Petroleum Pipelines Bill: public hearings

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Mineral Resources and Energy

04 June 2003
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MINERALS AND ENERGY PORTFOLIO COMMITTEE
4 June 2003
PETROLEUM PIPELINES BILL: PUBLIC HEARINGS

Chairperson: Mr M Goniwe (ANC)

Documents handed out:
The Petroleum Pipelines Bill (B22-2003)
Competition Commission: Submission
Cosatu: Submission
Groundwork: Presentation (PowerPoint)
Petronet: Presentation (PowerPoint)
Petronet Submission
Sacob: Comments
South Durban Community Environmental Alliance: Submission
Tosaco: Presentation (PowerPoint)
Department of Minerals and Energy: Memorandum on the Establishment of a Single Energy Regulator
Belvedere Petronet Pipeline Incident Report (see Appendix 1)
Transnet: Comment (see Appendix 2)

Email pmg@info@org.za for the following document:
South Durban Community Environmental Alliance: Comments

SUMMARY
The Petronet submission focused on the need to optimise access to the pipeline network by way of multi-product usage instead of limiting access by stipulating in the Bill that a pipeline should be licensed either for crude oil or for petroleum product.

Groundwork highlighted the importance of including communities affected by pipelines and refining activities in the process of negotiating legislation with environmental, health and safety implications. Access to information was vitally important in this regard.

The Congress of South African Trade Unions (Cosatu) and the Chemical Energy Paper Print Wood and Allied Workers Union (Ceppwawu) argued against privatisation, stating that the Bill should enhance the State’s developmental role rather than diminish it.

Tosaco, Total South Africa’s black economic empowerment (BEE) initiative, endorsed an appeal made the previous day by inland refineries for the ‘Natref in Durban’ principle to remain in force.

The Competition Commission highlighted aspects of the Bill that could be strengthened in the long-term interests of a more competitive pipeline operating industry, while the South African Chamber of Business (Sacob) recommended a number of changes to the Bill on which discussions with the Department were relatively far advanced.

MINUTES
Petronet/Transnet
Mr J Morgan, Manager, Petronet Technical and Projects, said that, while Petronet supported the Bill in principle, it was concerned that operating competencies were not addressed in the Bill. In particular, Clause 20(1)(d) stipulating that a pipeline should be licensed either for crude oil or for petroleum product needed to be addressed. The Bill should include provisions for ensuring the integrity of the pipeline network in respect of encroachment by third party activities.

Discussion
Mr J Nash (ANC) wondered if the Empangeni pipeline could be reconverted to transport the products it had handled before being dedicated to gas.

Mr N Ngcobo (ANC) asked whether black economic empowerment (BEE) had been factored into Petronet’s future plans. To what extent would the need for operational capabilities hinder BEE entrants? He also enquired how Petronet would address the concerns of environmental groups in KwaZulu-Natal.

Professor I Mohamed (ANC) asked about the dangers of encroachment on pipeline servitudes for the communities concerned.  Did product change in a pipeline pose health and safety risks to workers? He also asked how Petronet would choose to define ‘pipeline’ in the Bill.

Mr I Davidson (DA) wondered if the week-long delay in converting the pipeline to transport a different product was a major problem, technically or economically. He asked what type of enabling legislation Petronet sought to deal with third-party encroachments on the pipeline. He also asked for Transnet's view on transferring pipeline licence ownership to Portnet to bring licensing arrangements in line with the requirements of the Bill.

Dr C Möller (Chief Executive Officer, Petronet) said that, if capacity requirements were such that it became necessary to re-convert the Empangeni line in order to transport liquid products, this was possible but would take time.

Mr Davidson asked how long the conversion would take.

Dr Möller replied that Petronet would require eighteen months to convert the pipeline from gas to liquid petroleum product transport mode.

He explained that if the Bill restricted the use of a pipeline to transporting only the product for which it was licensed, this would significantly inhibit Petronet’s ability to optimally utilise the pipeline network.

BEE was among Transnet’s highest priorities.  As a division of Transnet, Petronet was equally committed to BEE.

Regarding third-party encroachment on pipelines, he said that Petronet retained rights and jurisdiction within the pipeline servitude. He added, however, that activities occurring just outside the servitude could be equally dangerous. Relationship-building was important if accidents were to be avoided. Nevertheless, enabling legislation would greatly assist Petronet in securing the integrity of the pipeline network.

Mr Morgan said that operators were trained to handle pipeline conversions from one product to another and that the risks entailed were no different to normal.

Dr Möller explained that converting a pipeline from gas to liquid transport mode was a long and complicated process and that special health and safety controls were needed. The technology was available to transport a multitude of products down the same pipeline. The Bill should allow for this level of flexibility.

In its present form, the Bill would only allow operating licences to be issued to legal entities. Since Petronet, as a division of Transnet, was not itself a legal entity, it would not qualify for a pipeline operating licence under the proposed new Act. Portnet would. Petronet could be corporatised in order to meet the requirements concerned, but it would be simpler to amend the wording of the relevant clauses to make provision for Petronet as a licence holder. The value of Petronet should not be underestimated.

The Chair wondered if the question of operating capability being an obstacle to BEE entrants to the pipeline industry had been adequately answered.

Mr Ngcobo replied that Petronet had answered the question in general, but not in specific terms.

The Chair stated that Petronet should make a commitment to developing the necessary skills among historically disadvantaged South Africans (HDSAs) as one way of facilitating BEE participation in the pipelines industry.

Dr Möller replied that Petronet could possibly be corporatised with a BEE partner.  However, the motivation behind such a proposal would need to be strategically sound. Sixty percent of Petronet's operational staff was already black. As a division of Transnet, Petronet was committed to training and capacity building. Nevertheless, ownership appeared to be the issue.

Ms Mathibela (ANC) expressed concern about BEE fronting as opposed to ownership and control.

Mr Ngcobo asked for elaboration on why Petronet favoured a returns model for tariff setting. He wondered if provision should be made in the Bill for community stakeholders where pipelines encroached on settlements.

Professor Mohamed commented that companies as well as the Department had responsibilities in respect of petroleum pipelines’ impact on the environment.

Mr Nash asked Petronet to explain why tariff structure was such a contentious issue for coastal refineries.

Dr Möller replied that the Bill and related legislation already came out strongly against fronting.

He cited several studies over the years that had shown a return on assets model to be best for capital intensive industries. Such a model would not only serve Petronet’s needs but also those of prospective private pipeline investors in the future.

He observed that the Bill dovetailed well with existing legislation addressing environmental and social concerns during the construction, replacement and maintenance of pipelines. Expropriation powers should only be used when there was resistance, as a last resort for preserving the integrity of a pipeline.

The pipeline regulator should determine the tariffs structure.  However, he hoped that the new regulator would introduce a tariff structure that would facilitate the optimisation of the pipeline network, which was currently under-utilised.

Mr S Kgarimetsa (ANC) asked whether communities affected by pipelines could somehow benefit from this, perhaps by way of small business opportunities.

Mr Nash wondered if Petronet, as a monopoly, could improve its efficiency to bring the petrol price down. He asked about the impact of existing agreements on this.

Dr Möller replied tat, regarding benefits to communities affected by pipelines, Petronet already hired local contractors for servitude maintenance. Petronet's corporate social investment programme also focused on communities living near pipelines. However, more needed to be done as the Tongaat spillage had clearly demonstrated.

The Chair asked Petronet to inform the Committee at a future date what percentage of its budget Petronet devoted to corporate social investment.

Dr Möller explained Petronet's two possible options for generating income. It could either transport low volumes at higher tariffs or it could fill its pipelines and charge lower tariffs. If the Bill allowed Petronet to fully utilise its pipeline capacity, tariffs could be reduced which could, in turn, lead to lower petrol prices.

The Chair thanked Petronet for its presentation.

Groundwork
Mr Bobby Peek, Director, Groundwork, and his colleagues from the South Durban Community Development Environmental expressed outrage that oil industry stakeholders and other vested interest groups had been consulted over a two-year period on the provisions of the Bill, while communities living near the pipelines had never been directly consulted. The Groundwork submission was based on a long history of leaks, contamination, pollution and explosions associated with pipelines and the liquid fuels industry. This had serious implications for the environment, health and safety. Industry decision-making should be transparent and communities should be able to access information that would impact upon their lives. Expropriation powers should be withdrawn and the interests of people should take priority over profit.

Discussion
Mr B Douglas (NNP) compared the pipelines to ‘volcanic booby traps’. He asked for clarity on the terms of reference for the Commission of Enquiry into the Tongaat pipeline leak. Did they include litigation and restitution? He also asked Mr Peek to elaborate on his assertion that aspects of the Bill could be unconstitutional.

Mr G Oliphant (ANC) suggested that, when visiting Petronet, the Committee should visit Tongaat as well. He asked for a copy of the Commission of Enquiry's report, even if interim in form. He also wondered whether the absence of pipeline-specific safety legislation was peculiar to South Africa or a world-wide phenomenon.

Professor Mohamed asked whether Groundwork had raised their concerns with the Department of Environmental Affairs and Tourism (DEAT).

Ms L Xingawana (ANC) thanked Groundwork for raising some important issues. Did Groundwork operate only in KwaZulu-Natal? Sasolburg had dangerously high pollution levels, by way of example. She wondered what the industry's obligation was to the health of communities living in such conditions.

Mr Peek replied that Clause 8(8)(b) of the Bill could lead to crucial decisions being made in other fora without adequate consultation and then rubberstamped. This could be unconstitutional.

Australia, the United States and Europe had specific legislation for public health, safety and environmental issues relating to pipelines. Voluntary controls would not work and state regulation was required.

He noted that Groundwork did operate in Sasolburg and urged the Committee to visit communities there. One way Sasol could exercise its social responsibility would be to encourage communities living near its plants to use clean fuels rather than coal.

Mr Peek also called for closer collaboration between the Department of Minerals and Energy and DEAT.

Mr Govender said that the terms of reference of the Tongaat Commission of Enquiry did not include compensation and restitution. Communities lacked the financial resources to take the parties responsible to court and pursue their rights.

Mr D'Sa observed that the liquid fuels industry infrastructure was generally located near poor urban black communities.

Ms Xingawana asked if any research had been done on the long-term effects of industrial pollution.

Mr Ngcobo, in his capacity as Acting Chair, enquired whether civil society had engaged Government or industry in its workshops on the issues concerned.

Mr Peek cited a University of Michigan study that demonstrated that the longer people were exposed to industrial pollution, the lower their resistance became.

No workshops had been held with Government or industry. Civil society and communities had put significant amounts of information into the public realm, but to little avail. Government and industry could access this if they chose to do so.

The Acting Chair thanked Groundwork for their submission, calling attention to pollution levels in Wentworth township, South Durban. Perhaps the Committee’s visit should also include that community?

Competition Commission: Hearing
Mr F Sibanda, Head of Policy and Projects, Competition Commission, articulated the Commission's recommendations for fine-tuning the Bill to ensure the long-term promotion and preservation of competition in the pipelines industry.

Discussion
Mr Ngcobo and Mr Nash expressed concern about the cost implications of converting pipelines for multiple product transport in the interests of competition.

Mr Nash wondered whether multi-product usage would increase the incidence of leakages and pollution. He also wondered about the scope for investment and competition, given the relatively small size of the South African market by international standards.

Professor Mohamed asked what authority determined whether multi-product usage was environmentally safe and technically feasible.

Mr Geoff Parr, Chief Economist, Competition Commission, replied that the Commission lacked the expertise to answer these technical questions. He referred the Committee to Petronet's earlier statement that multi-product transport was both easy and safe. Noting the age of the existing pipeline network, private sector investment in new pipelines or the replacement of sections of the existing network would be determined by incentives provided for in the Bill. Petronet and the oil companies would be best placed to determine whether multi-product usage was technically feasible.

Mr I Lucas (IFP) called for an informed decision on the multi-product usage issue because of its significant economic implications.

Ms Xingawana, in her capacity as Acting Chair, asked the Competition Commission to look into the issues raised and revert to the Committee in writing.

Establishment of a Single Energy Regulator: Memorandum from the Department of Minerals and Energy
Dr Rod Crompton said that the memorandum sought to address concerns expressed by some members about the rationale underpinning the process of establishing separate regulators for each industry and then merging them into a single energy regulator.

Discussion
Mr Nash asked about the timeframe for the consolidation process.

Dr Crompton replied that this would be determined by the promulgation of the relevant Bills but should be complete within eighteen months. The same five people would perform the same functions with a core secretariat.

Cosatu & Ceppwawu
Mr Sydney Kgara delivered a submission from Cosatu and representative of Ceppwawu gave his union’s perspectives on key points. The thrust of the submission was that the developmental role of the State should be enhanced, not diminished, by the legislation. The status quo should remain and the role of the regulator should be to help Petronet eliminate current inefficiencies. Opening the pipeline operating industry to private sector investment would result in job losses. The Department should strike a balance between capital and labour intensive approaches in restructuring the industry.

Discussion
Mr Douglas asked whether Cosatu was for or against restructuring and BEE's role in this process.

Professor Mohamed noted that affordable energy was a priority. Nevertheless, increased pipeline capacity would require capital investment which would push up energy prices. Government faced a dilemma in this regard. Restructuring sought to improve competitiveness which, over time, should lower prices. How did Cosatu propose to do this? He expressed reservations about the rationale underpinning Cosatu’s position on a single energy regulator.

Mr Ngcobo observed that, since legislation was already in place to safeguard workers’ rights, these issues did not need to be repeatedly provided for in every new Bill. He asked whether the regulation versus deregulation debate had been raised during the consultation process. He also asked Cosatu to verify the sources of the statistics they had cited.

The Chair asked for clarity on Cosatu's engagements with the Department during the development of the Bill.

Mr Kgara said that BEE for an elite few should not be used to justify privatising the industry. Broad-based BEE was what was needed. Public sector ownership and operation of the electricity industry had resulted in affordable electricity. Public sector involvement in operating pipelines was key to keeping liquid fuel tariffs down. Government would manage the pipelines in the interests of all South Africans while private investment would be made on the expectation of a high return. Ceppwawu endorsed this view.

Mr Kgara agreed with Professor Mohamed on the need to maintain a separate nuclear regulator.

Mr Kgara reiterated Cosatu’s view that the Department had not followed the necessary procedures in negotiating the provisions of the Bill in the National Economic Development and Labour Council (Nedlac).

The Chair noted the ideological position underscored by the Cosatu submission. However, Government would be held accountable for the Bill and needed to exercise due caution in taking decisions on the basis of ideology. He looked forward to the day when organised labour came to the negotiating table with promises of increased efficiency. Private investment involved risk and more than a salary cheque was at stake. Job losses did not necessarily accompany privatisation. Each new piece of legislation could not realistically include standards and guidelines for labour, health, safety and the environment already addressed elsewhere. Recognising that Cosatu was a critical role player in the liquid fuels industry, the Committee would consider the submission and revert to Cosatu for clarity on any of the issues raised.

South African Chamber of Business (Sacob)
Ms Peggy Drodskie noted that Sacob represented many parties with diverse interests and perspectives on the Bill. The Sacob submission contained several recommendations that were already well advanced in the process of being considered by the Department and, possibly, accommodated in the Bill.

Discussion
Mr Ngcobo asked for clarity on an appeal in the submission for latitude for the private sector in respect of transformation imperatives.

Mr Lucas wondered if Sacob's recommendation for Clause 15(2)b could circumvent the entire licensing process as enforced by the Bill. He suggested that deregulation of the liquid fuels industry was an entirely different issue that did not at all fall under the scope of the Bill.

Mr Ken Warren said that any person engaged in any activities requiring a licence in terms of the Bill but not having complied with this requirement should be given an opportunity to rectify the situation. Sacob was not promoting non-compliance.

The Chair said that the Department would respond the following week to all the issues raised during the course of the submissions. He hoped Sacob would be present.

Tosaco: Hearing
The Chair congratulated Mr Zamani Jali on Tosaco’s BEE deal with Total South Africa and invited him to proceed with the Tosaco submission.

Mr Jali said that the thrust of this submission was to minimise investment risk for BEE entrants, arguing strongly in favour of transport cost neutrality and the enshrinement of the ‘Natref in Durban’ principle to prevent inland refineries and their BEE partners from being placed at a competitive disadvantage.

Discussion
Ms Mathibela asked how many black women and black disabled women TOSACO included.

Mr Nash wondered if BEE groups in partnership with coastal refineries would share Mr Jali's perspectives on the Bill.

Mr Jali provided statistics on the number of black women with shareholdings in the Tosaco consortium of companies. He also provided statistics on the number of disabled people with interests in the consortium but was unable to say exactly how many of these were black women.

BEE entities partnered with inland refineries would suffer huge losses if transport cost neutrality was abolished. In his view, it was more profitable to operate at the coast. BEE initiatives in partnership with inland refineries should not be penalised for politically motivated arrangements made under the apartheid regime.

The Chair asked how long Government could be expected to accommodate this distortion and was respectfully told that, to avoid placing the BEE initiatives concerned at risk, the ‘Natref in Durban’ principle should be accommodated indefinitely.

Mr Nash asked how Tosaco could be disadvantaged with such a big market share.

Mr Lucas wondered if Tosaco would have negotiated the terms of its partnership with Total differently had it known at the time that the ‘Natref in Durban’ principle could be in jeopardy.

Mr Ngcobo asked how Tosaco was building technical expertise.

Mr Jali replied that Total had a thirteen per cent share of the entire South African market and that, like all other oil companies, Gauteng accounted for the bulk of that share. No single oil company monopolised the Gauteng market.

Had Tosaco known about the potential risk of a partnership with an inland refinery it would have negotiated differently but would still have entered the refining business.

The Chair commented that the coastal versus inland refinery issue would be difficult to resolve. He hoped that an opportunity would arise for Mr Jali to update the Committee on how much had been achieved by Tosaco, but there was unfortunately not enough time for him to do so that day.

The meeting was adjourned.

APPENDIX 1

Belvedere Petronet Pipeline Incident
24/12/2001 - Tongaat - KZN

Brief Summary of Incident on 24/12/2001

8.00AM - A loud explosive sound is heard and the entire township of Belvedere awakes when a tremor-like vibration hits the township. Point of this "explosion" is in the vicinity of the Trubel Primary School Ground.
8.3OAM - Local fire and emergency officials realise the need to evacuate the area since the pipeline carrying a gas identified as methane is spraying the gas into the air, almost 10m high.

9,OOAM - Durban Metro Disaster and Emergency Service report to assess the situation and the evacuation of 5000 residents in the township begins.
People first removed from homes and flats around the affected site to the local community hall. Later when the wind direction changes, the hall becomes affected by the gas fumes and people are removed k) the Tongaat Town Hall away from the Township.

10AM - Buses from the local Tongaat Circle Bus Company assist in the process to
evacuate residents. Medical personnel from the Tongaat Health Centre Haven of Rest (a local Church Clinic) aid local doctors attend to the- people affected by the fumes given off. Others are also taken to the local private hospital, the Victoria Hospital. Meals are provided by local religious organisations for the victims and evacuated residents. The local SAPS, metro police, local councillor, Civic Association Rep and Metro Disaster Emergency services, set up a J.O.C Entire township is evacuated and patrolled by' police to prevent looting or theft. Informal settlements also affected and evacuated, i.e. Umbhayi.

11.30AM - Petronet, the Company that operates the pipeline, shuts down the line, almost 3.5 hours after the pipeline "exploded". Explosive monitors used to do readings of gas in the air before all clear given to people to return-

2.OOPM - People given all clear to re-turn.

3.OOPM - Meeting convened by Minister of Environmental Affairs and Agriculture of K/N- Narend Singh, sets up a committee of all role players and promises a commission of enquiry into the incident. technical arid Monitoring Committee set tip to oversee the .issue.

25/12/2001 -Christmas Day
1000AM  William Mngoma from KZN - Dept of Environment Affairs and Agriculture convenes a meeting with Petronet officials, local civic association and council or, Deputy Mayor of Ethekweni and local MP Billy Nair. Informs meeting that his dept. have engaged the services of Drenan Mand Partners as an independent expert to investigate the cause of the incident and to also report on remedial measures to resolve the problem.

Also Petronet commits Itself to effect urgent repairs to roofs, windows etc t1~at were extensively damaged, to homes, flats and schools around '[he incident. A heavy downpour during the nigh exacerbates the situation. Decision also taken to address the community in the incident. Petronet however, also very concerned that the disabled line needed to he re-opened in order to supply their customers who would be affected in the production process due to non-availability of the methane. Sought permission from school to get access to affected pipeline to begin work.

27/12/2001 - Public Meeting held in the Belvedere Community Hall. Almost the entire community present for meeting. Meeting chaired by local councillor, includes reps from Petronet CEO, Drenan Mand, SASOL, Community, Durban Metro. MP Billy Nair and Dept of Environmental Affairs of KZN. Most important issues raised was the emergency plan and procedures outlined by Petronet in the event of emergencies and their response time of 30 minutes Petronet failed totally to explain why it took them 3.5 hours on the day of incident to shut off the line. Nobody from Petronet could answer the question when it was raised. Also people wanted to know why Petronet never informed the community when it installed the pipeline which was originally meant to carry oil in 1969.

2. it later converted the line to carry gas, yet again it failed to inform the community or even the two primary schools within 50m(fi fly) of the line each having a pupil population
some 400 students. Most important resolution at the meeting - Unanimous decision to re-route pipeline away from township.
Technical and Monitoring Committee Meetings
Many    meetings were held to ensure the restoration of normality to the area and to deal various issues around the recommissioning of the line. Petronet wanted line re-opened to supply customers. however community believed opening of gas line with full pressure should only occur once the findings of the commission of Inquiry was complete and made public. Petronet and KZN Dept.of Environmental Affairs (which is responsible for giving consent to pressure increases in the pipeline) ignored the views of the community and c-opened line with normal 59 bar pressure.

7/] 0/2002-. 1 2/I 0/2002 and 21/10(2002-27/10/2002
Commission of Inquiry starts sitting with Vinay Gajoo as commissioner. Sits for two weeks and is adjourned until 16 August 2003.

Concerns of the Community
I.
          Pipeline passes within 50m of two primary schools with a combined population of approximately 1000 learners. What will happen if the pipeline ruptures during a school day and these two schools need to be eviacuated7
2.         At the Commission of Inquiry. Petronet spoke of emergency plans maintenance plans and even monitoring mechanisms on the line. Yet, there were no markers indicating a gas line nor was the pipeline servitude maintained. Why was the community never consulted in 1996 when the pipeline conversion to gas occurred Petronet?
3.         Later it emerged that the local authority was informed about the conversion which was approved by the local authorities engineer. however he input in stringent


APPENDIX 2
[PPB:9]                                     TRANSNET

                                                                                    Government and Parliament Liason
Mr M T Goniwe, MP                                                      Reference         TN/BD(PAR)GAZ 13/2003
Chairperson of the Portfolio Committee

On Minerals and Energy
P O Box 15
CAPE TOWN

8000

                                                                                    Date 29 May 2003

PETROLEUM PIPELINES BILL [B22-2OO3]

Transnet appreciates the opportunity to comment on the Petroleum Pipelines Bill. At the request of Dr B A Khumalo, Chairman: Transnet Limited, I would hereby like to inform you that Transnet concurs with the attached Petronet submission. However that Transnet is also in the process to further scrutinise the Bill. Should it be necessary for additional comments it will be presented on the day of the public hearing.

Kind Regards

D J BOTHA
Senior Manager

 

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