Refiners trumpet value
Researchers cite indirect and induced economic benefits rendered by SA oil refineries to support a fuel upgrade subsidy
South Africa’s oil refineries released commissioned research this week showing how important their operations are to the broader economy. Although the country’s six oil refineries employ just 4 809 people directly, researchers contend that these workers “support” 100 times as many jobs in supplier industries through the consumption spending of their, and their suppliers’, employees.
In research commissioned from KPMG by the SA Petroleum Industry Association, the audit firm attempted to quantify the economic activity stemming from the various parts of the fuel value chain.
The important estimate is that the refineries themselves have economic significance far outweighing their operations.
As with jobs, the KPMG study found that the refineries “induce” far more economic production than their own expenditure in the economy – having a direct effect on GDP of R46.6 billon, which is what they spend domestically on producing fuel from oil.
Then they had an “indirect” effect of R96 billion, said Jeaunes Viljoen, a senior economist at KPMG who presented the findings at a briefing in Johannesburg.
“If the refinery spent R100 million on electricity, this indirect effect would be the expenditure Eskom made to generate the electricity,” she explained via email.
To that KMPG also adds the induced impact, which is the estimated consumer spending by employees at the refineries and at their suppliers.
This adds another R79 billion to the estimate, leading to the conclusion that the oil refining sector contributes R212 billion to GDP.
Economic impact assessments incorporating these estimates of indirect and induced economic effects are proliferating. South Africa’s sugar-sweetened beverage industry is a prime example: it had a consultancy do a similar exercise as part of its fight against the proposed sugar tax, to be implemented on April 1.
British American Tobacco SA this week also released a study following the same procedure as that conducted on the oil refineries. This, apparently, in preparation for the conflict the tobacco industry expects will ensue when Health Minister Aaron Motsoaledi reveals new anti-smoking measures next year.
Chief among these is the health department’s proposals for plain packaging for cigarettes, which would destroy British American Tobacco’s considerable brand power in South Africa.
The oil refineries have their own conflict with government for which the new research could be useful. Avhapfani Tshifularo, executive director of the petroleum association, denied that the study was a prelude to lobbying.
“This study was not commissioned for a particular purpose. It is about providing information on the industry. It is not about clean fuels; it has nothing to do with that.
“However, if you formulate policy, you have to take into account what it does,” he added.
The association has been at loggerheads with government for years about who will pay for the upgrading of the country’s six leading oil refineries, which will enable them to produce diesel that meets so-called Euro 5 emission standards. South Africa currently operates under Euro 2 guidelines.
The petroleum association has proposed that the cost be passed on directly to the consumer, as a levy on the fuel price. Government has indicated it will only partially subsidise the upgrade.
The 2017 deadline for South Africa switching to a new, cleaner fuel standard was already off the table, Tshifularo said.
In this year’s Budget Review, the oil companies were offered a special accelerated depreciation allowance as a subsidy for their refinery upgrades.
Practically, it would have amounted to a tax holiday of three years.
The association was unimpressed, arguing that the costs of the upgrade would have outstripped this tax break.
It has repeatedly said the upgrades will be “investments with no return” – done purely to meet regulatory standards, rather than increase profits.
The new research breaks up the industry to illustrate the overwhelming economic importance of the refineries, as opposed to the retail industries, such as fuel stations.
Tseliso Maqubela, the department of energy’s deputy director-general for petroleum, attended the briefing and welcomed the research. “It is important to see what happens if refining disappears. Some people say we should import fuel, but a study like this shows the importance of the refineries,” he said.