April 27, 2017

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Refining the public perception of the fuel industry

The fuel price remains a contentious issue for the majority of South African individuals and businesses, whose finances are directly affected by cost fluctuations. By more clearly defining the intricacies of South Africa’s complicated fuel pricing model, Afric Oil has built trust among its end-user clients by creating a more transparent distribution model in a highly-competitive and regulated market that offers little room for price negotiations.
Since its establishment as the first entirely black-owned South African fuel distributor in 1995, Afric Oil has developed a reputation for its transparent and efficient service. CEO Tseke Nkadimeng attributes this success to the fact that the company treats its customers as long-term business partners. “A specific qualitative aspect of fuel is that prices are regulated and well-published. With this price transparency, the only way to increase competitiveness is to offer superior service.”

Bearing this in mind, he says that Afric Oil is a relationship-based company. “We sell fuel to many companies that rely on this commodity to conduct their business and generate income, just like our competitors do. It’s critical that there’s a relationship between us and the customer, especially in the current economic environment. We set ourselves apart from the competition by ensuring consistent product availability, with swift and dependable service,” Nkadimeng comments.

Dispelling the ‘oil-baron’ myth

Nkadimeng states that there is a perception that oil and gas industry representatives live the life of ‘oil-barons’, and that the industry is making excessively high profits at the expense of the consumer. “In stark contrast, the reality is that it is an extremely low-margin, turnover-based industry.”

In a market dominated by fluctuating prices, credit management is also a challenge. Many consumers do not realise that, for every R12 spent on a litre of fuel, the service station owner only makes around 5c per litre. Investment is also onerous, for example, a service station selling 200 000 litres per month requires about R2, 5-million in facilities – which is significant for small players.

Nkadimeng points out that the pump price also includes taxation and other contributions to government, which are sometimes as much as 50 percent of the full petrol price. As a distributor, Afric Oil’s focus is on generating a number of efficiencies to improve service in the industry. “Failure to do so will create significant pressure in terms of balancing working capital costs and generating satisfactory profit,” he cautions.

Improve efficiencies by opening up channels of communication between industry and government

According to Nkadimeng, communication between industry and government is lacking. He says that the origin of this disconnect dates back to the 1960s, when the oil and gas industry was reliant on government for direction, due to fuel sanctions at that time. It was a relationship which evolved into a friendship, and has grown into what Nkadimeng describes as a ‘boys club’ kind of arrangement.

“Although price is still regulated by the government, the industry is not performing optimally, mainly due to the fact that a number of items are being imported at high cost, when they could in fact be manufactured locally. In order to produce locally, however, there is a need for capital investment in facilities upgrades. Government, in turn, needs to create an environment conducive to recovering these investments, but it is also tied with other social priorities like building houses,” he continues.

Nkadimeng indicates that this friction has a knock-on effect. “Distributors such as Afric Oil are still heavily-reliant on the large industry players for our own distribution, and I think the sooner the industry starts effectively engaging with government, the better. Another challenge is that motor manufacturers have their own agendas in terms of the evolution of local fuel. A comprehensive, industry-wide agreement and understanding is, therefore, essential.”

The importance of sustainability

While fossil fuel remains the cheapest form of energy globally, Nkadimeng notes that there are initiatives in place to work with a number of industries to ensure that the world shifts towards cleaner and cheaper fuel. “The scale of that impact will be seen in a number of years to come, but the industry as a whole is actively looking for an alternative in terms of fossil fuel.”

Nkadimeng reveals that sustainability does not only extend to environmental aspects, but socio-economic ones too. He believes that the small business sector plays a critical role in dealing with unemployment. “It is important that all corporates, together with government, focus on developing small businesses. Companies should try to procure some products and services from small businesses, such stationery. These companies can add value by finding products at the best prices.”

With regards to charitable sustainability, Afric Oil has signed a three-year commitment to provide support to orphan charity New Jerusalem in Tembisa, Gauteng. The company is also involved in an initiative to sponsor the Cape Town-based branch of childhood cancer charity CHOC. “We don’t have substantial funds yet to make contributions, however, we target specific areas where we believe it will have an impact, especially if our help can lead to something that can become self-sustaining.”

Building a more competitive future

Afric Oil is the only emerging fuel company to consistently transport refined product through Transnet’s Durban-to-Johannesburg pipeline, which provides it with additional flexibility in meeting its customers’ delivery needs nationwide. “We are a trusted partner with a proud track-record of ethical business. We value long-term business relationships, and accommodate our customers’ needs, with the understanding that these differ from industry to industry,” Nkadimeng observes.

Afric Oil offers a full fuel management solution by investing in storage tanks and fuel management systems at customer sites, thereby enabling them to keep track of their fuel consumption and concentrate on their core business. Afric Oil’s approach is unique in that it creates partnerships that assist its customers in solving their energy requirements in an efficient and cost-effective manner.

Nkadimeng is optimistic of the future. “We are currently a business-to-business (B2B) operation that is moving towards a business-to-consumer (B2C) approach. We are also aiming to play a more prominent role in promoting efficient models of fuel distribution. Our objective is not to be the most profitable company at the expense of the consumers downstream, rather, we want to create a win/win partnership between Afric Oil and the people who we supply and serve,” he concludes.

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