Address by Deputy President Kgalema Motlanthe at the Oil and Gas Indaba 2010 Free State, Bloemfontein, President Hotel
10 Aug 2010
Minister of Energy, Ms Dipuo Peters
Premier of the Free State, Mr. Ace Magashule
Chairperson of the Portfolio Committee on Energy, Ms Elizabeth Thabethe
Members of the Portfolio Committee on Energy
Senior Leadership of the Free State province
Leaders of the Labour Movement
The Director-General of the Department of Energy, Ms. Nelisiwe Magubane
Senior Officials from the various government departments;
Our partners and representatives of; PetroSA, Total SA, Shell, Sasol, Engen, Chevron and BP
Retailers and their associations
Ladies and gentlemen,
I am more than honoured to address this historic event, the Oil and Gas Indaba 2010. Equally I am pleased that this event is taking place a day after our National Women’s Day. Given the nature and significance of the issues that brought us together during this significant month in our political calendar, this event is contextually special.
I am also informed that the Department of Energy has received an application for a manufacturing facility that will be based in this province, which will make diesel from disused tyres. Consequently, hosting this Indaba in the Free State is opportune, since the Free State province is poised to play a catalytic role in the pursuit of cleaner fuels, particularly biofuels.
Energy is the engine room of a country’s economy. Without energy the wheels of economic development and growth would grind to a halt. In the modern age, without energy productive and constructive human activity of any kind would cease. It is against this backdrop that this Oil and Gas Indaba assumes critical importance to all of us here and the country at large.
Whilst I do understand and acknowledge that oil and gas are but a portion of the entire energy spectrum, I would equally concede to the strategic role played by these energy resources in the socio-economic development in our country. Moreover, the convergence of energy carriers does not permit that one talks of one form of energy in exclusion or isolation of others.
This confluence of possibilities has made the provision of energy more complex and challenging than it used to be, thereby requiring modern and innovative ways to deal with it. Integrated energy planning is no longer an option but an imperative. It is with this in mind that the Department of Energy wants, among others, to partner with the industry that is operating in this sector to develop a Twenty Year Liquid Fuels Road Map that will encompass the whole liquid fuels value chain, including logistics.
Therefore, our strategic thrust should be that of ensuring energy security, particularly the security of energy supply. The shortages of liquid fuels in December 2005 as well as the electricity brownouts and blackouts in recent years have awakened us to the need to look at energy matters differently. A positive aspect to emerge out of the electricity and liquid fuels shortages is that they served to awaken us and to strengthen the resolve with which we address challenges of energy security. However, government and organs of state cannot tackle these challenges on their own.
We all need to work together as stakeholders in a sustainable partnership to ensure security of energy supply. Our starting point, therefore, is to promote discourse on energy-related matters. We cannot experience the kind of growth and development that we aspire to achieve without energy security. Losses that our country incurs as a result of erratic or lack of energy supply are too dire to even contemplate.
I am told that a study conducted by the Department of Energy has indicated that a day without a drop of liquid fuels in our economy would result in a loss of close to one billion Rands (in 2005 figures). I am confident that the Department of Energy will in due course come up with a plan on how we can prevent these eventualities.
Ensuring energy security requires that all elements of the oil and gas value chain be addressed, including the transformation of these sectors. I am informed that the Charter for the Economic Empowerment of Historically Disadvantaged South Africans in the Liquid Fuels Industry (“the Charter”) preceded all other charters. The Charter also became law by virtue of being annexed to the Petroleum Products Amendment Act, 2003 (Act No. 58 of 2003).
Whilst we applaud successes attained through the Charter process, we cannot and must not be oblivious to the lack of progress in some key areas, particularly if one considers that the liquid fuels industry was a pioneer in the process of the many Charters that are found in other sectors of the economy. I have also been informed that the procurement of services inclusive of crude oil sourcing from Historically Disadvantaged South Africans (HDSAs) by the oil industry has been below five percent.
What this means is that we need to expand opportunities so that most of our people also share in the prosperity that is prevalent in this sector. It remains a concern that the empowerment of Historically Disadvantaged South Africans is still, to some extent, limited to the non-core business of the oil and gas industry. This is not what is supposed to underpin the spirit and letter of the Charter. The Charter, signed in November 2000, sought to transfer at least 25% ownership and control of all facets of the industry over a period of ten years to the Historically Disadvantaged South Africans. With November 2010 on our doorstep, the big question is: Are we there yet and what is the next phase?
In this regard, the Department of Energy has commenced with a project to conduct the final assessment of progress we have made so far in transforming this sector. The determination of the next empowerment dispensation and the amendment of the relevant legislative framework will rely heavily on this pending assessment. I hope we will learn from the past and ensure that we don’t just make undertakings but that we do actually deliver on our promises.
Delivering on our promises entails the task of confronting structural hindrances to empowerment and openly discussing possible solutions as foundations for moving forward. Chief among such structural hindrances are vertical integration and logistical infrastructure constraints. Vertical integration increases barriers to entry, particularly for Historically Disadvantaged South Africans wholesalers, who basically have to compete with the wholesaling arms of the very established oil companies they have to source products from.
It is a known fact that South Africa’s demand for liquid fuels has outstripped domestic supply. Besides the challenge of building refining capacity, the requisite infrastructure has to be built to handle increasing imports in the intervening years. Hence the sanctioning of the development of a 20 Year Liquid Fuels (Infrastructure) Road Map by the Minister of Energy will go a long way in ensuring orderly development of the liquid fuels industry.
For Historically Disadvantaged South Africans and new entrants, the biggest hindrance to participation in the sector is access to storage and distribution infrastructure. This is a matter that requires cooperation by all involved to resolve. It is therefore critical that we internalise the message contained in the theme of our Indaba, which is:
“Working together to create jobs and more opportunities in the oil and gas sector”
As role-players we do have the ability to expand the frontiers of opportunities in this sector by creating an empowerment environment further to benefit the previously disempowered South Africans. Furthermore, the goal of ensuring that this sector makes a major contribution to dealing a blow to poverty by, amongst others, eliminating energy poverty is very important.
Our country needs to leverage our energy resources to improve our competitiveness as a nation, particularly the competitiveness of our economy. Linked to this is the realisation that the attainment of our national priority goals as well as the Eight Millennium Development Goals (MDGs) requires a properly functional oil and gas sector. To this end, established players in this industry need a paradigm shift from a scarcity mentality to that of growth and expansion.
As it is we are in an unenviable position of being the net importer of crude oil and having very limited gas resources. However, we watch with enthusiasm the developments in the shale gas space. Natural gas from Mozambique continues to flow into our country and a compressor station has been constructed in Komatipoort to increase the natural gas flow rate from 120 Giga Joules per annum to 147 Giga Joules per annum.Such cooperation with our neighbours in pursuance of increased intra-African trade in the energy sector for regional and continental development needs to be applauded.
It is precisely because of this interdependence in the region that we should continue to value the SA liquid fuels market, which is inclusive of the BLNS countries, that is: Botswana, Lesotho, Namibia and Swaziland. At the same time, we also appreciate efforts to embark on the New Multi-Product Pipeline (NMPP) Project and Project Mthombo respectively, by state owned entities, Transnet and PetroSA.
These projects, which respond directly to our Energy Security Master Plan for Liquid Fuels of August 2007, seek to address the fuel supply challenges faced by our country and will invariably create jobs and other opportunities for many South Africans. While the New Multi-Product Pipeline will address the transportation of liquid fuels to the country’s economic hub, which is Gauteng, the challenge of inadequate associated infrastructure for storage and distribution remains.
I expect the conclusion of the Regulatory Accounting System project in this financial year to assist in addressing this challenge. The Regulatory Accounting System project will ultimately set margins for the various activities throughout the various segments of the regulated fuels value chain.
This will enable the department to channel investments in specific segments of the value chain, particularly storage and distribution. The department will also engage industry players on the development of infrastructure for holding of strategic stocks.
The generation, handling and use of energy, particularly fossil fuels, are usually accompanied by the prevalence of negative impact on the environment. We are therefore conscious that sustainability is of concern in view of our determination to reduce greenhouse gas emissions. Tightening of fuel specifications and standards is inevitable for compliance with environmental challenges and new vehicle engine technology requirements.
The introduction of carbon tax requires the availability of corresponding fuel quality to reduce greenhouse gas emissions into the atmosphere. As government we have committed ourselves to reduce greenhouse gas emissions drastically in the next two decades. Perhaps some believed that this was all hot air, however, a number of initiatives across government should be an indication of our commitment to achieving these critical objectives. The Carbon Tax regime that has been introduced by the Minister of Finance is one such initiative.
Some believe that the introduction of this tax is premature, however coupled with the fuel standards that the Minister of Energy will promulgate before the end of this year, these initiatives will facilitate the production of more fuel efficient engines and result in lower carbon emissions. The oil industry must therefore ensure readiness to make the necessary changes to their refineries for local manufacturing of petroleum products.
Environmental challenges also provide prospective new entrants with an opportunity to participate in the development and deployment of technologies for the production of environmentally friendly fuels and fuel efficiency.
The Department of Energy in conjunction with other government departments and CEF, has commenced with the development of a biofuels pricing mechanism which will assist in the implementation of the Biofuels Industrial Strategy. I urge producers of mineral fuels to assist in this endeavour.
I also urge the industry to cooperate with gvernment in promoting empowerment in related fields of petrochemicals and the whole spectrum of refinery products. On this account, we should thank the Minister of Energy for the step that she has taken to reduce the price of Liquefied Petroleum Gas.
Government through this step will ensure that at least R500 million per annum remains in the pockets of consumers, which will then be available for other economic activities. In these tough economic times this is important as that money can be used to perhaps purchase other goods which will create more employment.
In conclusion, ladies and gentlemen, in the light of all the critical matters surrounding the question of energy in the country, I am confident that this Indaba is not just an event but the beginning of a broad, vision ased process.
I am also confident in its long term success as an initiative intended to broaden the participation of all South Africans, particularly women.
I wish you a rewarding and productive Indaba.
I thank you.
Issued by: The Presidency
10 Aug 2010
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