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Understanding The Fuel Industry In South Africa



Although numerous businesses have experienced hardships due to COVID-19 and the counter-responsive lockdown levels, the fuel industry has seen similar difficulties. However, major oil companies (such as Engen, BP, Astron Energy and Sasol) remain capitalising in this lucrative sector and multiple entities attempt to infiltrate and expand within this space (such as Elegant Fuel, MBT Petroleum, Gulf Oil and Puma Energy). If you have a desire to one day operate within this industry yet do not know how to do so, I will briefly provide you with an overview.


1. The Petroleum Licensing Process

Within the fuel industry, there exists two separate operations: upstream; and downstream. Each operation is primarily governed by different legislation with a few interlinking statutes (as that is how environmental legislation functions with industries operating within the environmental sphere).


The upstream operation concerns the prospecting and mining (excavation) of the petroleum resources and is primarily regulated by the Mineral and Petroleum Resources Development Act. There are licences and authorisations required in terms of the National Environmental Management Act and the National Water Act, in order to initiate the mining process.


The downstream operation entails the selling of petroleum products along the value chain (consisting of manufacturers, wholesalers and retailers). This process is primarily regulated by the Petroleum Products Act. For purposes of this article, I will focus on the downstream process.


a. The Downstream Operation

The Petroleum Products Act deals with the following types of licences: manufacturing; wholesale; site; and retail. These licences regulate the relationship between the different role players within the downstream side of the fuel industry. In order to ensure fair competition and prevent a monopoly across the value chain, an entity holding a particular licence cannot obtain another licence. For example, a wholesale licence

holder cannot also obtain a retail license. Although, a site licence holder can additionally obtain a retail licence.


Each license carries a different process in order to obtain it from the Department of Mineral Resources and Energy. These different processes are governed by the relevant regulation. Such as the site and retail licence process are dealt with by the Regulations Regarding Petroleum Products Site and Retail Licences.

b.Brief Outlook: Retail and Site Licence Process


I will provide a brief overview of the retail and site licence obtainment process. For further information on this process or how to obtain the other licences, please feel free to contact any one from Tokyo Ndlela Attorneys Inc.

  1. The first step is to complete the DMRE 39, which is the application form for a site or retail licence.

  2. Next you send the completed DMRE 39 to the Department of Mineral Resources and Energy regional office.

  3. The Department will then send you a letter stipulating that you must publish a notice of application in four newspapers.

  4. You must provide proof of publication of the notice of application to the Department.

  5. Once you have the licence, you must submit information of your business annually using the DMRE 33, which is the Retail Licence annual information submission form.

  6. This process normally takes 90 days from the date that the Department received proof of publication of the notice of application. However, this timeline is dependent on whether you have timeously submitted all the necessary information.

2. What to look out for

There are two primary concerns to look out for: objections; and fair play.


a. Objections

When applying for any abovementioned licence, anyone (usually tends to be a licence holder) can object to your application. Countering this objection requires specific research and information, which we can assist you with.

b. Fair play

This concern depends on the situation, however it deals with the circumstance of there being different entities holding the retail licence and the site licence. The site licence holder tends to be the property owner of where the retailing activities (conducted by the retail licence holder) takes place. The site licence holder has a greater bargaining position than the retail licence holder and can easily exploit that position. Therefore, it is best that the same entity holds both the relevant site and retail licence.


3. Investing

If you are a foreign entity interested in investing in a South African fuel operation, you will need to ensure that they have the relevant licenses and that those licenses are still valid. Furthermore, there are restrictions concerning the changes made to the shareholding of a fuel operation, governed by the Petroleum Charter and the Broad- Based Black Economic Empowerment Act. Before making an investment into a fuel operation, it is best that you work alongside a lawyer who is knowledgeable in South African petroleum law.


For further information on the above or any other questions regarding the fuel industry, please feel free to reach out to us.

 

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