Department’s Response to Submissions on Petroleum Products Amendment Bill; NCOP Amendment to Mining Titles Registration Amendment Bill

Meeting report

MINERALS AND ENERGY PORTFOLIO COMMITTEE
25 August 2003
DEPARTMENT’S RESPONSE TO SUBMISSIONS ON PETROLEUM PRODUCTS AMENDMENT BILL; NCOP AMENDMENT TO MINING TITLES REGISTRATION AMENDMENT BILL

Chairperson: Mr M Goniwe (ANC)

Documents handed out:
Department’s Response to Submissions on Petroleum Products Amendment Bill  (attempts are being made to obtain this response document from the Department; it will be posted here on arrival)
Petroleum Products Amendment Bill [B25-2003]
NCOP Proposed Amendment to Mining Titles Registration Amendment Bill

SUMMARY
In its response to the Public Hearings, the Department explained that public interest would be the prevailing policy imperative.  The SABS public participation process would be introduced for regulations on fuel specifications.  The licensing system will be revised and a cap on the number of retail sites introduced to deal with over-trading.  Wholesalers will be permitted to trade obligations to retailers thus allowing an alternative avenue of entry to the retail sector for new entrants.  Additional measures will be introduced to advance the new objective of promoting access to affordable LPG and Paraffin for low income households.  The arbitration clause will make clear that the arbitrator may make awards to compensate for unfairness and frivolous cases.

Members asked that the Department explain the mechanisms around the cap on retail sites – for providing for entry by new players and how the cap would be determined.

The Department explained that the NCOP had amended the Mining Titles Registration Amendment Bill – they had made technical amendments to the schedule amending the Deeds Registries Act (No 47 of 1937) and the Sectional Titles Act (No 95 of 1986).  These were made to accommodate omissions found in interactions with the Department for Land Affairs.  The Bill will be finalised on 27 August 2003.

MINUTES
Department’s Response to Public Hearings on Petroleum Products Amendment Bill 
Dr R Crompton (Deputy Director General: Hydrocarbons and Energy Planning, Department) stated that the Department had received many submissions on the Bill.  He reminded the Committee that the background and context of the Bill are important and that the Bill is an amendment to the current system for a transitional period.

He stated that there were a number of suggestions for improved wording of the Bill to clarify matters.  Certain of the definitions would be revised and new definitions for ‘bulk’, ‘LPG’ and ‘Paraffin’ would be given.  Publication of prices ‘sold’ would become ‘available for sale’ to clarify the intent of the provision.  On competition issues, he stated that the public interest would prevail.  The Bill encompassed a range of policy imperatives, of which efficiency was just one.  The Department’s view is that the time is not right for unfettered competition.  Regarding Ministerial discretion, he stated that the industry is a complex and dynamic one and it would be very difficult and time-consuming to write legislation that took account of this.  He cited a document by CSIR and Shell that stated that because energy is a strategic commodity and essential public service, government has a key role to play in the sector.

There had been many submissions on fuel specifications and standards; many not directly relevant to the Bill.  He noted that the SABS (South African Bureau of Standards) deal with specifications not standards.  Standards are techno-economic.  For example, Government might set standards for optimum octane levels.  SABS would then convert this standard into a detailed specification.  He noted that the SABS could grant exemptions from Ministerial regulations.  Such exemptions could lead to chaos and so the wording of Ministerial powers in this regard was the same, however the public consultation process required of the SABS had been inserted here.  There is a new Clause to give effect to the industry Charter through licensing, and a requirement that information on progress relative to the Charter be provided.

The framework for the licensing system was revised.  An optimum number of efficient retail sites would be determined.  The system would aim to bring about equilibrium for all participants.  To promote an efficient and productive retail industry, there would be a cap on the number of sites and the total number of sites would be linked to the total consumption of product.  The cap is justified by the public interest: everyone agrees that the sector is overtraded and that further proliferation would be bad.  Proliferation was especially concerning since there would be two new entrants to the retail sector.  If there were no cap on the number of retail sites, aggressive entry by the new companies would lead to further proliferation of sites, leading to decreased throughput and thus a decreased site margin.  This would lead to upward pressure on the retail margin and consequent higher prices.  Wholesalers would be permitted to trade their obligations to retailers – this would reduce the pressure to increase the number of sites by providing an alternative avenue into the retail market.  For supplies (on spec), the Bill will give preference to products made from coal, natural gas, vegetable matter and then other raw materials.  New licences would be linked to terminators or transfers.  The Bill will now contain the concept of ‘prescribed products’ – in lay terms this refers to petrol and diesel for retail service stations.  The Minister will review the system from time to time and revise it if necessary.

Persons applying for manufacturing licences must be the property owner or someone with the permission of the owner.  For site licences, it must be the property owner.  Wholesale and retail licence applications must come from the business owner.

On LPG and Paraffin, there will be an additional objective – to promote access to affordable petroleum products by low income consumers for household use.  There will be a new Clause allowing the Minister to regulate the LPG and Paraffin licensing system targeted at poverty alleviation.  In designated areas, the Minister will be able to limit participation in the market to one or more retailers to enhance economies of scale and reduce the cost to poverty stricken people.

The Arbitration Clause will be clarified.  It will be made clear that the arbitrator may make awards to correct unfair and unreasonable practices.  To combat frivolous and capricious actions, the arbitrator will be able to make compensatory awards if s/he determines that an action is frivolous or capricious.  Orders, including for costs, will be final and binding.

On vertical integration,  the Bill will make clear that a licensed wholesaler may not hold retail licences except for training sites.  This excludes LPG and Paraffin retail since marginal economics may make it necessary for the wholesaler to be the retailer, especially in ‘far flung’ areas.  The Bill makes clear that licensed manufacturers may only sell to licensed wholesalers and that licensed retailers may only purchase from licensed wholesalers.

Discussion
Mr E Lucas (IFP) asked about the cap on the number of sites.  How would this affect the new entrants to the retail market?  The cap appeared virtually to be saying that there would be no new role players.

Dr Crompton replied that oil companies had closed sites and built new sites, so current sites do close.  He agreed that it would be more difficult for new entrants but there would be a price to pay if further proliferation were allowed.  This was within the bounds of the principle Act’s objective to prevent high prices.

Mr Lucas asked if the Bill would specify the number of training site licenses per province that wholesalers may hold.  If it did not, wholesalers will motivate for more training sites.

Dr Crompton replied that the Bill provided a framework within which more detailed regulations will be developed.  The number of training sites allowed would be dealt with in the regulations.

Mr I Davidson (DA) noted that the Bill is enabling legislation.  Although the broad principles are spelt out, it was difficult to get a grip on the effect the Bill would have on the industry without having sight of the Regulations.  This creates a climate of uncertainty.  He stated that even the comments made in the presentation did not clarify the matter of licensing.  This was the most controversial part of the Bill and the Department’s response did not take matters further.  He asked for clarity on the issue.

Mr Davidson noted that with voluntary arbitration, the parties agreed to accept the findings of the arbitrator.  The Bill would force parties to go to arbitration and he questioned whether this was correct.

Dr Crompton replied that the industry is very complex and dynamic.  It would take a very long time for Parliament to debate all the issues.  It is a difficult process and the difficulty should not be underestimated.  It is extremely difficult to please all the industry players.  He cited the example of arbitration referred to by Mr Davidson.  The oil companies did not want this provision, but the retailers were strongly in favour of it.  It would be made as voluntary as possible but there were festering problems in the industry and the Department had no tools to deal with these – this provision would bring reasonableness and fairness.  There was no other way to get a fair result.  Regarding clarity, Dr Crompton stated that industry experts, including those with vested interests, had been invited to look at the revised principles – they had said that the revised system was a big improvement and brought greater clarity.

Mr Davidson stated that although the Bill was said to be transitional, no transition period was specified.

Dr Crompton replied that the Bill specified that the period of licensing would be limited to ten years.

Mr Davidson asked how the revised framework for the allocation of retail licences would work.  How would the cap on the number of stations be rationalised fairly?  He asked for clarity on the principle that the number of sites would be determined by consumption.

Dr Crompton replied that the number of sites would be linked to consumption through retail facilities.  There might be an increase in throughput because of the card system introduced for sale of diesel to corporate clients.  There had to be a link between the number of sites and consumption to limit price increases and ensure the survivability of retail sites.  He noted that the retailer bodies had argued for a 400 000 litre per month throughput per licence – this was much higher than the current average throughput per month per site.  Regarding how it would work, Dr Crompton stated that the Department set store by consultation with stakeholders.

Mr Davidson stated that the Bill did not allow the trading of licences.  This is anti-competitive.

Dr Crompton replied that licences would be tradeable between wholesalers; there would be a market for such licences.

Mr Davidson questioned the Minister’s power in respect of the possibility of appeal.  The Bill appears to exclude the courts completely – is this constitutional?

Dr Crompton replied that the Bill made provision for appeals against decisions by the Controller.  There is a right to appeal against Ministerial actions – one does not need to specify this in this legislation.

The Chair stated that the Committee should not start discussion on the Bill but stick to points raised in the hearings.

Prof I Mohamed (ANC) asked if the Department had looked at the question of leaded versus new fuels.  Whilst the Committee and Department had said that this was not relevant to the discussion on the Bill, he wished to know the Department’s response.

Dr Crompton replied that the Department’s view is that lead in petrol contributes to health problems.  Leaded petrol will be eliminated in 2006.  The Department remain of the view that it is not appropriate to put specifications in legislation.  That is a matter for regulation since specifications will evolve.  The Bill adopts the SABS public process for setting fuel specifications.

Mr Davidson suggested that perhaps the Department had given the industry experts more information on licensing than they had supplied to the Committee.  He returned to the matter of the cap on the number of retail sites.  He asked how total consumption would be defined.  Would it be based on off-take from the refinery or present sales at the point of retail?

Dr Crompton replied that the Department would measure volumes passing through retail sites without regard to who owns them to determine total consumption.

Mr S Louw (ANC) asked for the Department’s position on the two companies that wanted to enter the retail market.

Dr Crompton replied that the Department’s view was that if one allowed the companies to enter the retail market aggressively by building retail stations, this would lead to lower average throughput per station, leading to lower income for dealers, leading to upward pressure on the retail margin and thus on retail prices.  It was not in the public interest to allow the expansion of retail sites.  Those that wish to enter the retail market would have to do so in different ways.  If one looked at the framework, it provided for wholesalers to trade obligations to sites.  The intention is to create efficient retail sites and an equilibrium in the industry.  To explain the idea of equilibrium, Dr Crompton asked the Committee to consider why SASOL would want to enter the retail market.  Presumably, they were attracted by the retail margin.  It follows from this that the higher the price they receive at the refinery gate, the lower the incentive to enter the retail market, and vice versa.  Government preferred to leave settling this issue to negotiations between the companies.  Only if there was a risk that the fuel supply would run dry in areas would the Government intervene.  Once the industry had achieved an equilibrium in these matters, the Department could move on

Mr Lucas questioned the requirement of a throughput  of 400 000 litres per month per site licence.  Would convenience be considered?  It is not clear that the 400 000 standard is good for motorists who would end up having to travel further for fuel.

Dr Crompton agreed that there is a trade-off here.  The Department wished to ensure security of supply but also to promote efficiency.  The Department did not have a view of what the throughput per licence should be – the 400 000 litre per month figure was the one suggested by the retailers’ associations, not the Department’s figure, but it should be taken seriously since the retailers should have a good idea of an appropriate figure.

NCOP Proposed Amendments to Mining Titles Registration Amendment Bill [B24B – 2003]
The Chair noted that the Committee had the necessary quorum for final consideration of the Bill.

Ms S Bopape-Dlomo (Director: Mining Rights, Department) briefed the Committee on the Amendments made by the NCOP to the Mining Titles Registration Amendment Bill.  The Department explained that the NCOP had made technical amendments to the schedule amending the Deeds Registries Act (No 47 of 1937) and the Sectional Titles Act (No 95 of 1986).  The Schedule was replaced by the Schedule as it appeared with the Report of the Select Committee on Economics and Foreign Affairs on the Bill, dated 5 August 2003 (which appears in the 14 August edition of the Announcements, Tablings and Committee Reports).  The amendments are of a technical nature to correct errors found in interactions with the Department for Land Affairs.

The new Schedule alters the Deeds Registries Act (47 of 1937) as follows: Sections 3(1)(t), 3(1)(m), 3(1)(n), 3(1)(q), 17(5)(b), 26(1)(bis), 44(3), 64(2)bis, 64(2)ter, 70 to 74ter, 84, 85, and 90(2)(b) are repealed.  Section 21 is substituted with a new Clause on Transfer or cession from joint estate.  In Section 28, subsection (1) is substituted.  The phrase ‘or right to minerals’ is deleted from subsections (1), 2(a), and (4) of Section 32.  Sub-sections (5) and (5A) of Section 32 are substituted.  Subsection (2) of Section 63 is substituted.  The words ‘other than a right to minerals’ are deleted from Section 64(1).  The words ‘or in a deed of cession of rights to minerals’, ‘or cedent’ and ‘or cession’ are deleted from Section 67.  In Section 77, the words ‘or of any rights to minerals in land’ are deleted from subsection (1), the words ‘or right’ are deleted from subsection (2).  Subsection (1) of Section 90 is substituted.  Section 102 is amended by the deletion in the definition of ‘immovable property’ of paragraph (a), the definition of ‘prospecting contract’ is deleted, the words ‘and rights to minerals’ are deleted from the definition of ‘share’.  In the Sectional Titles Act (95 of 1986), the words ‘, excluding mineral rights,’ are deleted.

Discussion
The Committee had no comment on the NCOP’s amendment to the Bill.  There was a motion to accept the Amendment, but the finalisation of the Bill could not be completed at the meeting and was set for the meeting on 27 August 2003.

The meeting was adjourned.