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Interview

with Christophe Zyde, COO Africa, Puma Energy

23.04.2012 / Energyboardroom

You arrived with Trafigura in South Africa 2 years back, switching from the Belgium-based multinational materials technology company Umicore. To start off, how have you experienced your first 2 years in this new environment?
Ultimately, these first 2 years have been extremely challenging as I had to learn a complete new business. Initially, I was hired to run the commodity business of Trafigura in this region, rather than fuel. Step by step, I took on other parts of the business of Trafigura, such as logistics, to eventually become the regional Chief Operating Officer (COO) of Puma Energy last year. With Puma Energy, I initially had to start building up the exposure and first had to look at our acquisition of BP’s downstream business in the region.
By the end of that year, we increased our focus on a number of West African countries including Ivory Coast, Ghana, as well as Angola since this January. Since a week now, I have entirely moved from the Trafigura business to Puma Energy. I have thus seen a lot of changes in these first 2 years, as well as a lot of learning. It has been an extremely challenging and fast-growing period, in which we have grown from a 20 people office in 2010 to 120 today.
Trafigura as a Group is extremely bullish on Africa, both in terms of mining from a sales perspective as well as fuel from a supply point of view. We are well presented with our oil commodity business in the African continent and regularly participate in public tenders where we work together with local governments on their strategic supplies. Puma Energy, as a downstream operator, also has a growing presence.

What impact did the BP acquisition exactly have on Puma Energy’s footprint?
Before we acquired BP, we were active in Ivory Coast and Mozambique purely from as storage perspective. In Ghana, we were also running facilities to offload ships, i.e. the SBM. We had a full presence –meaning storage and distribution- in Congo-Brazaville, the Democratic Republic of Congo (DRC) and Angola.
With the BP acquisition we added 5 countries in Southern Africa which effectively meant a doubling in presence. We have taken on big markets with big market shares, again with a full presence. Within the same year, we also acquired Caltex in Namibia, taking us to a market share where we typically want to be.
Just last week, we acquired an LPG facility in Benin. We thus keep on moving, both from a regional as well as a product perspective. We previously had LPG distribution activities in Namibia and Botswana which we have divested, mainly because we are looking into the storage business for LPG.

You speak of a ‘market share where you typically want to be.’ What levels are we talking about?
In most of the markets where we have a full presence, we target market shares of around 30%. The highly competitive market of Tanzania is an exception where we have around 15%.

You have also publicly announced your intentions to use Namibia as a regional hub. Can you elaborate on your vision behind this, as well as what makes Namibia the right market to do so?
South Africa is running short of product because of the limited capacity and condition of its refineries. These refineries regularly face shutdown periods during which production needs to be substituted by imports. While South Africa was massively exporting clean products years ago, they are a significant importer of clean products now. The implications of this are that markets that typically used to be supplied from South Africa face certain challenges. Countries such as Namibia and Botswana have therefore increasingly started importing products. In view of increasing costs of logistics, such as pipeline rates, other alternatives to supply from South Africa have become more and more economically viable for these countries.
Now, it is possible to effectively and competitively import product into Namibia from other sources. Botswana is still a bit more difficult and it is still cheaper to supply out of South Africa rather than neighboring Namibia, although this may soon change. Namibia can also be a future source of supply to Zambia. This approach fits within the Puma Energy strategy, which is to guarantee supply to our markets and -more specifically- our customers, which mainly consist of the mining industry. All mining customers need to be certain that they have supply at all times.
When we took over Botswana from BP on November 1st, South Africa experienced a sudden shutdown in several of its refineries because of technical reasons. While we had supply agreements in place with a number of South African companies, they faced a so-called ‘force majeure’ as they could not even supply their own market. However, we immediately activated supply out of different sources to guarantee the production of our mining customers, a move that was heavily appreciated by them. We have such set-up in place for our customers in Zambia and the DRC where logistics chains are long too. Problems can occur in several of our markets, which is why we need to have a lot of different possibilities of supply to be able to offer our customers guarantees.

In Africa, a lot of work still remains to be done when it comes to infrastructure and logistics. Where do you see room for improvement in your supply chain?
There has not been sufficient investment in product storage facilities to date. When we took over in Namibia, the storage facility was typically built for South African supply. In the past, these facilities could only accommodate small vessels coming from South Africa. However, to import product from elsewhere you need to be able to receive much larger vessels for your supply chain to make economic sense.
As a result, we significantly increased our capacity in Namibia in a two-staged approach. In a first phase, we upgraded the BP facilities we took over. Now, we are running a second phase, which is a USD 15 million investment plan to add another 30,000 cbm of storage. This will effectively allow us to import full vessels to supply Namibia. We are doing to same in Dar es Salaam in Tanzania as well as in Beira in Mozambique. These countries are experiencing explosive growth and see their general economy improving, while several new mining projects are coming on-stream areas too.
We have therefore seen the need to invest heavily in logistical infrastructure, where we both look at our depots as well as how to move our product from coastal depots to the inland market. Therefore, we also look at how we can assist railway companies in beefing up their infrastructure to ship more by rail and move away from typical road transports.

In South Africa, Transnet has recently announced very ambitious plans to invest heavily in new infrastructure. Are we seeing similar intentions from the governments in your other markets such as Tanzania?
One investment Tanzania is currently looking at is to put a new SBM in place, to address the current congestion at their Kurasini Oil Jetty (KOJ). This issue has already been partly resolved by the implementation of bulk procurement, which is run under a tender with a very strict delivery schedule. The new measure will allow for much bigger vessels to arrive in the port in anticipation of future growth of the local economy.
In Namibia, the government looks more at the industry for the implementation of capacity increase projects and Botswana, in turn, is looking at investing in facilities to hold some strategic storage. Step by step, these countries are developing policies to support the industry and enhance multi-product sourcing.

From these different markets, where do you see most growth for the coming years?
We still see massive growth coming from the Katanga region in the DRC, particularly from a mining perspective. In Zambia and Namibia, we also see a lot of different projects being implemented at the moment. Mozambique is also experiencing massive growth because of its coal developments. Here, we do not only see growth in the fuel consumption for coal mining, but also an increased demand to serve the transportation of coal. Presumably and looking at the massive volumes, most of this coal will be moved by rail. In most of the markets we are active, we are expecting growth rates of more than 10% per annum.

It definitely justifies the investments Puma Energy has been making. Looking at the company’s capital, we have also seen Sonangol taking up a considerable equity stake. How important was this in the company’s growth story?
Sonangol is very important for us, even though we even compete with them in Angola, where we are the only 2 players in the downstream retail market. What we have shown to Sonangol, however, is that we can bring a level of professionalism in what we are doing. Sonangol is also an incredible success story and a very recognized African player in itself.
With Sonangol on board we have also been able to accelerate our growth in other parts of the world, such as South America for example. Today, there is a window of opportunity where many people are divesting their assets. Once we pass this stage, we will look at optimizing the business further, especially on the logistics side which is an area we master very well.

In our discussion last week, Deloitte’s African Oil and Gas Leader Anton Botes brought forward that 75 to 90% of the IOC’s net revenues come from their upstream business, justifying further divestments downstream. Would you agree that this is the driver behind these different divestments?
It does not apply to every IOC whereas Total is doing the exact opposite for example. They are still very aggressive –even in Africa- in trying to gain market share. Those companies that have moved out, such as BP and Shell, are now more focused on upstream as well as their core markets in downstream as they are not moving out of Europe, Asia or Northern America. Ultimately, it remains important for them to have a market for the products they are producing.

What are going to remain your priorities to take Puma Energy forward?
In the short term, we are still looking at a number of opportunities as we see the window of opportunity on a number of targets closing quite fast. We keep exploring such opportunities in Africa and South America, before we move into a mode where we will be optimizing the way we work. We will then start looking more into cost control, supply optimization, and so on.
On a constant basis, we will also work on our relationship with Trafigura as a supplier of most of our products to jointly look at supply initiatives. We will also work on our relations with the different governments to sustain the margins we face in our different markets. At the end of the day, we are in the business to be sustainable.

How would you rate the approachability of these different governments?
Relationships have been good in all of the countries we operate in. We have easy access to the Ministries of Energy, and they are generally supportive. However, they naturally remain reluctant when we speak about increasing margins to guarantee a decent rate of return. They understand that the industry needs to invest, but also want to protect their citizens. They are in the middle of the two and have to try to find the balance. Nonetheless, they are always open and approachable.

Do you have a final message to both the international readers and the South African stakeholders?
Trafigura and Puma Energy absolutely believe in Africa as a growth market. Looking at the different projects that are due to be implemented, this is just the beginning for us. On top of that, Africa is the fastest growing continent from a demographical point of view as well. It is not an easy place, but it can be understood and governments listen. So far, we have also been rather pleased with how the different governments have been sticking to their commitments. They ultimately understand the need to support the industry and considering that fuel is so strategic for them, they always see the interest in working together.

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