Gigaba celebrates Econ Oil, indicts petroleum industry

A speech presented by the minister of public enterprises, Malusi Gigaba, at the launch of the Econ Oil & Energy petroleum blending plant in Limpopo proved to be an indictment to the transformation record of the South African petroleum industry.

The launch of the plant in MarbleHall by a black women controlled company, Econ Oil, represent critical advancement in the course of developing black industrialist, said Gigaba speaking at the launch of the plant.

“The call for developing industrialisation capabilities through State Owned Companies and stimulate the economy by demanding that a certain portion of the goods are locally manufactured- is not a political talk. Today is about the substance of that call”.

Gigaba said “The South African downstream petroleum industry was in the hands of whites and multinational oil companies during the apartheid era and (the industry) is still a highly concentrated industry”. Many Black South Africans were excluded from the mainstream industry through, among other instruments, laws passed by the government such as the Petroleum Products Act 120 of 1977. This Act therefore made it difficult for those who were not in the industry or Government, particularly blacks, to acquire information in order to enter the mainstream industry”.

Added Gigaba “The democratically government instituted a policy process aimed at restructuring and transforming the petroleum industry to allow blacks to enter the industry, in order to achieve sustainable presence, ownership and control of approximately a quarter of the industry by previously disadvantaged individuals”.

Since the introduction of this process, which culminated in the release of the White Paper on the Energy Policy of the Republic of South Africa (1998), little progress has been made towards achieving this Government’s key policy objective. Instead, there is still little entry into the industry by Black Oil Companies (BOC’s).” He said the few black players that are there continue to struggle to increase their market share. “There are three barriers of entry in the downstream petroleum industry, namely, economic barriers, noneconomic barriers, and cross-sector barriers to entry”.

In practical terms, said Gigaba, these barriers could be sunk costs, vertical integration and transport costs incurred in the distribution and marketing of fuel. “These are socially undesirable limitation to entry which are due to protection of resource owners already in the market”.

These market failures were confirmed by the Petroleum industry audit report undertaken by Department of Energy, said Gigaba. He said the report  indicated that to date, the petroleum sector has not been compliant to Enterprise Development, Skills Development and Employment Ownership across the value chain.

Gigaba added that access to affordable and practical financing mechanisms is a major issue for retailers and wholesalers, in terms of cost and accessibility to credit and own contribution requirements. “Local banks lack expertise to effectively service the wholesale market”.

Gigaba said “Econ Oil has experienced these market failures and black women showed resilience, true entrepreneurial spirit to establish this company against all odds”.

The constraints imposed by the industry’s failure to commit to transformational and the financial sector’s unwillingness to support many black entrepreneurs have not deterred the growth of the company”.

They have proven that our economy can build black industrialist who contributes to the creation of decent jobs, revival of rural economies and expansion of our industrial capability”.

He added that the State Owned Companies are ready to support resilient black industrialist not middle man entrepreneurs. “Econ Oil supplied 18% of Eskom’s Fuel oil needs in the 2003 – 2006 contract. In 2006 to 2009 it secured a contract to supply 60% of Eskom’s Fuel oil needs, and for the first time supplied Grade 3”.

In order to add better value to customers and to enhance its product offering, Econ Oil developed a blending plant in Marble Hall, Limpopo, which will start by supplying Hendrina Power Station with effect from 1 September 2013. Econ Oil took this bold step after being awarded a five year contract to supply three clusters of Eskom Power Stations with fuel oil”.

Without the support of Eskom, the development of a Black owned blending plant would never been built. To date Econ Oil has created 30 permanent jobs, it supplies 16 million litres per month and owns 10 trucks,” said Gigaba.

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