

Comfort stops Inflated property prices have also increased the incentive to forecourt owners - even the biggest operators - to shut down barely profitable stations and sell the land to developers.

Ray Holloway, chairman of PRA, says: “Motorists are now noticing gaps in fuel availability and if it gets worse, as expected, they will certainly be inconvenienced when searching for a forecourt in some areas.” The situation is particularly acute in Scotland, Wales, the West Country and rural areas of East Anglia, he says, but station closures are hitting

cities, towns and the countryside elsewhere.

Mr Bradshaw, himself a former filling station owner, says that when forecourts close they leave more than just an ugly empty space. Many acted as the hub of the community, with the forecourt shop often being the village shop.

“Let’s not under-estimate how useful it was to have filling stations every-where providing a national network of toilet stops for long-distance travellers. Now most of them have closed, this represents a real issue for a number of travellers, particularly the elderly.

“And the environmental effect of having to travel extra miles just to fill your car is also considerable.”

With electricity and other overheads rising at above infla-tionary levels, petrol sellers are lobbying the government for help. They would like to see fuel duty reduced and the extension of a scheme, introduced by the Scottish Executive, where petrol stations can apply for grants to update their capital equipment.

They would also like to buy their oil before tax is added onto the price. Mr Bradshaw points out that each time a car drives off from a forecourt without paying, the filling station operator may have to pay more than £40 in duty on the tank of gas they received no money for.

Whatever drives independent petrol station owners out of the business, even non-motorists miss them when they’re gone. F

outh Africa emerged from its worst recession in 17-years in the third quarter of last year, with the economic recovery so

far having surprised to the upside. In the final quarter of 2009, GDP rose at an annualised quarterly 3.2% with more recent high frequency business activity indicators suggesting that the upturn continues to gain traction.

Encouragingly, the recovery appears to have spread beyond just the production-side of the economy, with households’ financial position already showing signs of a modest improvement. Although household debt levels remained near all time highs towards the end of last year, the significant reduction in interest rates since the end of 2008 saw household debt servicing costs fall from around 12% to about 8% recently. This appears to have already benefited consumers, with spending on durable goods such as new vehicles continuing to trend higher. In the final quarter of last year, real household incomes also grew for the first time in more than a year, while the return of modest house price growth and equity market valuations that are well off their pre-crisis lows suggest that household wealth is also on the mend. These factors, along with a stabilising labour market and a marked increase in consumer confidence in the first quarter of the year, bode well for the consumer market outlook in 2010. We expect household consumption

spending to gain further momentum during the course of 2010, but still grow at a relatively modest 1.5% this year.

While households struggled during the recession and private sector investment faltered, it was largely up to the public sector to provide support to the economy. This was evident from relatively strong growth in public sector investment and government consumption expenditure during the course of 2009. Although public sector investment in particularly electricity and transport investment is likely to remain robust over the medium term, private sector investment is likely to remain relatively weak until the slack that was built up during the recession is fully utilised, business confidence recovers further and domestic and foreign demand become more firmly entrenched.

Economic growth seems set to rise from the annualised 3.2% q/q in the final quarter of 2009 to about 4.3% q/q in the first quarter of 2010, and Absa’s expectation is that subse-quent quarters should show broadly similar growth. For 2010 as a whole, we expect GDP to grow 3.3%, a marked improvement on last year’s 1.8% contraction. The Soccer World Cup, from 11 June to 11 July, is not expected to deliver a large macro effect, although at the margin there could be some temporary upside pressure on inflation and some

potential downside pressure on growth (as productivity in many non-tourism sectors may drop during the tournament).

As far as the inflation outlook is concerned, annual consumer price inflation fell to 5.7% in February, which is well off the August 2008 near-14% peak. The outlook for inflation also remains favourable, with little evidence of demand-driven inflationary pressures, the risk of imported inflation being mitigated by a relatively strong currency and food prices also posing no immediate risk to the inflation outlook. However, administered price increases such as electricity tariff and utility price hikes at a municipal level remains a cause for concern. Despite these risks, we expect inflation to edge somewhat lower in 2010 and remain in the Reserve Bank’s 3-6% inflation target range throughout this year.

While inflation is likely to track lower during the course of the year, we believe that the real economy figures will also turn stronger. In such an environment, we are of the view that the 50bp interest rate cut at the 25 March Monetary Policy Committee meeting of the SARB was the last in the current cycle and that the SARB will maintain the policy interest rate at its current level of 6.5% for an extended period. We expect the first interest rate hike to come only in early 2011.

South Africa’s ongoing Recovery

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s a bargaining council, Motor Industry Bargaining Council (MIBCO) is a statutory body allowing the various

Parties to the Council (the FRA, RMI and the trade unions, NUMSA and MISA) to regulate, inter alia, condi-tions of employment, as well as minimum wages for the Industry via the collective bargaining process. The benefit of this is that the various industries are being given the oppor-tunity to actively participate in the collective bargaining processes and to express the separate needs of the various sectors falling under the regis-tered scope of MIBCO.

The alternative to MIBCO is a statutory body and/or Ministerial Determination as in the case of domestic workers. This does not allow for participation in the various processes and decisions made, inter alia, by officials of the Department of Labour, have to be abided by.

The existing Agreement will remain in place until 31 August 2010 by which time the Parties should be in a

position to have concluded the wage negotiations. In accordance with previous experience, and should there be agreement amongst the Parties, the Agreement will be for a period of three years, terminating on 31 August 2013.

The Parties have already agreed to follow the same methodology as during the previous round of negotia-tions by exchanging the needs of both employers and employees in order for all to ensure that any possible new Agreement may be timeously gazetted.

It is also envisaged, either prior to conclusion of the Agreement or on conclusion of the Agreement, that a new simplified version of the Agreement will be published which will be of great benefit to the Industry.

The challenges facing the Parties to the Council during this round of wage negotiations are numerous and diverse. Without trying to pre-empt the outcome, certain realities such as the electricity price increases, the strength

MIBCO 2010 Wages NegotiationsBy Willem Schoeder

of our currency, the legacy of the recession and fuel industry challenges (specifically Task 141), will, in all probability, impact on the negotiations. We are, however, hopeful that we will be able to embrace these challenges with success. During nearly 58 years of existence, MIBCO has only had to deal with two industrial actions.

As a result of the specific challenges in the regulatory framework of the Liquid Fuels Industry, MIBCO and the Parties have previously concluded mutually beneficial Agree-ments for both the employers and the employees in that sector of our industry. We are convinced, with the dedication and commitment of all participants, that we will be able to achieve the same results during the 2010 wage negotiations.

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2010 Issue/Forecourt Times/ ��

AGENDA

The impact of the economic crisis on Fuel Retailers in terms of closures and loss of jobs.

What is the prognosis of prospects for the sector going forward?

What proposals do we have on HOW TO DEAL with the crisis?

How do we see Trade Unions and Government assisting in this process?

THE IMPACT OF THIS CRISIS ON FUEL RETAILERS INTERMS OF CLOSURES, LOSS OF JOBS ETC

Any negative effect on the motorist / motor industry will have a direct and equally negative effect on the liquid fuels industry

Actuals show that Petrol is at 10% negative growth and Diesel is at 3% negative growth (3rd quarter 2008 vs. 3rd quarter 2007-4th quarter SAPIA results not yet published)

Fraud / robberies have a dramatic increase on operating costs and this equates to negative cash flow to Fuel Retailers

WHAT IS THE PROGNOSIS OF PROSPECTS FOR THESECTOR GOING FORWARD?

Current margin (past 8 years) dictates that each pump attendant must sell the average liters per month (in 2007 / 2008 = 20 600 liters)

The results of Task 141 (the benchmark service station and what the labor component part of this is) will have a huge bearing on the future: this makes provision for a benchmark service station. Every-thing from now on must be efficiency driven. The Petroleum’s Act states that the Minister must create an efficient industry so this is not a choice but a demand.

Task 141 key thrust is about reducing the impact of the fuel price to the motorists via efficiencies across the value chain.

Deregulation looks inevitable (10/20 years time estimate)

One of the ramifications of deregulation is the loss of some 30% of service stations in the first 18 months / 2 years (with resultant job losses )

And then over the following 2/3 years after Deregu-lation the Industry will become “ self service”.

Currently self service is against the law – included in the Amendments to the Petroleum’s Act.

Motorist is “ budgeting “ a weekly fuel allowance

Pressure on disposable income is reducing the amount spent on fuel purchases

Negative growth for another 2/3 years = declining income (i.e. fixed margin in cents per liter x decreasing volume) with increasing costs (income regulated / costs are deregulated) is the death spiral

Closing down of smaller sites (resultant job losses)

Industry is also overtrading by 30%

WHAT PROPOSALS DO WE HAVE ON HOW TO DEALWITH THE CRISIS?

We need to fully understand each stake holder’s point of view and to agree to find common solutions however difficult they are

We have no promises from the government that businesses will be protected from closing down in the next 10 years

Must increase efficiencies and stop unnecessary costs , and reduce crime.

Training is our biggest intervention : Increased productivity & reduce labour costs

Leverage on Merseta Training funds (see fig 1)

Reduce labour costs (see fig 2). Poor Performance is not a right Will be forced to increase efficiency measures

NUMSA Jobs Conference PresentationBy Mrs. Bronwyn Taylor – FRA Vice President24 April, 2009

/Forecourt Times/2010 Issue�0

Numsa to help by communicating the message

about efficiency and productivity to members– we need culture change)

Wages are our biggest cost – cutting down on things like overtime and introducing short-time might be inevitable to minimise retrenchments

HOW DO WE SEE TRADE UNIONS AND GOVERNMENT ASSISTING IN THIS PROCESS?

Regulated industry - margin set by Government

Statistics of DRC Cases

The total number of cases nationally for the period 1st July 2007 – 30th June 2008 equals 9019 cases per region for the Period July 07 – June 08

We worked together in 2006/7 and the results are there for all to see (the special once off margin increase given by the Minister and ring fenced and communicated to all stakeholders (incl. Oil co’s) to ensure that this was paid to pump attendants)

Task 141 must reflect reality. F

Fig 2

Fig 1

Northern19,59%

WesternCape 9,63%

Gauteng47,43%

Natal13.33%

Credit Card Fees Credit card fees are the fuel retailing industry’s top pain point from August 2009 to date. We all know that evil proceeds because no one is willing to challenge the status quo. FRA is not relentless in pursuing this until an amicable solution is reached. The largest component of these fees is known as “interchange,” a fee charged by the cardholder’s bank to the retailer’s bank and passed on to the retailer. Interchange fees for credit cards are far higher than the actual costs of handling cash and the risks involved, yet banks have not come to the party to align themselves with the current cost of cash which is 0.82% on average per transaction. FRA is publicly urging

the different key stakeholders to persuade the credit card companies to explain their fees, practices and policies to retailers. We as the Association commend BP South Africa for again taking the lead in helping their retailers to accept credit card

Foreign Credit Cards The Banking Association of SA has confirmed that even if the local (i.e. South African) credit card pricing structures were to change, this would not affect foreign credit cards. These foreign credit cards would be subject to their “back home” pricing structures when used locally. As FRA, we strongly put caution around credit card acceptance until such time

that the fees are reviewed, or you are receiving some help from the oil company.

Latest UpdateThe last engagement with the Banking Association which was in March 2010 indicated that the process to review the merchant fees for our industry is already underway. Just a reminder that the regulation on cards acceptance state “A retailer may accept payment in the form of a payment card”. This means a retailer has a choice whether to accept card payment or not and must prominently display a notice on the type of payment cards acceptable. Also, if no type of payment card is acceptable to the retailer, then notice to that effect must be prominently displayed. F


Dips, tell us about your experi-ences as a retailer/dealer in this industry.My responses to your questions are based on my experiences of over 50 years - I am going to be 53 this year. I come from a family of business people and, therefore, from childhood, business issues were discussed over dinner and amongst the males in my home.

I have been on my own in business for over 22 years. I have also in that time had a failure, and possibly my greatest learning came from that. I bought Brackenview Convenience Centre in 1996, with help from family and friends. The industry did

not favour people with insufficient capital and the banks helped even less. The private loans I raised were therefore the only way to purchase this business. The oil companies were keen to use your BEE status for their records, but did nothing to assist you in understanding this industry. The training was costly and not totally relevant to running a successful business.

The dealers in my area were equally not helpful at the time as I was the new kid on the block. Some regular customers even advised my forecourt staff that I would be gone from Alberton in six months. My deter-mination and focus helped me to

overcome some of these obstacles. However, that is how it was 14 years ago - today things are very different for various reasons.

How did you overcome some of the challenges in running your business?I realised that to get a better under-standing of this business, I had to get involved in the structures that controlled the business/industry. I joined the Engen Dealer Council and, through this, the structures of the FRA, which was very new at the time. The next ten years saw me representing dealers up to national level. The openness and honesty with which I dealt with the issues of

Experience is the best teacher and this Association (FRA) is about “Dealers working for the Dealers”. So, if you are a new retailer and would like to learn or want to get a feel for the business, read what Dips has to share in an interview with the FRA CEO, Reggie Sibiya

Mr Dips Naik An Engen Dealer and FRA Member

The Entrepreneur


the industry soon turned the dealers who were opposing me into friends and numerous dealers and potential dealers spent hours in my office asking for advice and guidance on a host of issues. I have assisted numerous dealers in entering this industry and am proud of their successes.

My time on the FRA was particu-larly interesting, as we engaged government and other stakeholders on a host of topics. The mutual respect earned by that experience has been most rewarding.

What would you say are the key challenges facing the fuel retailing industry today?The issues that still plague me are the lip service given to BEE issues;

Interview

the relevance of training programmes offered by both the oil companies and the SETAs; and the possible premature de-/re- regulation of this industry. In my view, we are a minimum of ten years away from this process because the training provided for all stakeholders is insufficient to have a smooth transformation from one scenario to the next. To elaborate on the training, forecourt staff are trained to greet and serve customers, fire fighting and first aid and very little

else. If the industry is to de- or re-regulate, what help is this for them? We need to create an environment in which all stakeholders are adequately trained for change.

The funding of this industry is also a major problem and needs addressing. Why the need for all of this?The margins are tight, overheads are constantly rising and dealer apathy adds to this problem. New dealers have huge challenges when entering this industry, because the contracts from the oil companies are getting tighter. The margins are thin and interest rates payable for loans are increasing. It would take over five years to pay off capital and interest if the correct gearing was not done. Crime and uncertainty in this industry

are other reasons for failure by new entrants.

What advice would you give to those who do not belong to an association?If we are to overcome these and many other issues, belonging to a representative organisation like the FRA is paramount. I wish to share an example of a dealer who joined about eight years ago and stopped his membership because he did not see value in it. In about 2008, he experienced a customer complaint that nearly got him kicked out of his site. The oil company in question was heavy handed in its dealings with the dealer. Although the matter was resolved much later, the FRA offered assistance as a precedent was about to be made. The question of UNITY cannot be underplayed, as that alone will see us through the difficult times.

I have met some of the most wonderful people in the industry and have gained a lot from their wisdom. The time has come for new and younger blood and for the fence sitters to join an organisation. The FRA is the only registered employer body whose only focus is the fuel retailer.

What has kept you in the industry for so long?I often tell people that the first site I bought was from a dealer who had 22 years in the game. At the time, I said I will be out of this game as soon as I do not enjoy it any more. I have nearly completed 14 years and am still enjoying every day. It is not a job, but a lifestyle, and new dealers need to realise that. Customers and your staff are your greatest other source of learning, so be prepared to listen.

This industry is one of convenience to your customers, so constantly remind yourselves that everything you do must satisfy the customers’ needs. I am still having fun at work and will continue to encourage existing and new dealers to do the same. F

Events show

he Fuel Retailers Association had an exception-ally busy and challenging 2009. FRA got invited to major key events. The highlight of 2009 was its participation in the African Mineral and Energy

Forums. The chairman of AMEF, Mr. Maurice Radebe got the industry into coming together and debate issues which critically impact our industry

T Liquid Fuels Empowerment CharterThursday, 11 June, 2009

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Captions1. Maurice Radebe (Chairman, AMEF)2. Dipuo Peters (Minister of Energy)3. Mphuthumi Damane, PetroSA4. Tseliso Maqubela (DDG, Dept. of Energy) 5. Dave Wilson, Delloitte6. Bonang Mohale (Chairman, Shell SA)7. Nhlanhla Gumede, Delloitte (Prog. Dir.)8. Siviwe Mafanya: Independent Wholesaler9. Dr. J. Gule: SAPIA

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Events show

Fifa world Cup: will the Oil Industry be ready Monday, 2 November, 2009

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Captions1. Andre Vermeulen, Group Manager: ACSA2. Kirsten Nematandani, SAFA President3. Tshilidzi Ramuedzisi, DOE4. Dr. Rod Crompton, Regulator, NERSA 5. Charl Moller, CEO, Transnet Pipelines

Addressing Empowerment of women in the Industry

Monday, 1st March, 2010

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Captions1. Nelisiwe Magubane, DG Energy2. Avhapfani Tshifularo, Dir. SAPIA3. Bronwyn Taylor, V. President FRA4. Althea Banda-Hansmann, SAPIA5. Nolitha Fakude, Exec. Dir. SASOL 6. Mike Motsoane, President FRA & Reggie Sibiya, CEO FRA

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FRA Ex-CEO Farewell PartyWell it was one of those emotional moments, when the FRA had to finally say farewell to Peter Morgan, Ex CEO of the Association. The President, Mike Motsoane hosted a farewell party where friends and colleagues of Peter Morgan came together in recognition of his valuable contribution to the Association and to the industry.

The FRA Board and the Gauteng Regional Committee

At the 2nd Board Meeting for 2010

Cape Town FRA MembersAttending a seminar: How to handle misconduct in the workplace

he merSETA continues to stride across the education and training landscape in our country, having developed the skills

of more than 23 500 people in the past year. The number of learners and apprentices released to the sector as qualified artisans and employees was 7891. Small and medium enterprises that received assistance from the merSETA numbered 6778.

Due to the impact of the global economic crisis, the merSETA also launched a Retrenchment Assistance Plan, the aim being to prevent job losses and a decline in employment where possible - and if retrenchments are unavoidable, to manage large scale retrenchment and reduce its effects on individuals, companies and local economies. More than R36 million has been disbursed since the launch of the programme.

“The performance of merSETA is beyond reproach due to the synergy of vision by stakeholders, management and employees. Our emphasis focuses on evaluating and improving the quality of skills development initiatives as well as improving service to stakeholders,” says merSETA Chair-person Ms Jeanne Esterhuizen. merSETA Chief Executive Officer Dr Raymond Patel says the organisation’s priority is quality training.

“We have developed programmes to address specific sector needs in line with the National Skills Development Strategy II. The Adult Basic Education and Training initiative evolved into Accelerated ABET, Business ABET and Occupa-tional ABET as a result of the findings of an impact study commissioned by merSETA,” says Dr Patel.

Other successful programmes include:

The Voucher Implementation Project (VIP), which is a focused, integrated and sustainable three-year strategy for SME development in the metal, engineering and related services sector.

The Accelerated Artisan Training Programme (AATP), the objective being to prioritise quality training in the context of the modern appren-ticeship mode. Participating employers have demonstrated remarkable transparency in sharing best practice in apprentice training with other employers on the project. Performance monitoring & improvement strategies have been implemented, including tracking systems of the actual productive contributions of appren-tices towards employer operations. Careful attention has also been placed on monitoring the cost of training an apprentice to trade test, with benchmarks set and shared.

Seeking to address the problem of a stable and high quality learner “pipeline” as a strategic objective, the Science, Maths and Technology (SMT) Project was commissioned this year.

Research and Development within the Projects Division. Sector Skills Planning, cementing relationships with national research entities and universities across borders, giving meaning to The Organising Framework for Occupa-tions, producing a range of skills development research and impact assessments as well as ensuring the constructive participation of all chambers resulted from this research dynamic.

TmerSETA strides the training field

Dr. Raymond Patel - CEO

merSETA has also notched up an average 60% satisfaction rate from its stakeholders.

“Stakeholder input proved invaluable in improving the overall performance of the merSETA. We are under

obligation to align national, provincial and local strat-egies to ensure the coherence so desperately needed for ultimate implementation success. We are up to it!,” says Ms Esterhuizen.


2009 PRESS RELEASES

Some snippets of what the Association fought for in 2009

Garage Owners accused of exploitationFollowing the latest petrol price increase, Laudium motorists are up in arms and claiming that local service stations were ripping them off each time the petrol price soared.

Laudium Sun 10th July 2009

Our Email ResponseWe have been notified by our members of an article from your newspaper (The Laudium Sun Weekly) dated 10 July 2009. The article is on page 8 and it reads “Garage Owners accused of Exploi-tation). Our organization is called Fuel Retailers Association and we represent over 1200 members nationally. We exist to protect and promote the interest of our members, who are Garage Owners.

We find your article very one sided and lacking in understanding of how this industry works....

Email sent through to Laudium Sun on the 17th July 2009 by Reggie Sibiya, CEO of Fuel Retailers Association.

Our Press ReleaseThe Fuel Retailers Association in line with its vision and objectives would like to respond to the article entitled “GARAGE OWNEERS ACCUSED OF EXPLOITATION” on page 8 of Ladium Sun Weekly, dated Friday 10th July 2009. Firstly, we would like to state that deliveries to the garages are planned and scheduled by the Oil Companies…………………………….

In conclusion, we as the Fuel Retailers’ Association would like to correct the poor publicity on the garage owners as a result of your published article. We do appreciate the right of motorists to raise concerns, but equally we would appreciate your proper response to their concerns and to respect the right of garage owners who have been accused as exploiters. More specifically, the damage done to the garage names in your article needs to be reversed and encourage all motorists who have been supporting this business to carry on doing so.

Published in Laudium Sun 31 July 2009( FRA paid for the article to be published )

As the Fuel Retailers’ Association, we do not agree that credit card payment for that matter, will increase volumes in the industry. Our view is that credit cards will do nothing to increase turnover in the industry, but will, unless closely monitored, lead to higher costs for the retailer. We call on every stakeholders who has the survival and development of the small business sector at heart to review their motivation for pushing credit card usage at a cost higher than the variable cost of cash, which is currently 0.82%.

As the Fuel Retailers’ Association, we promote the introduction of any innovation that brings convenience, provided it is not at the cost of the retailers’ margins. income. We call on the banks to recognize the reality of running a service stations………………….

Garages want more say in use of credit cardsMaureen MarudConsumer Editor – Cape Argus

The FUEL Retailers’ Association says it wants the government to give petrol stations the option to accept or reject credit cards at the pumps.

Sibiya said banks had not yet confirmed the rate they charge fuel retailers.“The rates banks charge merchants who accept credit cards are anything between 3 percent and 5 percent, which fuel retailers cannot afford to pay because our gross margins are only about 7 percent.”

He predicted that half the country’s fuel retailers would go out of busi-ness. “It is our responsibility to make sure that does not happen.”

This could be an Easter without fuelSupplies a problem as strike begins

As UNIONS and the road freight and logistics industry knuckles down for another grueling round of talks, South Africa is preparing for the possibil-ity of major disruptions if the strike which began yesterday continued over the weekend.

The Fuel Retailers’ Association (FRA) said it would be getting its first inkling today of the effects of the strike.

Sibiya said it was likely to be the smaller retailers who would be hit first by the strike, and those in the townships.

The Star, Wednesday April 8, 2009Bonile Ngqiyaza and Shaun Smillie

Petrol stations running dry as transport strike spreadsPETROL pumps will run dry “soon” if the transport workers’ strike continues.

The Fuel Retailers’ Association’s chief executive, Reggie Sibiya, said yesterday that his organization was “very concerned”.

The Times, Wednesday April 8, 2009Thabo Mkhize, Nkosana Lekotjolo, Lauren Cohen and Santham Pillay

How banks became card sharks at service stations - Sunday Times 02 August 2009

Now that the law has been changed to allow garages to accept credit card payments for petrol, BP and Engen are advertising that their service stations accept them. But, I have not been able to find one service station in Durban or Pietermaritzburg that accepts credit cards.

The decision to make it optional for service station owners is a farce and makes a mockery of the decision.

I see the collusive hands of the majors to stymie the regulation and prevent credit card sales of fuel; they did not support it and the Competition Commission should take a closer look at their activities. - A.C Vayej ( Motorist )

Reggie Sibiya, CEO of the Fuel Retailers’ Association, responds:

Oil Companies are supporting credit cards; they do not feel any pain on this initiative as it is the retailer who must absorb all the costs. In the main, the reason for not accepting the cards will be around the commercial requirements of the business. The retailer margin is regulated and fixed. It is normally reviewed after a long period and is never guaranteed, hence it requires protection at all times. The cost of running the business, including the intro-duction of credit cards, is not fixed and not regulated, and can erode already tight retailer margins.Debit cards are coming in at a cost level that is in line with the current cost of handling cash, and we are therefore not affecting the margins of most retailers who depend on their individual arrange-ments with the banks and other stakeholders. Unfortunately, the same cannot be said for credit cards. Because of this, we as the Fuel Retailers’ Association advise our members and any interested retailers to take good care in accepting any card based payment that will reduce their margin over and above what they presently incur when handling cash.


Radio & TV Mentions

TV STATIONS

SABC 1 SABC 2 e24 SABC3 ETV SUMMIT TV

INTERVIEWS & NEWS

Companies:Fuel Retailers Association Interviews,

Interviews: Reggie Sibiya ( LIVE ) / : Reggie Sibiya (RECORDED)

Fuel Retailers Association welcomes petrol price cut

Fuel Retailers Association says members will experience difficulties should credit cards be allowed to be used to pay for petrol and diesel

Fuel Retailers Association comments on petrol hikes due to fuel levies

Fuel Retailers Association warns of fuel shortages

Fuel Retailers Association welcomes the initiative by BP to subsidise fees for credit cards

Fuel Retailers Association comments on the impact of oil price increases

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Tracking Source


A construction boomMuch of this infrastructure was built about 40 to 50 years ago and then there was a veritable investment drought. But suddenly, from about 2006 onwards, there has been a comparative flood of interest in new investment into this critical infra-structure sector. Fortunately the start of this new wave of investment coincided with the advent of the National Energy Regulator (NERSA) and so we have a good idea of the shape and size of the investment boom. It also coincided, roughly, with the time when South African refineries were no longer able to meet domestic demand and imports of refined products became necessary to meet demand.

Refined product pipeline capacity to the inland market began to reach its limits in about 2006. In 2007 NERSA received three applications to build new petroleum products pipelines worth approximately R20 bn.

Petroline South Africa (Pty) Ltd. is a start-up company with a majority BEE shareholding. It applied to build a 12-inch diameter pipeline with a capacity of 3.5 bn litres p.a. from Maputo to Kendal via Nelspruit. (The Transnet DJP pipeline currently serving the inland market has a capacity of about 4 bn litres p.a.) The estimated capital cost was R3.8 bn.

Transnet Pipelines is a division of the state-owned conglomerate Transnet

Limited. Its New Multi Products Pipeline (NMPP) project included a 24-inch diameter trunk line from Durban to Jameson Park (near Germiston) plus 16-inch replacement lines from Jameson Park to Alrode and from Alrode to Langlaagte, as well as a new link from Kendal to Waltloo (near Pretoria). The trunk line would have an initial capacity of 8.7 bn litres p.a., growing to 25.3 bn litres p.a. as additional pumps stations were added. The business case was for a 20-inch trunk line but Government persuaded Transnet to increase it to 24 inches. The estimated capital cost was R9.5 bn.

The iPayipi Consortium had not finalised a shareholders agreement at the time of the application. Their application was for an even larger 26-inch diameter pipeline from Durban to Alrode. The estimated capital cost was R7 bn to R8 bn.

After weighing all the facts and evidence, NERSA granted construction licences to two of the three applicants, Petroline and Transnet Pipelines. The reasons for these decisions are available at www.nersa.org.za.

All three of these applications were received at about the same time. They all sought to serve the inland market, albeit by different routes. Each appli-cation was considered on its merits, although thought was given to the risk of overcapacity and “stranded assets”.

It was obvious that if all three applica-tions were granted, there would be excess pipeline capacity for many years to come, just as there has been excess service station capacity in South Africa for many years.

Market entry, cost escalations and delaysThe question for South Africa with regard to these large infrastructure projects (and possibly for service stations) is: how should the regulator choose between potentially competing applications? Economists call this regulating “market entry”. What are the criteria to be met in order to enter the market? The same question arises for different companies wanting to build new service stations close to one another. Who should be licensed? If only one, on what basis?

Price, as a proxy for economic efficiency, should in theory feature high on the list of criteria, especially in regulated markets where there is some sort of guaranteed return. In other words, where significant risk is passed from the investor to the customers, the regulator should try to protect the customers by opting for the lower priced applicant, all other factors being equal.

In the pipelines case outlined above, NERSA relied on the legislative prescripts and the merits of each application. The downside of this approach is that the risks are not clearly allocated to the riskholders from the outset. (NERSA does not

Developments in Petroleum Pipelines and StorageBy Dr. Rod Crompton - Regulator at NERSA

Service station forecourts are highly visible features of the South African landscape and often have brightly coloured branding. However, the infrastructure necessary to deliver fuel to the fuel retailers is mostly hidden or seldom seen, just like the petrol pumped into customers’ cars is seldom seen by customers. One hardly notices the underground pipeline route markers, the storage facilities and the marine loading facilities unless one is on the look-out for them. As the retail industry we often hear about pipeline tariff changes and we don’t really know how it all began and what are the developments behind these changes.We asked the expert in the field, Dr Rod Crompton to share some of his insights and knowledge in the development of the pipeline and storage infrastructure in South Africa. Here is what he says:


have the legal mandate to put such matters out to tender.)Consider for example Transnet Pipelines’ NMPP project cost forecasts shown in Table 1.

The Petroleum Pipelines Act, 2003 (Act No. 60 of 2003) provides that: “The tariffs set or approved by the Authority must enable the licensee to: (a) recover the investment;(b) operate and maintain the system; and(c) make a profit commensurate with the risk.” (section 28(3))

This means that the higher costs will be passed onto pipeline customers in higher tariffs. Ultimately fuel consumers carry the risk of cost overruns and pay for it in higher fuel prices. As service station operators may know, the demand for fuel from the motoring public is no longer as inelastic as it once was. Higher prices do reduce demand.

What does the law allow NERSA to do to control construction costs? The Regulations state that the regulatory asset base (on which the return is calculated) must “include only those assets that are prudently acquired” (Regulation 4(7)(c) ). Suppose that NERSA finds that some assets were not “prudently acquired” and disallows sufficient of them to place the company in financial jeopardy.

Then, in the extreme, if the company was liquidated and the pipeline was not commissioned, security of supply would be threatened. That is not really a feasible option for the economy which is dependent upon a steady supply of fuel.

A further significant risk is construction delay. For example, the Petroline pipeline was meant to commence operating in March 2010 which would have bolstered pipeline capacity for the FIFA World Cup in mid-2010. Unfortunately construction has not yet started, mainly due to outstanding environmental approvals. Transnet has also announced delays in the

commencement of operation of some of their pipelines. In such instances, it is clearly the fuel consumers and the economy that carry the risk.

What can NERSA do to limit the risk of construction delays? NERSA does require licensees to report at regular intervals, so progress is closely monitored. However, NERSA cannot intervene in another regulator’s jurisdiction (in this case the environ-mental authorities). NERSA can consider imposing fines for breach of licence conditions (the delay) but the prospects of success are slim if the licensee argues that the cause is another regulator.

How could these risks be more fairly allocated? In India, when interest is shown in the construction of a new pipeline, a competitive bidding round is triggered. The winning bidder is awarded the licence. The bids include tariffs (read price) and this then is “locked in” so that construction cost risk is passed from the motorist to the constructor. Naturally there is a price to pay for allocating that risk to the constructor. Nevertheless, this approach has two advantages. The bearer of the risk is identified upfront and there is a strong commercial incentive for the constructor to control costs.

Tariff structure and location advantageTransnet Pipelines is licensed to operate a system or network of pipelines. When setting tariffs, NERSA first calculates the “allowable revenue”, that is the revenue necessary for the year ahead. The second step is to allocate that revenue to the different pipelines, so that when the pipeline tariffs are multiplied by the volumes forecast to be pumped in each pipeline and then added all together, one arrives back at the calculated “allowable revenue”.

This sounds straight forward. Unfor-tunately, it is not. Transnet’s tariff structure does not appear to be underpinned by any systematic

approach. This means that there may be incorrect tariffs within the system sending incorrect pricing signals to investors, customers, and the economy. If this is the case, NERSA would not wish to perpetuate it.

This matter was vigorously contested at the NERSA public hearing held on 4 March 2010 where several stake-holders were represented by senior counsel. They presented different and opposing views on an appropriate tariff structure for Transnet’s pipeline system – all based on exactly the same legislation!

It is possible that one of the drivers behind these different views on tariff structure is something often termed “locational advantage” in the South African petroleum industry jargon. The Government regulates fuel prices using an import parity approach. “Locational advantage” refers to the fact that inland refiners that compete in the inland market do not have to incur the costs of transporting their refined products from the coast.

However, in the prices that they receive, they are deemed to have done so. Put simply, the higher the pipeline tariff from the coast, the greater the advantage that flows to the inland refiners.

Inland refiners supply approximately 60% of the fuel used inland. Assume that only the tariff for the refined products pipeline from the cost to the inland market increased by 10 cents per litre, then 6 cents in every litre purchased inland would flow to the inland refiners. The inland location advantage benefit flowing from a 1 cent per litre increase in that pipeline tariff is worth approximately R790 million per annum. The different stakeholders’ views fall into two groups. Transnet and the coastal refiners argue that the Transnet system must be treated as a system of interconnected and interchangeable pipelines. Conse-quently any increase in allowable revenue should be shared equitably between all pipeline routes according to distances and volumes pumped.

The other group, comprising inland refiners and competing pipeline licensees, argues that the system argument is factually flawed and that each pipeline should have a tariff related to its individual cost and operating expenses.

Table 1: Transnet NMPP Project Cost Forecasts

Date Transnet Forecast (R bn) January 2006 7.0 April 2007 9.5 September 2007 11.0 February 2009 12.6 January 2010 15.4


Table 2: Comparison of Durban to Alrode Tariffs (cents/litre)

System distance Individual pipeline volume approach approach 2010/11 2010/11 Difference

Durban to Alrode 11.67 9.27 2.40 Durban to Sasolburg (crude oil) 9.68 7.55 2.13

The differences flowing from these two views can be gauged by applying the two approaches to the Durban to Alrode (Johannesburg) route for refined products. The outcomes are very different with different conse-

quences for inland and coastal refiners and for the inland economy (see Table 2).The values in Table 2 suggest that the inland refiners might have had their eye upon the lower crude oil tariff (7.55 c/l). But why would the coastal refiners support a higher tariff for refined products (11.67c/l)?

Perhaps the answer lies in the possibility that they were both looking further ahead to the time when Transnet’s NMPP project will be operating and will be included in the asset base. This will quadruple its asset base. An estimate of what

the tariffs would have been had the NMPP been included in the 2010/11 tariffs is provided in Table 3.Table 3 suggests that the coastal refiners may have been eyeing the 7.94c/l lower tariff, while the inland refiners may have been eyeing both their inland locational advantage share of the 7.94 c/l as well as the 8.39 c/l lower crude oil tariff.

This is a possible explanation for the high level of interest among the oil companies in Transnet’s tariff structure and a good reason for the broader public to make their views known about such regulatory issues.

Decisions made by NERSA must be “in the public interest” . Clearly the higher the Durban to inland

pipeline tariff, the greater the fuel price impact on the inland economy. The complexity and the impacts of a ruling on this matter influenced NERSA in its March 2010 decision to spend another year trying to find the

right solution to this Gordian knot. In the process there will be additional opportunity for the public to make representations.These complexities are compounded by a deliberate distortion in the refined products and crude oil pipeline tariffs due to “Natref neutrality”.

Natref neutralityThe current shareholders in the Natref refinery claim that the original investors were persuaded by certain Government assurances, over 40 years ago, to construct this oil refinery at Sasolburg instead of at the coast.Government’s historical assurances

were, they claim, that Natref would be kept “transport (cost) neutral” when compared with coastal refineries. By this they mean that the costs of transporting crude oil from Durban to Sasolburg and then refined products from the Sasolburg refinery to say, Alrode, should not exceed the costs of transporting refined products from Durban to Alrode. Over the years this idea has come to be labelled “Natref neutrality”.

Put simply, this claim is for a geographical investment incentive, a type of incentive that was popular with the apartheid government at that time. This particular investment incentive is, unusually, linked to transport costs and therefore, it is claimed, inextri-cably bound up in pipeline tariffs.

Total South Africa (Pty) Ltd. is one of Natref’s shareholders and argues that the tariff for crude oil should be 17% lower than the tariff for refined products. Currently the difference is considerably less than this.

The key questions South Africa faces are: Was such an assurance given by Government? If so, is it still valid? And if so, what is the correct quantum to give effect to Natref neutrality and how should it be calculated? NERSA is investigating these matters. Again several implications come to mind: the public interest, locational advantage, the relative competitive positions of competing oil companies, and the impact on fuel sales volumes for retailers.

ConclusionThe investment boom in petroleum pipelines and storage is going to yield

a much stronger infrastructure to carry us forward into future economic growth. Cost overruns and delays are cause for concern. We cannot escape our past, and it brings with it complex issues that require resolution in the public interest.

Table 3: Estimate of tariffs including NMPP (cents/litre) System distance Individual pipeline volume approach approach including including NMPP pro forma NMPP pro forma Difference

Durban to Alrode 19.12 27.06 -7.94 Durban to Sasolburg (crude oil) 15.86 7.46 8.39

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Membership to the FRAThere is a lot to offer that you may not know about. So, get to know the FRA and take advantage of the full benefits of being a member of the leading fuel retail industry body in Southern Africa. For only R292 a month you receive up-to-date information on fuel retail industry issues, services and individualised help on matters such as site and retail licenses or legal problems. In this magazine we elaborate on some benefits that come as a result of belonging to the Association. You will also see a synopsis of some of the key activities the Association was involved in during the period March 2009–March 2010. Unfortunately we do not have enough space in this magazine to incorporate what the Association has done over the past ten years since inception in promoting and protecting retailers.

FRA history The FRA has a history as the leading voice in all fuel and fuel related issues. I am sure, after having gone through the magazine, that you will agree with me. There is a saying that there is always a gap between knowledge and practice and let me tell you that we always aspire to close that gap. We act swiftly and with passion with any knowledge available to us for the benefit of the retail industry in South Africa.

Retailer education and trainingThe FRA’s view is that there is still

a lot to be done in this area. Our belief is that oil companies train retailers to take over the site as opposed to running a profitable and successful business. In line with this, the Association has embarked on a Fuel Retailers’ Association Academy project aimed at being launched by the end of 2011. History shows us that the failure rate in our industry is quite high and, for the majority, there is no maximisation of profits because of lack of effective training. The real impact is never seen because the service station walls hardly come down, yet the exchange of hands is happening behind the walls all the time. There is a strongly held view that, if this industry were to be liberalised, a number of retailers would go under - mainly due to lack of effective skills and training.

Legislation and regulatory frameworkYou will see an article in the magazine called Mysterious death of the service stations which will provide much food for thought. I think that as South African retailers, we need to take a stand before it is too late. Without the effective financial support of the associations, we are heading for a destiny which we will have no-one else to blame but ourselves.

Retailer margin I tell retailers that I worked for an oil company for four years and never once did I hear someone talking

about fighting for the retailer’s margin. What does that tell you? Without a proper margin, your business cannot survive. Did you know that it is only through the associations’ involvement with the regulator that your business profitability is protected? There is currently no guarantee of any margin increase. Last year the retailer margin was obtained against all odds of ‘No margin until Task 141 is completed’. To those retailers who feel they cannot afford the association fee of R292 per month, it may be a good enough reason to join and support those who fight for improved margins for your future affordablity.

Industrial relations advice (IRA)The FRA will soon be launching its Industrial Relations Advice (IRA) Resource Centre to its members. This service will provide expert, up-to-the-minute industrial relations advice to FRA members which will assist them in making the most of their membership. Coupled with this, we are expanding our face-to-face support in this area at very competitive prices.

Grass roots operationIn our endeavour to remain a grass roots level organisation, we have employed Regional Representatives who will regularly visit you for face-to-face interaction so that your voice may be heard in a less formal environment.

Effective networks The FRA actively participates in industry forums and thus is key in the shaping of major issues affecting this industry. One such forum is the African Mineral & Energy Forum where topics critical to the survival of the industry are discussed and debated (we have included some photographs of our participation at

Why be an FRA Member? By Reggie Sibiya

Well this is a question that, as the CEO of the Fuel Retailers’s Association (FRA) I get asked everytime I introduce FRA or I ask retailers why they are not members?

“ History shows us that the failure rate in our industry is quite high and for the majority, there is no maximisation of profits because of lack of effective training.”

this event). More importantly, the key stakeholders such as the Department of Energy and SAPIA (South African Petroleum Industry Association) are always at these forums to record the outcomes and use them in their policies and strategies.

The Association also participated in the Investec Liquid Fuels Conference and was invited by the Minister’s Office to hear the Budget Speech in parliament.

National Environment Management Act (NEMA) regulations The Association has funded and supported the work around NEMA regulations to protect our industry from proliferation.

Licensing Resolving outstanding license queries and complex issues around licensing is another area where FRA members have enjoyed significant assistance from the Association. We have achieved this only through excellent

and effective working relationships with the Department of Energy and the Controller’s office.

The objectives of the FRA, with regards to licensing are:• To follow-up on the status of Applications for licenses and assist our members with progress.• Assist our members in saving

money by using FRA directly in-stead of consultants and lawyers.

• Getting our members to comply with the PPA ACT.

Working to keep you informed

Please take the time to see what FRA

membership can offer you. Visit our website

www.fuelretailers.co.za.

Members can login to their own page for

regular updates and more detailed informa-tion about the industry

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DON’T BE A VICTIM: COMBAT FLEET CARD FRAUDThe following information will help you and your employees identify and prevent possible fleet card fraud, especially the use of counterfeit or cloned cards. By rigidly applying these guidelines you will reduce the number of instances of transactions being charged back to you.

Details that need to be verified on a fleet card

What you should look out for• Make sure that the card has not been tampered with.• As far as possible, ensure that the logo of the bank that issued the card appears on the card and is up-to-date and

correct. Poor quality and out of date logos are clear indicators that a counterfeit or cloned card is being presented for payment.

• Never allow the filling of containers without the written authorisation from the bank that issued the card.• Your point-of-sale terminal will request an odometer reading, if the details described in the table above, are not em-

bossed on the card, no transaction should take place as this would indicate a counterfeit or cloned card.• Whenever offline, remember to make an imprint of the card in order to prove that the card was present at the time

that the transaction took place. If the imprint does not have all of the above details described in the table above, then the card transaction will be deemed to be invalid.

Steps to take when you are not at ease with a transaction• Contact the bank that issued the card. Contact details of the card issuer appear on the back of the card.• Request identification from the driver and make a copy.

Tips to avoid chargebacks• Do not accept the card for payment if any of the details, that are described in the table above, are missing from the

card or do not correspond with the details of the vehicle on your forecourt or workshop.• Do not fill containers without authorisation from the bank that issued the card.• Do not exchange cash without fuel being dispensed into the vehicle.• Ensure that the last four digits of number on the card correspond with the four digit number displayed on the

voucher.• Adhere to the rules and regulations set out in your merchant agreements with the fleet card issuers.

Contact details of the fleet card issuersAbsa Fleet Management: 012 317 0505Nedfleet: 0800 335 311Standard Bank Fleet Management: 0860 106 249Wesbank Fleet: 0861 000 575

Vehicle description and registration number

The vehicle description and registration number must ap-pear on the card and must always match the details of the vehicle present on your forecourt or premises. If the details do not match, no transaction should take place and the card should be confiscated.

Expiry date

Make certain that the card displays an expiry date and that it is still valid. Where possible ensure that the expiry date on the card matches the expiry date on the slip.

Card number

Ensure that the last four digits of the card number em-bossed on the card, match the four digits of the card num-ber printed on the sales voucher.

Tank capacity

Ensure that the maximum tank capacity is displayed on the card. Under no circumstances may this be exceeded.

uring the past year, the Fleet Card Issuers being Standard Bank Fleet Management, Absa Fleet Management, NedFleet and Wesbank Fleet have experienced a significant increase in fore-

court card related fraud. As one of a number of projects to address this problem, the Fleet Card Issuers and the Fuel Retailers Association have created a workgroup which operates under the Fleet Card Issuers Strategy Forum under the auspices of the Payments Association of South Africa (PASA). The purpose of the workgroup is to provide industry solutions that will reduce losses associated with fraud, increase fraud awareness and provide assistance and information to fuel retailers relating to the acceptance of the fleet cards on forecourts.

The following objectives were identified which took prefer-ence in the discussions:1. Enhanced forecourt processes to include pre-authori-

sations;2. Online authorisation system for fleet cards; and3. Fraud investigations and charge backs.

To succeed with these objectives it was important that all the parties commit to work together to achieve what is in the interest of the industry. For the changes suggested it was imperative that both the Fleet Card Issuers and Re-

tailer re-engineer their processes and procedures.It is a pleasure to inform you that we managed to make some changes to the current processes and we are now in the process of conducting discussions with PRAF for the approval of the following:1. Road shows2. One page guideline for the forecourt attendants3. One page guideline for the retailer4. Agreement in terms of the charge back process

We also managed to bring about certain system changes which commenced in November 2009 to implement an online authorisation system in a phased approach for fleet cards. This means that, eventually all fleet cards will go online and will be checked against a larger hot card file, with additional validations also taking place. The Fleet card issuers have started operating 24/7 call centres and have initiated the training of customers on the new processes such as pre-authorisation on forecourt. In closing, we attach a fraud prevention document that should greatly assist you in limiting losses associated with fleet card fraud.

Leon du PlessisChairman – Fleet card Issuers Strategy forum

Counteracting Fraud:Developments taken by the Fleet Card Issuers, Working with FRA

D

Company Owned Dealer Owned

FRA MEMBERSHIP APPLICATION

PLEASE PHOTOCOPY / COMPLETE AND FAX TO FRA ON 011-787-8719

FRA Membership Number:______________________________ MIBCO Number:________________________ Service Station Name:_____________________________________________________________________________ REGISTERED AS (CC, Pty, Ltd)):_____________________________________________________________________ Site Type: Number of Sites:

Dealer Contact Name: [Mr] / [Mrs]: ___________________________________________________________________

Physical Address: ______________________________________________________________ Code:____________ Postal Address: ________________________________________________________________ Code:____________ Tel No: __________________________________________________ Fax No: _______________________________ E-mail:___________________________________________________ Cell No: _______________________________

Magisterial District: ________________________________________________________________________________ Province (TICK) E CAPE F STATE GAUTENG KZN MPUM NW PROV N CAPE LIMPOPO W CAPE

Oil Company

AFRIC OIL BP CALTEX ENGEN EXEL SASOL SHELL TEPCO TOTAL ZENEX OTHER

Signature: ______________________________________________ Date: _________________________________

Method of Payment Direct Deposit Cheque Debit Order EFT

OPTION 1: R3032.00 (Incl) Annual Fee OPTION 2: Debit Order - R292.00 P.M. (Incl.) Bank Details: Fuel Retailers Association, FNB Randburg, Account Number:62010044923, Branch Code: 254005

If paying by Debit Order, please complete the following bank details and sign for authorization.

BANK NAME ACCOUNT NUMBER BRANCH CODE

(1) Authorised Signature : __________________________ (2) Authorised Signature: ___________________________

FUEL RETAILER’S ASSOCIATION OF SOUTHERN AFRICATel: (011) 886 2664. Fax: (011) 787 8719.

email: [email protected] O Box 4816 Randburg 2125.

276 Oak Avenue, Randburg

You can download a copy of the latest Forecourt timesOnlineVisit www.fuelretailers.co.za.

So, get to know the FRA and take advantage of the full benefits of being a Member of the leading fuel retail industry body in Southern Africa.

For only R292 a month you receive up-to-date information on fuel retail industry issues, services and individualised help on things such as site

and retail licenses or any legal help.

Call (011) 886 2664 for more details or visit www.fuelretailers.co.za

There is a lot to offer that you may

not know about

Working for the Fuel Retailers

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