Black Economic Empowerment Progress in

Shell

Presentation to the Parliamentary Portfolio Committee for

Minerals and Energy30 August 2006

The presentation will focus on Transformation and Black Economic Empowerment in Shell

Presented By:

• Vusi Khanyile - Chairman of Thebe Investment Corporation (Pty) Ltd

• Paddy Milner – Country Chair: South Africa • Gheneez Munian – BEE Advisor

• Vernon De Vries – External Affairs Manager

• Ivan Collair – Regulatory Environment Advisor

Equity Ownership

ManagementControl

Preferential Procurement

EnterpriseDevelopment

Social Investment

EmploymentEquity

Skills Development

Supportive Culture

RetailNetwork

Shell policy

of embracing Black Economic Empowerment in South Africa is driven by

the imperatives to address the imbalances of the past and to secure the long-term sustainability of our business in

a sustainable socio-economic environment

The long term objective of BEE is the normalisation of South African society and it therefore has a number of facets all of which are included in the Oil Industry charter.

The main criteria for success of the transaction are

-whether it is aligned with the equity objectives of the Oil Industry Charter

-whether it is sustainable

Because of FDI considerations any action on BEE must be perceived positively by the international investment community and that includes the shareholders of multinationals.

The equity element of the charter was transacted by the parties, assisted by their professional advisors on a willing buyer/willing seller basis.

To achieve a successful transaction, two key variables need to be balanced and traded off

-sources of capital

-where risk is carried

The principles underpinning the discussions of the Equity Deals

Equity Ownership

Phase 1 resulted in a Corporate Structure involving 2 legal entities

Shell South Africa Holdings (Pty) LtdSSAH

ZA 2001/020068/07 (owner of Group businesses in SA)

The Shell Petroleum Company Ltd.SPCO

UK 77861

(a Shell Group holding company)

Shell South Africa Marketing (Pty) LtdSSAM

ZA 1961/000645/07

(Shell Marketing businesses in SA)

Shell South Africa Energy (Pty) LtdSSAE

ZA 2000/018439/07

(Manufacturing, Supply, Trading and Chemicals business in SA)

100%

75%

100%

25%

Thebe Investment Corporation

(Pty) Ltd1992/001846/07

Thebe Petroleum Investments

(Pty) Ltd2001/023590/07

Equity Ownership

Our Marketing Equity transaction was built on

the following foundation

SUSTAINABILTY

CHECKS & BALANCES

COMMUNITY BENEFITS

- Affordability of the equity- Preference Dividend Structure- Allocation of Risk

- Balance between operational control and minority protections

- Aims to benefit a wide range of South Africans, especially HDSA’s and contribute to sustainable development.

Equity Ownership

Summary of the current equity deal Thebe Petroleum Investments

• 25% ordinary shares (and hence asset ownership)• 25% voting rights• 25% Board representation• the right to appoint 25% of the board members• has received >25% economic interest in recent years

Equity Ownership

Economic sustainability of the transaction Structures for BEE partner’s involvement across the value chain

Phase 2 – Manufacturing, Supply and Trading in progress

Structures for involvement in the entire spectrum of the business i.e. strategy, management and operations of the business

Skills transfer and development Protection of BEE Partner against volatility of the oil business

Shell’s measurement and assessment of progress to

date

Board and Top management Liquid Fuels Charter targets have been exceeded. Gender transformation is

our focus.

Board Representation

Top Management

SSAM

SSAM

SSAE

SSAE

ManagementControl

Black Male50%

Non-black Male25%

Black Women0%

White Women25%

White Women25%

Non-black Male50%

Black Male25%

Black Women0%

White Women11%

Black Women0%

Black Male56%

Non-black Male33% Black Male

50%

Black Women0%

Non-black Male33%

White Women17%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

% Black People % Black Women % White People

% Black People 50% 30% 47% 61% 83% 100%

% Black Women 0% 8% 16% 27% 26% 0%

% White People 50% 70% 53% 39% 17% 0%

Top ManagementSenior

Management

Professionally qualified and experienced

Skilled technical and academically qualified workers

Semi-skilled and discretionary

decision making

Unskilled and defined decision

making

Collectively, women representation in Shell is above industry average.

EmploymentEquity

Shell 65% Black 23% Black women

38% Women

Industry 69% Black 17% Black women

25% Women

Shell has a long-standing policy on the development of its employees because it believes in providing an

environment in which people can learn to excel.

Skills Development

• 1% of Payroll was spent on Black Skills development• Skills development Initiatives include:

- Women in Oil and Energy Course (10 delegates)- Global initiatives (BUILD, RECOGNISE, CHOOSE)- Executive Development Leadership Program- Global leadership Programmes - Shell Life- Expatriate exchange

Year Target BEE

%

Actual

BEE

(>50%)

%

ActualABE

(>25%)

%

ABE + BEE

% Spend

2002 5% 7% 7%

2003 10% 12% 18% 30%

2004 17% 22% 21% 43%

2005 27% 28% 27% 56%2006 60% 24% 33% 57%

Local Preferential Procurement has exceeded the Oil Industry Charter target of 25%.

BEE Procurement Strategy• BEE Procurement Policy in place

• Company and departmental targets set

• BEE standard item on Executive Management Meeting Agenda

• A BEE Team member appointed as permanent member of Contracts Board

• Monitor BEE spend on a monthly basis

• All suppliers evaluated using Industry standard

Preferential Procurement

Crude Procurement: we purchase locally where availability and economics are attractive

Challenges:• To be sustainable, crude trading (as opposed to purchasing)

needs to be a global activity.• No BEE trading house consistently offers crude on the global

market.• Shell South Africa, as a refiner, does not do true crude

trading i.e. buy and sell for profit. • In line with most oil companies, crude trading is a globalised

central activity.

Preferential Procurement

2003 2004 2005 2006Parastatals $12.4m $70.5m $28.3m $0

BEE $0 $0 $37.3m $36mNon-BEE $0 $0 $0 $0

Total $12.4m $70.5m $65.6m $36m

SHELL LOCAL PURCHASES

Shell’s enterprise development activities are aligned with the Liquid Fuels Charter

Examples of Enterprise Development include:

• Mzanzi (Logistics Company)- R300k set up costs: R120m contract over 5 yrs: 17 Owner

vehicle drivers in partnership• Livewire Program

- Business skills training. Program has been running for over 10 years

• Black Retailer Dealer development programme- Training to develop Black dealers

• Supplier Development-SASDA investment via SAPIA- 2 full time employees

• SMME support – startup, mentoring and financial assistance• Energy through Empowerment Fund – R20m underwritten by Shell Foundation

EnterpriseDevelopment

Our Corporate Social Investment aims at sustainable development initiatives as envisaged by the Liquid

Fuels Charter

About 2% of Net Profit After Tax is invested in CSI.

Categories of investment include:-• Education – especially Maths and Science• Job creation• Social development• Health - AIDS• Environment • Grants to employees involved in community projects• Road Safety program

‑ via SAPIA‑ via Shell Oil Product Africa (Drive-to-Live)

Social Investment

Internally Shell’s organisational culture, systems and demographics builds upon individual differences to

stimulate creativity, remove barriers and thus create a competitive advantage

Supportive Culture• Led at strategic level by the Chairmen of Shell’s Companies• Driven by the Transformation Committee: committee of the board• BEE advancement part of formal performance targets• Shell has a global Group Diversity and Inclusiveness Programme guided by Shell Group Business Principles.• Involvement in SAPIA, BUSA and NBI

Committees and structures to report on discrimination:

- A staff Employment Equity Evaluation Committee- A staff Employee Consultative Committee- Independent outsourced “Whistle Blower” process

Supportive Culture

We regard the stability and sustainability of our Retail Network critical to our business and

customers

Retail Network – 41% Black owned and operated• Shell has a dedicated programme in place to fast-track and support

HDSA's to successfully own and operate retail sites.• Shell provides business support to ensure changes of dealer ownership are viable and sustainable.

- Apply an evaluation model to assess true value of site- On-going support

Monitor operational and financial performance from a central point Contact with dealers daily Ground staff trained to coach and mentor Field Staff provide for technical and business support

• Retail training outsourced to an active Black retailer with strong expertise.

Reseller – 21% Black owned

Retailer

In summary, our current assessment of transformation progress towards achieving the

Liquid Fuels Charter 2010 aspirationsEquity

Ownership

ManagementControl

Preferential Procurement

EnterpriseDevelopment

Social Investment

EmploymentEquity

Skills Development

Supportive Culture

RetailNetwork

Priority Areas

• Conclude Phase II BEE deal • Increase Women participation on board• Increase Black and women representation in senior and professional levels• Direct skills spend to core and critical skills and women development• Further develop Black suppliers• Continue to build a sustainable Retail network

Shell’s Ethos

• Business Growth will not happen without parallel socio-economic development

• Ongoing transformation is key to growing our business