Proposed Amendments to Gas Bill: Deliberations; Draft Petroleum Pipelines Bill: briefing

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Mineral Resources and Energy

07 November 2001
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The aim of this report is to summarise the main events at the meeting and identify the key role players. This report is not a verbatim transcript of proceedings.

MINERALS AND ENERGY PORTFOLIO COMMITTEE
7 November 2001
PROPOSED AMENDMENTS TO GAS BILL: DELIBERATIONS; DRAFT PETROLEUM PIPELINES BILL: BRIEFING

Chairperson:
Mr R. Mofokeng

Documents handed out:
Gas Bill - Amendments (See Appendix)
Petroleum Pipelines Bill

SUMMARY
The Committee elected Mr R. Mofokeng as Chairperson. The proposed amendment to the Gas Bill by the Select Committee on Economic Affairs was considered and the Committee accepted the amendment and agreed to the wording proposed by the Department. The Department then briefed the Committee on the draft Petroleum Pipelines Bill. The briefing touched on the objectives, approach and considerations of the government in drafting the Bill. Also, the purpose, scope, objects and details on the Bill were elaborated upon, and a map of the various pipelines was shown to the members to emphasise the complexity of the situation and the need for legislating the pipelines.

MINUTES
Election of Chairperson
Ms T. Lyons, Committee Secretary, asked for the nomination of a Chairperson.

Mr S. Louw (ANC) nominated Mr R. Mofokeng.

Ms Lyons asked if there were any other nominations and, when there was no response from the members, declared Mr Mofokeng elected. She asked if the members agreed, and they did.

The Chairperson took his seat and said that he had been working in Bloemfontein and was shocked when he got the appointment. Although he was a member of the Portfolio Committee on Finance, he said that it was his first time in the Minerals and Energy Portfolio Committee but many of the members were familiar to him. He said that, with the full confidence and help of the members, the Committee would forge the way forward. He asked to be allowed to officially open the meeting and proceed.

The Chairperson said that, before dealing with the main issues on the agenda, there were announcements to be made. He announced that there was a function from 17:00 to 19:00 on 14 November 2001, and directly afterward would be the Sasol function. He read the transportation arrangements out loud. The next announcement was an invitation from the Minister to a seminar 13-15 November 2001, and he asked members interested in attending to respond to the organizers.

Gas Bill
The Chairperson stated that the Portfolio Committee had to look at amendments made by the Select Committee on Economic Affairs. He said that the Department and Mr M. Moosa, Chairperson of the Select Committee on Economic Affairs, should give their positions on the amendment. The Committee would proceed to either accept or reject the amendment.

Dr R.Crompton, Chief Director of Hydrocarbons at the Department of Minerals and Energy (DME), said that it was a privilege to be the first to congratulate the Chairperson on his election. Referring to the amendment, he said that there were two points to clarify. The first was the difference between validity and exclusivity of license. Validity referred to a license valid for 25 years but not exclusive. Exclusivity referred to a license with the exclusive right to operate in the given geographic area. The second point for clarification was the three types of license: the construction, operating and trading licenses. He then proceeded to discuss the document distributed (Appendix 1) on the historical timeline of the issue in the legislation. He said that the Department, in its haste, had bundled together exclusivity and validity.

Mr Moosa said that the NCOP wording would take the amendments back to the first one and added that the amendment was to strike the words after the comma, not the semi-colon.

Dr Crompton read the wording suggested by DME out loud. He commented that the Regulator would determine the period of exclusivity for the trading license and added that, if he were the Regulator, he would set the period at ten years.

Mr Moosa stated that the Select Committee's concern was that the second part of Section 21(m) was confusing exclusivity of geographic area and license. The section was read together with page 12, line 13 of the Bill. He accepted the point raised by Dr Crompton. If there were investments to be made, the company making the investments might want an exclusive license for 25 years, but trading license would have to not be exclusive. He said that the amendment clarified and eliminated the unnecessary wording and accepted the DME proposed wording.

Mr I. Davidson (DP) stated that Dr Crompton was right, but Mr Moosa had it wrong. He commented that there was no amendment to the validity of licenses, and the issue dealt with exclusivity. The amendment would give the Regulator the ability to determine the exclusivity period.

The Chairperson asked Dr Crompton if that was the Department's understanding.

Dr Crompton responded that there was agreement and asked for no more clarifications because it would confuse the issue further.

Prof I. Mohamed (ANC) asked how the Portfolio Committee could amend the NCOP amendment. He expressed his understanding to be that the Portfolio Committee could only accept or reject the amendment.

The Chairperson stated that the State Law Advisor had been approached.

Prof Mohamed said that the State Law Advisor should be asked for clarification.

Ms Lyons stated that the State Law Advisor had looked at the amendment and approved it already. She added that it was possible to call and invite the State Law Advisor to the meeting.

Dr Crompton stated that, according to National Assembly rule 127(2)(b), they were entitled to do this.

Ms D. Motubatse (ANC) agreed with Dr Crompton. She stated that it was apparent in the discussion that no one had problems with the amendment and officially moved for the Committee to accept it.

The Chairperson asked if there was opposition to the motion and, when there was none, stated that the motion was accepted.

Mr Moosa stated that it would not be a problem with the National Assembly's rule since the wording being amended was in the same section amended by the NCOP.

Mr J. Nash (ANC) asked which of the proposals on the document handed out was accepted.

The Chairperson responded that the "DME Proposed Wording (7-11-01)" was the wording that was accepted. He then proceeded to read the report on the Committee's consideration of the Gas Bill and acceptance of the amendment proposed by the NCOP. The Committee members agreed and the Chairperson signed the report.

Mr Moosa thanked the Chairperson for the way the discussion had been conducted and expressed his satisfaction with the final wording. He stated that he had other engagements and excused himself from the meeting.

Petroleum Pipelines Bill
Dr Crompton began the briefing by giving the government's objectives in drafting the Petroleum Pipelines Bill. The objectives were to lower intermediate energy costs in order to create a low-cost platform for economic development, particularly in the industrial heartland, and to reduce monopoly rents in the natural monopolies. The government's approach was to ensure competition between and within energy carriers, establish appropriate rules for investors, facilitate investment projects, conduct regulation where necessary, and protect the country's strategic interests. The government's considerations were state ownership of pipelines, the need for additional pipeline capacity and investment by approximately the year 2005, the strategic importance of the pipeline network, confusion regarding whether tariffs were market related, and increased transparency in tariff composition.

He then proceeded to discuss the process of the drafting thus far. Consultations had taken place through the International Energy Agency survey in April 1996; the White Paper on Energy Policy was released in December 1998; consultants were appointed in July 2000; there were three workshops with stakeholders in the industry and submissions from eight parties; and currently the Department was processing submissions. The next steps would be Cabinet approval of the Bill, certification by the State Law Advisor, consideration by Parliament, and translation into Zulu. Although Cabinet was not included in the list of parties that sent submissions, Cabinet had expressed concern with the Bill in protecting the industrial heartland.

Dr Crompton proceeded to discuss the purpose, scope and objects of the Bill. The Bill was drafted to establish a national regulatory framework, establish a Petroleum Pipeline Regulator as custodian and enforcer of the national regulatory framework, and provide for issuing of licenses and the registration of certain activities. The scope of the Bill would include crude oil, petroleum products, pipelines, storage facilities and off-loading facilities, but the production of petroleum, mining or farming, would not be included. The objects of the Bill were to promote competition and limit anti-competitive practices; promote efficient, effective, sustainable and orderly development from a national and industry perspective; and to promote fair and equitable access.

Dr Crompton then dealt with the Petroleum Pipelines Regulator that the Bill would establish. The functions of the Regulator would be to issue licenses for the construction and operation of pipelines and related services; register storage facilities; gather information; set tariffs and charges; promote competition; and exercise right to expropriate land. He stated that the composition of the Regulator would be similar to the provisions in the Gas Bill, but there were important differences. The Regulator would consist of five part-time members appointed by the Minister to renewable four-year terms. The limitations on the appointment of members of the Regulator were the standard criteria such as being a South African citizen, having no convictions of a financial nature, disclosure of conflict of interest, and solvency. The qualifications of the Regulator Board were relevant experience, impartiality, objectivity and balance between continuity and capacity building. He then discussed meetings of the Regulator, which would be governed by procedures prescribed by regulation, and proceeded to mention the way that the Regulator should perform duties and make decisions. He stated that the Regulator would be supported by CEO and staff, with the CEO possibly being a person employed by another energy regulatory authority. He said that the formula for the support was the same formula used in the Gas Bill that had just been approved. The Regulator's funding would come from appropriations from National Revenue, monies in terms of section 2 of CEF Act, levies by separate legislation, fees earned, and accounts audited by Auditor General.

He then proceeded to discuss the issuing of licenses. He stated that application would be advertised, objections within 30 days would be considered, and the decision period would be 60 days following replies to objections. Separate licenses would be issues for each activity, and existing activities would have to apply to get licenses. He said that the Regulator could impose conditions on the licenses. These conditions could include the setting and approval of tariffs, the period of validity, construction and operation standards, health, safety and environmental concerns, competition issues, and non-discriminatory practices. He then discussed other matters related to licenses and moved on to touch on other provisions of the Bill. The other provisions were that storage facilities had to be registered rather than licensed; following arbitration of a dispute, the Minister and the Regulator could make it a licensed activity; entry, inspection and information gathering would be done by the Regulator; and resolution of disputes would be voluntary and compulsory. The regulations would be made by Minister after consulting with the Regulator and inviting public comment. The regulations would involve procedures, record keeping, forms, publishing of information, methodology to be used by the Regulator, and land rehabilitation. He concluded the presentation by showing the Committee maps of the existing pipelines and explaining the difference between what they were intended for and how they were actually being used. He stated that using pipelines to transport products for which they were not made created operational limitations. He added that the capacity of some pipelines was full, so, if there was market growth, there was no additional capacity to respond. He elaborated on the need for new pipelines to correspond with the energy demand increases in the future.

Discussion
The Chairperson asked how deep underground the pipelines were.

Dr Crompton responded that the pipelines were approximately one meter underground.

The Chairperson asked for clarity on some of the pipelines shown on the map, and Dr Crompton explained.

Ms Motubatse asked about the safety of the pipelines, their lifespan, when they were built, and if they were sufficiently safe. She stated that the Bill did not refer to the safety of communities and asked for elaboration.

Dr Crompton responded that the safety of the pipelines was part of the occupational safety measures that had been in place. On the question regarding communities, he stated that people were not allowed to build on top of pipelines but were doing so anyway. On the question regarding the age of the pipelines, he responded that the pipelines were of various ages, but most were built in the 1960s. He added that the pipelines were checked regularly and stated that pipelines had a long lifespan if properly maintained.

Mr A. Nel (NNP) asked if all the pipelines were the property of Petronet.

Dr Crompton responded that the pipelines were owned by Transnet.

Mr Davidson asked if the Committee would receive copies of the submissions that the Department had received on the Bill. He also asked how the Bill would promote competition and wanted clarification on the difference between being registered and licensed.

Dr Crompton stated that the submissions would presumably be available, but he would check with his superiors. On the questions regarding competition, he replied that the Bill was trying to promote two kinds of competition. The first type of competition would be in the price of liquid fuels in the inland market by means of competition in supply, and, from the regulatory perspective, it would be better to have additional capacity in pipelines. The second type of competition would be between pipelines by creating the rules of the game. He stated that these were natural monopolies, so there was a need for regulation. On the inquiry of the difference between registered and licensed, he responded that there would be no need for license unless there was a dispute over access. Registering was simply a matter of accounting. He stated that there were various points of view, and the Department was considering them.

Mr S. Blanche (FA) asked if the pipelines were paid off.

Dr Crompton responded that he believed that the pipelines were paid off since they were built in the 1960s. He said that there had been subsequent investments that had not yet been paid off.

Mr Nash asked for clarity on the map and inquired why people were charged more than they should be.

Mr Crompton clarified the map for Mr Nash and stated that the pipeline referred to had become a gas pipeline but had previously been two different pipelines. He said that the question on the price would better be answered by Petronet and stated that there were complicated historical agreements that the government had entered into in the 1960s that still applied to some of the pipelines.

Mr Nash asked if it was possible to restore some of the pipelines back to crude oil so that there would be an alternative.

Dr Crompton stated that, if Mr Nash's suggestion were followed, there could be adverse consequences. Therefore, somebody had to build pipelines, or there would be shortages in the inland market.

Mr Davidson asked if the distinction meant that the licensed would be regulated and the registered not regulated. He also asked for elaboration on the route of the pipelines to be built by Sasol according to the agreement between Sasol, Mozabique and South Africa.

Dr Crompton replied that the Sasol pipelines would go from Schoonder to Mozambique, and the existing pipeline would be used to bring the products down to the coast in Durban.

Ms L. Xingwana (ANC) asked if the pipeline was involved in the problem of fuel shortages in Gauteng.

Dr Crompton replied that the refinery was shut down for eight weeks during the fire. He added that there was petrol, but the petrol stations were sitting empty. He stated that the Department had not received an adequate answer from the industry.

Mr Nash asked if the rail tankers could be used prior to the consideration of building more pipelines.

Dr Crompton responded that Petronet was only a division of Transnet, and Transnet owned not only the pipelines but also the railways. He added that it was cheaper to transport in pipelines rather than the tankers.

The Chairperson concluded the discussion and thanked the Department and all members present. He stated that the Bill was just a draft and added that more changes would be made to it in the future. Considering his new appointment to the Committee, The Chairperson stated that political opposition was one thing he did not like, and he expressed his hope that the Committee would continue to work like this. He stated that there would be one last meeting next week, and the meeting was adjourned.


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Appendix 1
GAS BILL
Prepared for the Parliamentary Portfolio Committee on Minerals and Energy meeting scheduled for 7th November 2001 by the Department of Minerals and Energy

SECTION 21(M)
The Gas Regulator may impose licence conditions within the following framework of requirements and limitations:

ORIGINAL

"(k) a distributor will be granted the trading licence within its exclusive geographic area for a period determined by the Gas Regulator;"


PPC FIRST AMENDMENT

"(m) a distributor will be granted the construction, operation and trading licences for its exclusive geographic area, which licences will be exclusive, for periods determined by the Gas Regulator;" (21 August)

PPC SECOND AMENDMENT

(m) a distributor will be granted the construction, operation and trading licences for its exclusive geographic area, which licences will be exclusive, for a period of 25 years or such longer period as determined by the Gas Regulator; (19 September)

( a consequential amendment to bring it into line with the 25 year time period in section 23. )


NCOP WORDING

(m) a distributor will be granted the construction, operation and trading licences for its exclusive geographic area, which licences will be exclusive; for a period of 25 years or such longer period as determined by the Gas Regulator;

The NCCOP Portfolio Committee deleted the second part of the section as requested but on the grounds that it was unnecessary as section 23 read with section 21(1)(m) guaranteed the distributor a 25-year exclusivity period.

DME PROPOSED WORDING (7-11-01)

(m) a distributor will be granted the construction, operation and trading licenses for its exclusive geographic area. The construction and operation licenses will be exclusive for the period of validity of such licences, and the trading licence will be exclusive for a period determined by the Gas Regulator;

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