Procurement
Engen regards black economic empowerment as a business imperative, and procurement as a central tenet of achieving the objectives of BEE. We believe that for any supply contract, no matter how big the deal, or how specialised or advanced the skills needed, black companies exist or can be developed to qualify for bidding. In support of this, we will dove-tail our procurement efforts with a focus on developing black enterprise capacity.
Our consistent application of this principle has resulted in Engen steadily building our affirmative procurement to 70% of discretionary spend (the portion of the procurement bill where we have a choice of suppliers). This translates to R2.7 billion out of R3.5 billion*.
* We have no control over about 80% of the goods and services that we buy. Engen spends more than
R32 billion annually in contracts with overseas companies (for example, chemicals or crude oil suppliers) or local companies with sole supply rights (such as Eskom and Transnet).
Success factors
- Long history – Engen is a frontrunner in BEE, having sold an industry leading 20% of our shares to a BEE concern in 1996
- Effort – Through some concerted interventions we actively engaged and built a network of suppliers.
Currently we have 900 black vendors on our books.
- Strict vetting – Engen performs strict vetting of the feasibility of our suppliers.
- Support – Engen does not take ownership stakes in suppliers, preferring instead to contribute to their sustainable development, by awarding small projects that grow over time or facilitating partnerships with big companies. Various enterprise development success stories have resulted from this. Engen has contributed to business process improvements and afforded its partners preferential contract terms, to contribute to their survival.
Future focus areas will include working out the conundrum of growing strategic suppliers while also developing local resources, as Engen expands into Africa.
Engen and NEF launch R50m black service station funding programme
Engen Petroleum and the National Empowerment Fund (NEF) launched a cooperative agreement in 2009, aiming to put 10 service stations under black control during the course of the next two years.
The NEF undertook to provide R50 million in affordable loans over that period, while Engen promised business and financial support to ensure the survival of black entrants into its retail service station network. The deal may be extended after two years. It is a first in the oil industry.
At the time of concluding the agreement black control over Engen’s retail service stations stood at 39%. The aim of the facility was to facilitate 45% black (African, ‘coloured’ and Indian) control by 2016.
In thrashing out details the parties balanced the need for putting a racially-skewed situation to rights with the need to minimise risk to the new service station owners, the NEF’s investment, and Engen’s commitments.
- Engen accordingly set the benchmark for suitable sites as those pumping above 250 000 litres
of fuel monthly, and turning over R250 000 and above in their retailshops.
- Dealers are required to put up 10% to 20% of funding, which commits them and does not leave them overleveraged.
- To afford borrowers enough flexibility, loan periods are structured between five and seven years, with ballooning/residual values attached to them.
- Dealers will be monitored and given mentorship.
With loan amounts working out to an average of R5 million per site for the ten sites that have been earmarked for the programme, Engen stands surety for half of that (no more than R2.5 million per deal) and covers the following operational costs:
- Training and evaluation (dealer selection, site examination and vetting the price of sites) at an average R35 000 per site.
- Ongoing support of R1m per year (salary and travel of an ‘aftercare’ manager, dedicated to the 10 dealers).
- Other costs of R200 000