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Interview

with Ayanda Mjekula, Chief Executive Officer, South African Supplier Development Agency (SASDA (Pty) Ltd)

29.02.2012 / Energyboardroom

Looking at the South African economy at large, a key element in 2012 would become infrastructure, both in the words of President Zuma and Finance Minister Pravin Gordhan. Is everything in place to drive South Africa forward in this respect, and what is your overall rating of the South African economy as it stands today?

At present we suffer from the malaise that is afflicting Europe. It has had a negative effect on our potential growth, which is also why Minister Gordhan’s growth expectations for the South African GDP fell below 3% for 2012, instead of the 3.4% that had been previously announced.

Whether everything is in place to kickstart the South African economy? I think we are not yet quite there and new infrastructure will need to unlock a lot of potential to facilitate the growth of the economy. The announcements were positive, but we still need to see these plans materialize.

How confident are you that these materializations will take place this time?

The head of Transnet has now mentioned some more specific plans which sound promising. Moreover, for practical reasons it has to happen. Our industries –the mining industry in particular- do need these facilities to export more commodities. This is the reality the South African economy is facing.

When our colleagues interviewed you during your tenure as Chairman of the Central Energy Fund (CEF) in 2006, you said that the South African oil and gas industry was becoming increasingly regional and that the country had become a service hub to the region and the subcontinent as a whole. At the same time, you also mentioned that the different CEF subsidiaries were increasingly pursuing the ideas of NEPAD. Compared to 2006, has South Africa progressed on this front?

As far back as 2006, we were talking about a potential oil hub in the South West of the country. Developments have taken place on an ad hoc basis, rather than in an organized manner. While a lot is happening ad hoc, there could be more activity in places such as Cape Town and Saldanha Bay if it would have been better organized.

More recently, the industry has put high hopes into the E&P developments across the continent. How do you see this impacting the growth opportunities for South Africa as well as the industry suppliers you now represent through SASDA?

There are many opportunities. Countries such as Angola are huge producers but still need a lot of time to develop the necessary infrastructure. Only now, they are going to build a refinery. We could seize the opportunities that are available to help both Nigeria –which has got the Port Harcourt refinery- and Angola. We are more advanced in providing such infrastructure and are well positioned to bring in our expertise.

South Africa itself is a major refiner on the African continent, beyond Egypt, Algeria and Port Harcourt as you mentioned. There have been some concerns about the capacity and reliability of the South African infrastructure, however, as raised by Minister of Energy Dipuo Peters. Are these concerns –as well as the fear for energy shortages in the country- justified?

I feel that the current refining capacity in South Africa is aging. The infrastructure needs to go through major upgrading that will require huge capital investments. With regards to the new suggested refinery in Coega, my view is that we do need such refinery although a smaller capacity –perhaps 280,000 to 300, 000 barrels per day- would suffice. One has to observe the situations in order countries to ensure that we do not end up with a scenario of overcapacity. However, I have no doubt that we require a modern refinery in view of shortages we have experienced because of the breakdowns in our existing refineries.

A key constraint for South Africa, however, remains the lack of oil. We have not yet made any major discoveries. It must make logistical sense to bring in crude from abroad and then export refined product throughout the continent, although demand will probably be there.

Considering that there is gas in adjacent areas such as Angola, Namibia, etc. there must be some resources available in this area. We are bound to find something. PetroSA is spending significant amounts of capital to develop the fields on the South West Coast, something they would not do if the probability of new finds would not be justified.

The Karoo region has been said to offer considerable shale gas potential, yet it remains a very sensitive topic on how to extract this gas in a sustainable manner. How confident are you that this potential can be unlocked?

The potential for shale gas is enormous, but whether we are going to overcome our environmental issues is a different question. What is clear, however, is that the area of the Karoo needs urgent economic activity to provide general development of the region. One hopes that one can reconcile the environmental concerns about fracking and the economic and commercial imperative this country needs. Surely, with advances in technology there must be ways and means of mitigating the environmental degradation fracking may cause.

South Africa has given rise to local champions such as PetroSA and Sasol, recognized worldwide for their GTL technology. To what extent do you see the opportunity for South Africa to bring more such groundbreaking technologies to the world as a whole?

The potential is always there and Sasol has done very well in commercializing their coal-to-liquids technology in North Africa and China. PetroSA has also done well with the gas-to-liquids technology. I do think South Africa is a veritable field for technology innovation, but we need to develop the aforementioned oil hubs to truly unlock such innovation.

Through SASDA, you encourage black economic empowerment of suppliers to the oil and gas industry. Where does the industry stand in terms of empowerment today?

In 2005, the Petroleum and Liquid Fuels Charter was concluded by the industry and the Department of Energy, stating that 25% of the industry’s procurement should come from BEE suppliers. The spirit of the Charter was to empower small and medium enterprises (SMEs). What has happened however, is that the industry has been using BEE companies –by law- which are not necessarily small or medium in size. While they are compliant according to the BEE Act, this approach has negated growth of the SMEs.

The current legislation which is being contemplated has a far better definition than the BEE Act and puts emphasis on the SMEs unambiguously. It talks about black-owned and black-controlled companies which would talk about 50.1% black-owned companies. This is the space the SMEs play in. Now is the chance to truly empower SMEs rather than conglomerates that happen to have a 25% black ownership. This is an important distinction to make.

The new legislation can reshape the industry and also has an important addition in terms of localization. Together with the emphasis on SMEs, the 25% will be achieved, especially in view of the fact that there will now be consequences for non-compliance which has not been the case in the past. The emphasis in the proposed legislation is going to be on enterprise development, job creation and tangible transformation of this country.

What kind of sanctions are we talking about then?

Fronting is a phenomenon where black people are registered as directors without having actual participation in the company. In some instances, they thus have no economic benefit flowing to them. Now, there is the power to call in law enforcement and take various penalties ranging from imprisonment to fines based on the turnover of the company. Anyone has the right to report what they construe to be non-compliance in terms of the proposed legislation. This did not exist before.

To what extent can SASDA also help in supporting these local companies on the international scene?

SASDA plays an important role in terms of supplier development, but it all starts with opportunities in South Africa. We can develop these suppliers to the extent that they become proficient and certified so that we can export them to producing countries like Angola.

Do you have a final message to share?

To manufacturers producing goods and services offshore, I can say that we can certainly facilitate the setting up of their operations in South Africa. We can develop their suppliers in their particular space. They must therefore not be deterred by talks of a lack of skills. Through SASDA, we can facilitate the development of such capabilities so that whichever company has to supply such manufacturer will become a sustainable and reliable supplier.

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