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Interview

with Nosizwe Nocawe Nokwe, President and CEO, PetroSA

29.03.2012 / Energyboardroom

Having studied at Baku Polytechnic, followed by a Petrochemical Engineering Degree from the Moscow Institute of Oil & Gas, a Management Certificate from INSEAD, and so forth, you came off a strong base for a successful career. Can you introduce the career path you embarked on after these extensive studies?

I started off as a laboratory technician at Engen back in 1992. Coming in with a Master’s Degree in Chemical Engineering from the Moscow Institute of Oil & Gas, such starting position is rather odd. Yet at that time, there was not a single African woman in South Africa that was a chemical engineer. Coming from the former Soviet Union, circumstances were also quite different than today. This position was a testing ground at first.

Very soon, within around 6 months, I broke out of this role. Consequently, I moved into Project Engineering, where we looked at different types of projects to enhance the value streams coming out of the refinery. We looked at some of the byproducts to further optimize the value we could get out of those. We for example looked at what other uses we could find for our solvents, and asked ourselves for instance whether we could dewax the oil. Instead of purchasing solvents, we looked into using our own solvents instead. Next, I moved into Process Engineering, where I worked at the refinery itself. I particularly looked at enhancing the utilities that ran the plants.

Subsequently, I moved into the logistics department to optimize supply and demand. At that time, the refiners would simply put the crude in the system, run the process and come up with a final product. On the other side of the spectrum, the marketers just wanted to sell petroleum and diesel. How these products would reach them and at what cost, was irrelevant to them. The challenge was to bring these 2 different parties together, and a brand new optimization department to enhance the overall margin of the processes was set up. Together with one other gentleman, I was the pioneer in setting up this department and spreading the awareness of the need for optimization and planning. It was a hard sell, but a very exciting task to take on.

Later on, I moved towards the marketing side of the business. Instead of focusing on the traditional side –such as petroleum and diesel- I was looking at the less glamorous bottom of the barrel, products such as bitumen and fuel oils for example. Again, my role was to look at how we could optimize the value and if not, what would need to change to unlock the full value potential.

I moved to international marketing and was asked to set up my company’s operations in Mozambique as its new managing director. This entailed the creation of a retail network, putting in place a branding strategy, opening up the market for lubricants, and so on. From there, I moved to Namibia, which was a mature country where we already had a presence. The challenge there was to grow or sustain the company’s market share and value in a declining market. From far away, it was a task that seemed impossible at first. However, you would be surprised to know that the value could eventually be found in something very simple: human relations. The relationship between the company and the retailers was lacking trust because of promises that had not been kept. The trust relationship was, in turn, poor because of the unreliability of supply. While the processes were there, the human factor was not working properly. To use a metaphor, we tackled this problem as you would peel an onion – we had to keep peeling until we reached the core of the problem. As we built the trust relationships and started delivering on promise, we built a culture based on agreed requirements rather than expectations. Bit by bit, our profits soared despite a declining market. Within 6 months, we were pumping product like never before.

From there, I was promoted into a position as director and went into corporate affairs, advertising, perception management, corporate social responsibility (CSR) and investor relations for the Group. After 1.5 years, I was put again into what I would call the love of my life: logistics! I was appointed General Manager heading the logistics supply, trading & shipping department of the Group. There had never been a woman running that area in this country, which was another very exciting role.

Upon my arrival, logistics was considered as a cost center. In my view, we had to change the paradigm and turn this into a profit center. We had to look at each and every kilometer the molecule travels: from the point where it is produced, through the refinery and all the way through to the tanks and pipes. We had to identify where money could be made and where we would squeeze the money that would be lost. We managed to change the entire perception of logistics: while marketing would now deal with so-called ‘secondary logistics’ –i.e. when the truck leaves, etc.- we were dealing with the ‘primary logistics’, from the refinery into the tank and into the pipeline. In this way marketing although to a lesser extent –continued to be a profit center while we also turned logistics profitable.

Subsequently, I moved into HSEQ as General Manager. For many, this was an area that was sometimes considered as a waste of time and it was my role to change this thinking. We had to focus on sustainable development. After that, I was appointed General Manager of Strategy & Planning at Total in South and Southern Africa.

Following this range of experience in the private sector, I took up a role in the government to engage in ‘national service’, although I am pleased to be back into the oil industry today!

Your current role is indeed one that carries great responsibilities. As Minister of Energy Dipuo Peters stated: PetroSA has a role to play in ensuring the security of energy supply in the country. Last Winter, for example, the company took up the responsibility to convert some of its Mogas into LPG to ensure that the poor and certain industries would still have sufficient supply. Yet, every CEO still has his or her own perception of what role the NOC should play in the country. What role do you foresee for PetroSA in South Africa?

We are lucky to have so-called enablers. The Minister of Energy has a clear view of the role that PetroSA should be playing. We do not have to battle in terms of getting the government’s space and approval in terms of ‘What will enable us to grow?’

The role that PetroSA should be playing is the role of a proper National Oil Company. We should ask ourselves ‘How can we enhance the growth strategy of the country?’ The oil and gas sector has become a priority sector in the government’s IPAP2, while South Africa meanwhile has become a member of the BRICS countries. There is also an imperative in South Africa for job creation. We need to have a GDP of around 7% to even have an impact on attaining the Millennium Development Goals with regards to unemployment. In the context of all of this, our role is to make sure that we – as the NOC – are able to enhance some of the enablers to reach these objectives.

For example, there is an energy deficit in South Africa that is hampering our growth. In partnership with the other State-Owned Entities (SOEs), our role is to use some of our technical knowledge to assist with overcoming some of the barriers that may persist. Our energy is coal-fired, which is not environmentally sustainable. We have a role to play in helping to find other sources of energy, together with Eskom. By increasing the energy flow in the country, we will be able to increase industrialization and move into certain industries that we are unable to move into at the moment because of these barriers. I am, then, specifically talking about gas. We are already a pioneer in Gas-To-Liquids technology, have a wealth of experience and knowledge in this field, and are using our position to further grow in the gas value chain. With that, we have an impact on the energy balance in the country.

We also have a role to play in ensuring that there is sufficient supply of liquid fuels in this country. There are other oil companies that operate in the free market in South Africa, but we see our role as strategically important in making sure that there is security of supply of liquid petroleum fuels. We have also been given the mandate to have sufficient strategic stocks in the country.

The example of how we did the conversion last Winter showcases our role in bolstering the industry in the country. This ensured that some of the companies that are very reliant on LPG did not have either to lay-off people or close down. If you look at the value chain and put your gaze a little bit further than the petrol station, you should be able to see the role that an NOC plays.

We also want to make sure that in terms of development into different energy sources, we must play a very specific enabling role to ensure that we are able to change the energy balance in the country. We are the ones that should be driving this. We are a clean company and produce very clean products through our GTL technology. The issue of renewable energy is being looked at within our Group – the Central Energy Fund (CEF) – and we also play a role in working within the CEF on this matter.

Having a gaze beyond the petrol station can somehow be considered as an altruistic view, most particularly as you still need to run a profitable company. The company moved from a loss in 2010 to a profitable 2011. How do you intend to manage the balance between this ‘altruistic’ role, while keeping the right financials in place?

After what has happened in the world recently, more and more you will find that the paradigms are changing. Immediate profits today are more and more compared to what we can do in terms of sustainability. When we go to financiers, for example, we face the challenge of balancing the commercial side –where enough money needs to be made to ensure the company’s survival – with our developmental responsibility. The latter is a long-term subject, which is the long-term gain our partners receive, most particularly from creating a sustainable environment in South Africa as a growing country.

Financing companies today want to look 30 years ahead. Moreover, they do not only take a long-term view of the company, but of the circumstances impacting the activities of the company. We need to convince our future partners that we do not take a short-term view. We have a Vision 2020 within the company, while a Vision 2040 for the country is being discussed at the moment. We need to have an impact on the growth of the country as a whole, and change the financing paradigm towards a long-term view.

Several agreements have also been made with other NOCs, including the KoreaNational Oil Corporation, Unipec and Petromoc, for example. What type of cooperation are you contemplating with these entities in enhancing the security of supply?

The key word in the way we function is partnerships. It is clear that we do not work on our own. You will, therefore, need to look for partners with whom you can find a working solution. Looking at a company such as Sinopec, for example, there is technical and financial know-how, as well as access to market. Already, this is a way to open up your horizon to much beyond the South African market alone. Such partnership is give and take, of course, to which we bring our GTL technology and Low-Temperature Fischer-Tropsch technology (which is South African). Looking at opportunities for GTL plants in such markets, we are speaking about a much bigger size than the one we have in South Africa. We will, thus, be playing in a much bigger space, while at the same time the partner also provides you access to market. In addition to that, they have a balance sheet that is much bigger than ours. For different reasons, one needs to work with different partners to enhance one’s strengths. A key aspect we also look for in our partners is their long-term view and planning.

PetroSA has also partnered up with the Venezuelan NOC PDVSA, leading to successful discoveries. Beyond this partnership alone, how do you now see PetroSA’s international footprint in exploration evolving?

Once we have a few things from our pipeline taking fruition, we would like to see ourselves as a substantial player, most particularly on our continent. We think it is not very prudent for us not to be a major player in Africa, especially given where Africa is going at the moment in terms of growth perspectives. The economic sands are shifting and we need to be part of the process of enhancing development in Africa. We need to be able to attract the attention of like-minded companies on this continent. This can only have a positive impact in terms of job creation and ensuring that the countries we work in are benefitting from our partnering approach.

We also have friends beyond the continent of Africa. We, therefore, want to make sure that we utilize our new BRICS relationship to be able to make sure that we are able to add value. South Africa is a crude-poor country, which increases our interest in having some access to liquid fuels barrels. Several of the countries that we have good relations with from a government perspective happen to be endowed with some of these resources. We would like to position PetroSA as such a player. The wave of change has started and we cannot lose this window at this point.

As Mr. Xiphu of PASA stated, things are also moving in terms of exploration in South Africa. To keep the world’s second largest GTL plant alive, you will need to ensure sufficient feedstock. Where do your priorities lie in this sense and what is your strategy to explore in South Africa?

We continue to explore off the shores of South Africa, but are not limiting ourselves to these areas. When talking about gas, it is important to take so-called ‘distance economics’ into account. Clearly, we are looking at areas within economic reason, to be able to look for alternate gas. Off our coast, we are busy with a few wells and exploration activities. Technology has also improved and may enhance the output of some of the existing reservoirs.

Anadarko, in turn, has shown very promising results offshore Mozambique. Do you also see this as a big opportunity, taking into account these distance economics?

The Mozambican finds are most exciting and we do see this as a big opportunity. There is a point where, depending on your off-take, distance economics will come to look attractive. Once again, we would ensure that we are able to chart a path that indicates how this gas can change the way we do things in the southern part of Africa. You might find that these answers make the economics look different. We have the role to find some of these answers and assist with making sure that we take advantage of this gas. Looking at the numbers, it would be a sin not to find a way to be able to bring some of that gas into South Africa and the rest of Southern Africa. That gas has the potential to change the economic landscape of Southern Africa and we would like to see ourselves –as the gas company – playing a substantial role in that.

When it comes to the downstream sector, many international oil companies have been divesting their assets in sub-Saharan Africa over the years. PetroSA still sees this as a growth area, but what are going to be the key success factors for PetroSA to succeed in this market in Southern Africa?

We have been given the mandate to ensure that we are present in this area and we do see ourselves moving into the downstream area eventually. One key success factor will clearly be the value we estimate from entering this market, to a certain extent. The footprint we will take will need to cover the entire country.

Down the line, we are moving to Euro 5 Specifications, which will imply substantial changes to some of our ‘hardware’ in the country. When we do go downstream, it is critical that this is taken into consideration. It is all about timing and aligning with what steps we need to take when the Euro 5 Specifications come in. Are we going to build our own refinery or rely on what we already have in place? Are we going to go brown- or greenfield? Both the timing and the way we will enter the downstream market will remain critical.

One of the most important aspects is the issue of storage in the country. From a downstream perspective, we see this as a very important aspect in our mandate of ensuring security of supply. Companies tend to deal with relevant infrastructure based on what makes business sense for them. Our role, though, is to make sure that we support infrastructure that is critical for the whole country.

If we turn back to the love of your life –logistics – you bring in a wealth of experience. Will we also see paradigm shift in the logistics strategy at PetroSA?

I think so and I believe it will be a space worth watching. We are thinking about some very exciting things in this area. Our margin is regulated and controlled in South Africa, so one needs to ensure:

1. full value out of this regulated margin
2. that one goes to places that have not been gone to before

Given the fact that we are on a growth path in South Africa, in line with the 2012 Budget Speech of Finance Minister Pravin Gordhan,there is quite a huge plan in terms of social infrastructure spend. Some of these places are off the beaten track. This begs the question ‘what is going to happen from a fuel supply perspective?’ We are now growing different areas of the country and we need to stay in tandem as the government plans are being unrolled. In this way, we will be able to take pro-active decisions about our logistics.

We also filled up the New Multi-Product Pipeline (NMPP), for example, at quite a huge cost. Going forward, I already foresee some potential to do more there, too, in terms of further offshoots. If you know the government’s plans for the next years, you can start thinking about the future potential. It is definitely a space worth watching!

Given your extensive background both at industry and government level, would you have a final message for the international readers and investors?

Having worked in the private sector, I thought I knew what was happening at a government level, until I actually reached that point. It seems to me that there is a huge opportunity, which is a chasm between the private sector and government. This must be generic all over the world.

If these two very important stakeholders of society can bridge the gap, the amount of value that can be released in terms of development of a country will be immense. The amount of value that can be derived from close cooperation between government and private sector can truly bring what everyone desires, which is a growing economy. My suggestion is that both work much closer together towards the greater goals of each country.

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