Liquid Fuels Charter: Engagement with Deputy Minister of Trade & Industry, PetroSA, National Energy Regulator of South Africa (NERSA), Transnet & Department of Energy - follow-up briefings to public hearings 14-15 September 2010

Energy

15 November 2010
Chairperson: Ms B Tinto (ANC)
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Meeting Summary

In the presence of the Deputy Minister of Trade and Industry, Petro South Africa reported that it was unable to report on progress, except to say that the board would soon meet to ensure that its strategy for 2011/12 had inbuilt the agenda of  transformation  as part of every division of the organisation. Figures for black economic empowerment were showing an improvement.

African National Congress Members  could not accept Petro South Africa's report that it had not done anything, that Petro South Africa should have made an effort to see what it could have done within the eight week time frame to address the Committee's findings, felt that Petro South Africa was hiding something from the Committee, which sought to exercise its oversight role and assist Petro South Africa, asked about issues of employment equity, remarked that there were two women but only in acting positions, asked why must improvement in gender representation be so slow, and aid that unless Petro South Africa could demonstrate some progress, the Committee must ask the Minister of Energy to brief the Committee on Petro South Africa.
A Member of the Democratic Alliance shared his colleagues' concerns, but fully understood that transformation was a long process, and it was difficult to produce results in eight weeks. However, Petro South Africa could have made a more concerted effort in skills development.

The National Energy Regulator of South Africa, outlined its roles and responsibilities, the Petroleum Pipelines Act, third party access, the Fuel Charter provisions on petroleum infrastructure, issues raised at the public hearing held on 14 September 2010 and its responses. The Black Petroleum Institute had alleged that the Regulator operated in a vacuum, did not address the gaps within its legislation, had various issues on the operation of Berth 6 at Island View, Durban, and stated that the Regulator needed to increase capacity to enforce compliance. The Women in Oil and Energy South Africa had alleged that the levy for Transnet was making the WOESA investment in Petroline a risk. Problems with access to storage even when there was access to pipelines and access to loading facilities had also been raised. The Regulator asserted that it did not operate in a vacuum; it held extensive public consultation on all matters brought to its consideration, and prior to its deliberations, there were calls for public comment.  It had raised gaps in the legislation with the Department of Energy regularly. On Berth 6, the Regulator had held on 12 October 2010 a meeting with Transnet and the National Ports Authority. Further meetings with the Authority were agreed to discuss the Liquid Fuels Charter, the Ports Act and the Ports Rules, the Petroleum Pipelines Acts and its Regulations, and broad-based black economic empowerment. The Regulator responded to Women in Energy South Africa that it remained committed to orderly development and the promotion of competition and security of supply within the petroleum pipelines industry. The Regulator asserted that it had   taken the necessary actions to address the matters raised. It had noted the need for increased capacity for compliance enforcement, and was making and implementing the necessary strategies. It remained open for consultation with licensee, stakeholders and interested parties on matters of petroleum pipelines regulations; and remained committed to the objects of the Act, including promoting third party access, competition and the interests of historically disadvantaged South Africans.

Members asked for an explanation for the absence of the chief executive officer, how the Regulator would respond to the women, thought that the Regulator would have given a time frame for filling its vacancies, and observed contradictions in the legislation. A Democratic Alliance Member called upon the Regulator to show a sense of urgency.  An Inkatha Freedom Party Member asked if the delay in the Durban pipeline had been attended to. The Acting Chairperson warned the Regulator that the Committee would call upon it again.

Transnet outlined its background, access to facilities – pipelines and ports, facilities on Berth 6, deemed licence under the Ports Act, common user principles, the Berth 6 Agreement, and the way forward. Transnet Limited, through its divisions the Transnet National Ports Authority, the Transnet Pipelines and Transnet Freight Rail, was involved in the handling, imports and exports, storage and transportation of petroleum products throughout South Africa except by road.  Transnet’s involvement in the transportation of fuel was mainly in the C-zone area of South Africa which sold more than 70% of all fuel used in the country.  The logistics and supply of fuel was complex and involved many role players. On 13 October 2010, Transnet met with the Regulator to clarify some of the issues raised in the Regulator’s Decision to Grant a License to Operate the Loading Facility at Berth 6. It was agreed that Transnet and the Regulator would enter into a Memorandum of Understanding to align processes where there were overlapping mandates. Transnet and the Regulator would jointly ensure greater access by historically disadvantaged individuals to facilities, including stringent monitoring of uncommitted capacity at Island View. Transnet supported policy objectives for sustainable presence, ownership or control by historically disadvantaged South Africans on all facets of the liquid fuels industry as stated in the Energy Policy White Paper. Transnet was committed to making a meaningful contribution, in accordance with applicable laws in the following areas of the Liquid Fuels Charter - skills development; employment equity; procurement; and access to facilities.

African National Congress Members asked what exactly Island View (the whole range of births and storage tanks) denoted, were concerned about fronting became more and more prominent, thanked Transnet for its commitments but observed that progress on transformation had been insufficient, asked how far Transnet assisted the consortia to comply with the broad-based black economic empowerment and observed that the consortia were losing hope for want of advice. An Inkatha Freedom Party Member commented that the new environ legislation made it more expensive for the formerly disadvantaged to enter the more advanced sectors of the economy – such people need to be helped by organisations like Transnet. A Democratic Alliance Member agreed that it was a good presentation in terms of the goals and that there was no transformation in the oil industry: much capital was needed.


Meeting report

The Acting Chairperson congratulated and welcomed the Hon. Elizabeth Thabethe, the new Deputy Minister of Trade and Industry.

The Deputy Minister regretted that she had not had the chance to bid Members farewell on moving back to the executive before they had set off for France on their study visit. She had enjoyed her time as Chairperson of the Committee and the work of oversight. She reminded Members that poverty was still 'grinning in the face of our communities”.

The Acting Chairperson welcomed the Department of Energy, which, she noted, was present on his occasion only to observe, not to contribute.

PetroSA Presentation
Adv Linda Makatini, Acting Chairperson, PetroSA, reported that PetroSA had “internalised” the issues raised in the public hearings, but was mindful that it was in the middle of the 2009/10 strategy that had been approved by the Portfolio Committee. It was therefore not possible to report on progress, except to say that transformation would be part of every division at PetroSA. The PetroSA board would soon meet to ensure that its strategy for 2011/12 had inbuilt this transformation agenda.

Discussion
Mr S Radebe (ANC) could not accept PetroSA's report that it had not done anything.

Mr Radebe asked what PetroSA was really doing. It had been given a responsibility to implement the Committee's findings.

Mr Radebe observed that PetroSA was taking the Committee for granted.

Ms L Moss (ANC) said that PetroSA should have made an effort to see what it could have done within the 8 week time frame to address the Committee's findings. She felt that PetroSA was hiding something from the Committee, which sought to exercise its oversight role and assist PetroSA. 

Ms Moss asked about issues of employment equity. There were two women but they were serving in acting positions. Why must improvement in gender representation be so slow?

Ms Moss said that unless PetroSA could demonstrate some progress, the Committee must ask the Minister of Energy to brief the Committee on PetroSA.

Mr D Ross (DA) shared his colleagues' concerns, but fully understood that transformation was a long process, and, to be reasonable, it was difficult to produce results in 8weeks. He felt that PetroSA had given an assurance that it would embark on strategies to achieve transformation. However, he felt that PetroSA could have made a more concerted effort in skills development and in terms of plans for the future. He wanted something in terms of commitment within time frames to skills development.

The Hon. Thabethe (ANC), responding as an ordinary Member of Parliament, not as the Deputy Minister of Trade and Industry, said that the role of the state-owned entities differed from that of the multinationals. The state-owned entities, in the light of their responsibilities under the Liquid Fuels Charter, must come with a way forward to transformation. There were surely some issues that PetroSA could have dealt with. There were some things that PetroSA could do differently while incorporating those things into its strategic plan.  PetroSA's response should, therefore, have been twofold: firstly, issues to be dealt with immediately, and issues to be dealt with on a longer term basis as part of its strategic plan. The same would apply to Transnet and to the National Energy Regulator of South Africa (NERSA).

NERSA should not have waited for public hearings to discuss issues of the regulatory form, so therefore it should talk today about these matters. 

Transnet was the same; it had said that there were barriers, but as a state-owned company it should have come with a solution, not side with British Petroleum (BP) and Shell and say that it had a problem. 

The Hon. Thabethe said that at least the three entities could talk about the pillars of the Liquid Fuels Charter towards making the Charter more forceful. 

Adv Makatini thanked the Hon. Thabethe for clarification on the two-fold response which was expected on this occasion.

Adv Makatini said that 8 weeks was too short by any standards to report on progress, and reassured Members that PetroSA did not leave the 14-15 September 2010 public hearings only to go back to the office and forget what it had been told: the culminations of those initiatives that PetroSA would report would be discussed by the board with a view to incorporating them into the strategic plan in order to make a turnaround.

Adv Makatini said that figures for black economic empowerment (BEE) were showing an improvement. The Committee had emphasised the employment equity targets and PetroSA acknowledged that it needed to improve on them. Recruitment had been frozen.  These were the initiatives that PetroSA had taken. There had been no significant resignations, so PetroSA could not significantly increase its employment representation of women. Skills development was being examined, and PetroSA acknowledged that the quota for females needed to be increased.

Since the public hearings, PetroSA had been seized with these matters but did not have anything concrete to report as yet. The position of chief executive officer would remain an acting position until the resolution of the case of the outgoing chief executive officer who was contesting his dismissal. No state-owned enterprise could confirm any position by itself. “The Hollywood situation was not in our grasp.”

There had been much cooperation from the executive to ensure that PetroSA remained functional. PetroSA had not known that it had only an eight week time frame.

Mr Selau said that ten years after the Liquid Fuels Charter much less than expected had been achieved. The Committee did not expect what was not reasonable, but it had to submit a report to the National Assembly; it could not say that the issues were non-achievable, but rather that they had not been achieved and this was what would be done to achieve them. The Committee wanted PetroSA to commit itself to change.

Ms Moss had wanted information from PetroSA but Members had not been given that information; Members could not continue to accept the acting positions. Members wanted to know what PetroSA's plan and turnaround strategy to address employment equity was. When the Department of Energy and Mineral Resources split, Members wanted the organogram of the departments so that they knew what was going on with mineral resources.

PetroSA responded that this information was in the annual report. PetroSA acknowledged that it was seen as a leader and example in the Liquid Fuels Charter. Petro SA in its previous presentations was quite proud of its ability to assist BEEs. If the Committee wanted those reports, the organogram was available; if the Committee could allow PetroSA an appointment to give a presentation on the strategic plan, it could include a presentation on the turnaround strategy.

The Chairperson said that the workshop would be important if PetroSA could take it forward. The time frame was important for the Committee. She was confident that Adv Linda would soon have a permanent appointment.

NERSA Presentation
Mr Charles Hlebela, Head of Communication and Stakeholder Management, NERSA, apologised for the absence of the Chief Executive Officer and the Chairperson, on account of some developments the previous day.

Mr Thabo Ramanamane, Head: Petroleum Licensing and Compliance, NERSA, outlined the organisation's roles and responsibilities. NERSA's policy maker was the Minister of Energy. NERSA's legislative framework comprised Acts of Parliament, and its regulatory framework was set by the Minister of Energy (slide 3).

Mr Ramanamane said that NERSA's administrative role was to serve as the National Energy Regulator and administer the Petroleum Pipelines Act, 2003 (Act No. 60 of 2003); the Department of Energy (DoE) administered the Petroleum Products Act, 1977 (Act No 120 of 1977). The Fuel Charter is not part of the Petroleum Pipelines Act.

NERSA's mandate was derived from the Petroleum Pipelines Act (Pipelines Act) read with the
National Energy Regulator Act, 2004 (Act No. 40 of 2004).

Mr Ramanamane said that NERSA's powers and functions included licensing the construction, operation and conversion of petroleum pipelines, storage facilities and loading facilities; gathering and storing of information relating to these activities; undertaking investigations into these activities; and setting and approving tariffs in a manner prescribed (slide 4).

Object 7 of the Pipelines Act was to promote companies in the petroleum pipelines industry that were owned and controlled by historically disadvantaged South Africans (HDSAs), by means of licence conditions to enable them to become competitive.

Under Section 20(1) (b) of the Pipelines Act, NERSA might impose licence conditions to promote HDSAs only in the manner prescribed, namely the Regulations made by Minister to the Petroleum Pipelines Act and published on 4 April 2008 (slide 5).

Under Regulation 8(1) applicants for licences and existing licensees must annually, submit information regarding commercial arrangement made for the participation of HDSAs in their activities. This information must include the shareholding by HDSAs, the directorships held by HDSAs, management by HDSAs, procurement of HDSAs, compliance with Employment Equity Act, and plans and actions taken for development of HDSAs (slide 6).

Under Regulation 8(2) of the Pipelines Act, NERSA must use the information gathered in such a manner so as to facilitate ownership, control or management of operations of petroleum pipelines, storage facilities and loading facilities (slide 7).

With regard to third party access to infrastructure, and access and ownership of joint facilities, under Section 20(1) (n) it was a condition of licence that the licensee must allow third party access to uncommitted capacity in storage facilities; and under Regulation 6 the storage licensee must submit to NERSA and publish his or her mechanism for allocating capacity (slide 8).

The Fuel Charter provided with regard to infrastructure “Access to large infrastructure for the movement and storage of crude oil and petroleum products….is acknowledged as critical in the supply chain of emerging companies. In this regard owners of such facilities (will) provide third parties with non-discriminatory access to uncommitted capacity”.

The Fuel Charter, in respect of retailing and wholesaling, provided that “The parties agree to create fair opportunity for entry to the retail network and commercial sectors by HDSA companies”. (Slide 9).

Issues raised at the public hearing on 14 September 2010
The Black Petroleum Institute (BPI) had alleged:
“NERSA operates in a vacuum and just licensing”
“NERSA is not taking up the matter of gaps within its legislation”
Berth 6: the process followed by the National Ports Authority in allocating land for commercial /industrial use
Berth 6: ownership of the facilities at the berth
Berth 6: NERSA’s “clinical” application of the legislation
Berth 6: NERSA’s advice on taking its decision on appeal
Storage: NERSA’s claim that uncommitted capacity cannot be determined
Storage: licensed but unused facilities
Storage: mothballed facilities and unlicensed facilities
“NERSA needs to increase capacity to enforce compliance” (slide 10)

Further issues raised
Women in Oil and Energy South Africa (Women in Oil and Energy SA or WOESA) alleged that the levy for Transnet was making the WOESA investment in Petroline a risk.

Issues raised generally were problems with access to storage even when there was access to pipelines, and access to loading facilities (slide 11).

NERSA's responses
NERSA's responded to BPI's allegation that NERSA operated in a vacuum, just licensed without due consideration to industry dynamics; applied the act clinically; and that “NERSA was not taking up the matter of gaps within its legislation”.

NERSA asserted that it applied the Act, and took extensive legal advice; NERSA was neither clinical nor emotional (slide 12).

NERSA asserted that it did not operate in a vacuum; NERSA held extensive public consultation on all matters brought to its consideration. Prior to NERSA deliberations, there were calls for public comment on all matters, through 30 day notice periods; public hearings were advertised and the NERSA reasons for decisions were publicised, and wherein NERSA gave consideration to all issues rose during the consultation process. The processes highlighted above indicated that NERSA actively sought inputs from stakeholders and interested parties, and that due consideration was given to such input. NERSA would continue with these consultation processes, and would also seek ways of enhancing the participation of stakeholders and interested parties (slide 12).

NERSA responded to BPI's allegation that NERSA applied the Act clinically; and that NERSA was not taking up the matter of gaps within its legislation.

NERSA asserted that it had taken these up with the DoE regularly over the years. On 8 October 2010, NERSA had a further meeting with the DoE, where amongst others matters of legislation were discussed. The DoE had indicated that it was also aware of the issues and would initiate processes to review the legislation in the future (slide 13).

NERSA responded to BPI's issues on Berth 6. NERSA had held on 12 October 2010 a meeting with Transnet and the National Ports Authority (NPA) (slide 14).

Further meetings with the NPA were agreed to, to discuss, among other things, the Liquid Fuels Charter, the Ports Act and the Ports Rules, the Petroleum Pipelines Acts and its Regulations, and broad-based black economic empowerment (BBBEE). There were areas of mismatch, for example, the first come first served principle versus third party access, and the common user principles versus common carriage (slide 15).

NERSA responded to BPI's allegation that NERSA’s claim that uncommitted capacity could no be determined for storage facilities. NERSA asserted that it had held two workshops with industry and stakeholders regarding the determinations of facilities capacities. NERSA had also developed allocation mechanisms guidelines to be used by storage facilities licensees. Since the September meeting, NERSA had written all licensees to submit their allocation mechanisms (and storage tariff proposals), and licensees had started responding (slide 16).

NERSA responded to BPI's allegations on mothballed storage facilities (slide 17).

NERSA responded to Women in Energy SA's (WOESA) allegation that the levy for Transnet was making the WOESA investment in Petroline a risk.

NERSA asserted that WOESA had invested in the construction of a petroleum products pipeline from Maputo to Kendal, inland. A licence for this construction was issued by NERSA in 2007. As per the most recent six-monthly construction progress report from Petroline to NERSA, not all investment and construction related activities on the issue has been put on hold, while Petroline held discussions with the Minister.
The levy issue was a policy issue. NERSA remained committed to orderly development and the promotion of competition and security of supply within the petroleum pipelines industry (slide 18).

NERSA responded to BPI's allegation that NERSA needed to increase capacity to enforce compliance.

NERSA asserted that it had just completed the licensing of all section 35 applications, and would now be focusing on enforcing compliance to the Petroleum Pipelines Act 2003, the regulations, the rules and the licence conditions. NERSA recognised that additional capacity would be required, given the number for licensed storage facilities. NERSA would be reviewing its staff and structure to address the need for increased strength in petroleum pipelines compliance monitoring (slide 19).

NERSA concluded that it had, subsequent to the public hearing of the 14 September 2010, taken the necessary actions to address the matters raised. NERSA had noted the need for increased capacity within the organisation for compliance enforcement, and was making and implementing the necessary strategies.
NERSA remained open for consultation with licensee, stakeholders and interested parties on matters of petroleum pipelines regulations; and remained committed to the objects of the Act, including promoting third party access, competition and the interest of HDSA (slide 20).

Discussion
Mr Selau asked for clear apologies from the chief executive officer (CEO) of NERSA.

Mr Hlebela replied that the CEO had the previous day been asked to take leave of absence for transgressing NERSA's code of conduct.

Mr Selau accepted this explanation.

The Chairperson concurred.

Ms N Mathibela (ANC) asked how far NERSA had progressed with the backlogs of licensing.

Mr Ramanamane replied that NERSA had closed the backlog.

Ms Mathibela noted that NERSA was not well-equipped enough for BBBEE. 

Mr Ramanamane replied that the regulations prescribed only that NERSA must collect information on an annual basis. He conceded that NERSA was not well-equipped for BBBEE. NERSA believed that the levers for empowerment lay with the Petroleum Products Act and not with the Petroleum Pipelines Act. 

Ms Mathibela asked how NERSA intended to help “the women who had a loud cry” - the Women in Oil and Energy SA.

Mr Ramanamane replied that the decision “to draft” (0h 47m 08s) the pipelines with a levy though the fiscus was a decision of Parliament. It was a policy decision beyond the scope of NERSA.  NERSA was not the right body to answer those (the Women in Oil and Energy SA) who had posed this question.

Mr Radebe much appreciated NERSA's feedback. He said that NERSA needed to increase its capacity and observed that NERSA was trying to fill the vacancies; however, he thought that NERSA would have given a time frame; trying did not constitute a time frame - the time frame was very important (slide 19).

Mr Ramanamane replied that NERSA believed that it was still building capacity. He himself had to hurry back to his own division in order to conduct interviews of job applicants.

Mr Ramanamane replied that further capacity building would require a decision at board level on the structure of the organisation.

Mr Radebe said that NERSA must address the gaps in the legislation (slide 13). It must show Members that it was not asleep.

Mr Ramanamane replied that there was an understanding between the Department of Energy and NERSA that there were issues that needed to be explained differently within the Petroleum Pipelines Act and in other legislation. 

Mr Radebe endorsed the issues raised by Ms Mathibela.

Mr S Motau (DA) said that while he was confident that NERSA followed the rules, it must go the extra mile and show a sense of urgency. This would obviate the need for complaints that NERSA was operating in a vacuum. Members needed to hear from NERSA how it would deal with these issues. NERSA must explain why it was not equipped for BBBEE, since BBBEE was critical to the issues raised by the Women in Oil and Energy SA. He also asked what NERSA did about those who operated without licenses. How did it happen?

Mr Ramanamane replied that the issue of unlicensed operators must be corrected quickly. However, the Act did not say what must happen to those who operated without a licence. There was neither a big carrot nor even a big stick – hardly a stick at all.

Mr Selau asked how old NERSA was, and how old the issues that it was raising were.

Mr Ramanamane replied that NERSA was established in 2006. Also the Petroleum Pipelines Act came into effect in 2006. Thereafter licensing applications were received. NERSA was still a young and growing organisation.

Mr Selau asked who licensed importing and exporting of oils and the use of the facilities such as the ports and storage facilities and channels of wholesale and retail distribution. If NERSA was not doing it, who was?

Mr Ramanamane replied that he would have wished to illustrate his answer, but the information was on another computer. He explained the process of how goods were received in the country. The pipelines were licensed by NERSA, but the refineries were licensed by the Department of Energy. If the oil came by road or rail, that was beyond the scope of NERSA.

Mr Selau observed that access to imports and exports belonged to the Oil Majors and there was no access for the previously disadvantaged persons or the Women in Oil and Energy South Africa. If anyone wanted to operate in that field it was necessary to procure a licence or have a front or become an employee of an Oil Major.

Mr Selau asked about issues around the gaps in legislation, around the scope of operations and empowerment. Why were these issues arising only now, and how had NERSA been able to navigate around these issues in the past to the extent that they were never detected before? 

Mr Selau said that NERSA had not answered his question on access for Women in Oil and Energy to imports and exports. It seemed that NERSA gave complete control to the Oil Majors and none to the Women in Oil and Energy and the previously disadvantaged South Africans. 

Mr Ramanamane replied that NERSA would license the loading but the issue became difficult with regard to the access laws. There was a highway accessing private property. NERSA was working on getting more information.

Mr Radebe was not happy that NERSA appeared to be supine. It must face up to its serious challenges and impose penalties.

Mr Motau agreed with Mr Radebe. NERSA had a responsibility to deal with the people who did not want to come into the fold. “This elephant is still in the room.”

Mr E Lucas (IFP) asked if the delay in the Durban pipeline had been attended too. No one must be allowed to operate without a licence, since fuel was of strategic concern. The big problem had been storage. It was necessary to consider ways of persuading people to comply. The concerns of the Women in Oil and Petroleum SA were very serious.

Mr Ramanamane replied that he was unable to answer as to the delay or the cost and asked Members to accept that he could not provide an answer.

 Mr Ramanamane said that South Africa was a net importer of petroleum products. This problem should be highlighted as it was a challenge that the country must face if it was to continue to grow. The infrastructure is not adequate.

Mr Selau said that it was not acceptable to have two licensing authorities in the same department. In the case of electricity, NERSA was the regulator from the producer to the consumer, whereas with petrol NERSA's regulatory role extended as far as the wholesaler; thenceforth, the Department of Energy regulated distribution to the retail level.  This was not an acceptable environment since it needed two pieces of legislation - one for distribution and one for storage and retail. It was a matter that should be debated with a view to restructuring and amendments. Either the Department of Energy or NERSA should handle it.

Mr Ramanamane replied that NERSA handled mostly infrastructure, while the Department of Energy handled trading. 

Mr Ramanamane added that NERSA did involve its stakeholders. However, wholesalers were licensed by the Department of Energy and were therefore listed on a different data base.  Infrastructure operators were on another database. Until those data bases were integrated NERSA could not say that it was engaging with its stakeholders adequately.

The Acting Chairperson thanked NERSA but warned it that the Committee had not finished compiling and examining its report on the public hearings; it would call upon NERSA again.

Transnet. Presentation
Mr Vuyo Kahla, Group Executive: Office of the Group Chief Executive, Transnet,  outlined the background, access to facilities – pipelines, access to facilities – ports, facilities on Berth 6, deemed licence under the Ports Act, common user principles, Berth 6 Agreement, and the way forward (slide 2).

Mr Khomotso Phihlela Group Executive: Transnet National Ports Authority, Transnet, said that Transnet Limited (Transnet) through its divisions Transnet National Ports Authority (TNPA), Transnet Pipelines (TPL) and Transnet Freight Rail (TFR) was involved in the handling, imports and exports, storage and transportation of petroleum products throughout South Africa.  Fuel was, however, also transported extensively by road: such transport was not controlled by Transnet.

Transnet’s involvement in the transportation of fuel was mainly in the C-zone area of South Africa which sold more than 70% of all fuel used in the country.  The logistics and supply of fuel was complex and involved many role players – the South African (SA) oil industry (as producers/suppliers or importers of the fuel);
TNPA as owner and manager of eight commercial ports in South Africa; TPL and TFR as transporters of petroleum products into the inland market; transporters including road haulage and coastal shipping; depot storage facilities; and customers in the form of oil companies (slide 3).

Access to facilities - pipelines
As to access to facilities – pipelines, the Charter for South African Petroleum and Liquid Fuels Industry required owners of facilities such as Single buoy moorings (SBMs), pipelines, depots and storage tanks to “provide third parties with non-discriminatory access to uncommitted capacity”.  Transnet recognised this as critical to the economic development and prosperity of our country.  Furthermore, as a responsible corporate citizen and an organ of state, Transnet was committed to all statutory requirements.

One of the objects of the Petroleum Pipelines Act, 2003 (Act No. 60 of 2003) (PPA), as set out in section 2(d), was to “promote equitable access to petroleum pipelines, loading facilities and storage facilities”.

Section 2(g) of the PPA required regulated entities to “promote companies in the petroleum pipeline industry that are owned or controlled by historically disadvantaged South Africans, by means of licence conditions to enable them to become competitive”. 

Section 4(g) of the PPA determined that the powers and duties of the National Energy Regulator of South Africa (NERSA) included the duty to “monitor and take appropriate action, if necessary, to ensure that access to petroleum pipelines, loading facilities and storage facilities is provided in a non-discriminatory, fair and transparent manner”. 

Transnet Pipelines believed that it complied with the PPA and operated under the “the common carrier” principle, giving effect to Section 20(g) of the PPA, which stated that “shipper’s of petroleum must have access to petroleum pipelines and pipelines capacity must be shared among all users and prospective users thereof in proportion to their needs and within the commercially reasonable and operational constraints of the pipeline….” (Slide 4)

Access to facilities - ports
Liquid handling at the Port of Durban took place at Island View berths.
Berth access was allocated on a first come first served (common user) basis by TNPA in collaboration with the industry. A table indicated the usage of births (slides 5-6).

Port infrastructure and services provided at South Africa’s commercial ports consisted of, amongst others, common-user berths, the provision of marine services (pilots, tug assistance and berthing services) to all vessels calling at SA ports and availability of land on which liquid handling and storage facilities were constructed.

All vessels had equal access to marine services and liquid bulk berths at the ports were allocated to vessels on a first-come first served basis (allocated by TNPA in consultation with the industry).

Common-user berths were available for use by terminal facility operators who had pipeline connections between the berth and the terminal – access to berths was constrained if a potential interested party did not have access to land and a liquid handling and storage facility.

Island View was saturated for space, except for Lot 100 - Castrol's lease had expired.

The environmental sensitivity of liquid terminals also led to more stringent approvals to be able to construct and operate a facility. When land became available for new liquid handling terminal facilities, TNPA followed an open tender process to allocate land to new terminal operators.

All tender processes provided for compliance with BBBEE targets as per the Port Regulations (Sections 2/3).
Section 80(1)(a) of the National Ports Act, 2005 (Act No. 12 of 2005) (the Ports Act) provided that the Minister of Transport may, by notice in the Gazette, make regulations in respect of “a framework for the economic participation and empowerment of historically disadvantaged groups in port operations” (slide 7).

The Ports Regulator had concluded an economic review of participation in port operations by public entities, private entities and public private partnerships, as required by the Ports Act. Transnet was commenting on the outcome and recommendations of this study (slide 7).

Public hearings
During the hearings by the Portfolio Committee on Energy and the Select Committee on Economic Development on the 15 September 2010, NERSA and the Black Petroleum Institute (BPI) referred to the Berth 6 Loading Facility Agreement (the Agreement) concluded between Transnet Limited and South African Petroleum Refineries (SAPREF) [a joint venture between Shell SA Refining and BP Southern Africa] acting for and on behalf of the Oil Majors.

NERSA interpreted the Agreement as providing an example of the need to synergise policy between NERSA and Transnet while BPI interpreted the Agreement as effectively denying historically disadvantaged individuals (HDIs) access to participation in the oil industry.

Regulation 2 under the Ports Act stated that the Authority had to incorporate black economic empowerment into decision-making in determining qualification criteria for entering into any agreement in terms of  section 56 of the Act; determining qualification criteria for the issuing of any licence in terms of section 57 of the Act; granting any other concession or authorisation in terms of the Act; developing and implementing a preferential procurement policy; determining qualification criteria for the sale or lease of any property owned by the Authority within a port; and developing criteria for entering into partnerships with the private sector (slide 8).

Regulation 3(1) set specific targets to be applied by the Authority in the second, third and fourth years following the commencement of the Regulations and prescribed that at least twenty-five percent per year of all agreements entered into in terms of section 56 of the Act by the Authority, licences issued in terms of section 57 of the Act by the Authority, other concessions or authorisations granted in terms of the Act by the Authority, sales or leases of any property owned by the Authority within a port, and any partnerships with the private sector and the Authority      shall be entered into, issued or granted to persons or entities that have attained the Broad Based Black Economic Empowerment status at least at a Level Four Contributor, measured in terms of the Codes of Good Practice issued in terms of section 9 of the BBBEE Act or an equivalent rating in terms of the Sector Code, if any.

The Authority had developed Guidelines for agreements, licences and permits (the Guidelines) in terms of the Ports Act to ensure fair, equitable and transparent procedures for the awarding of agreements, licences and permits.  The Guidelines set out the approach to be adopted for appropriate controls over port facilities, services and other activities in ports (slide 9).

Loading and discharging apparatus
A terminal in Island View could be seen as a facility engaged in the handling of petroleum or chemical products and included all infrastructure and equipment within the terminal boundary, pipes running through the precinct to the berths (administered under a way leave) and ending in a manifold at the back of the berth.
The vessel discharge points were connected to the manifold largely through short lengths of mobile hoses to enable product to be pumped into tanks within the terminals.  A fixed loading arm merely automated this process of connecting a hose to a vessel discharge point and added a pumping component.
 
The discharge hose/loading arm operation was not a separate facility which could be isolated from the discharge/loading process but was rather one element of the loading/discharge process and could not be considered as a separate facility.  The loading arm or the operation of mobile hoses did not constitute a separate business in as much, for example, a ship to shore container gantry crane or a tippler and conveyer belt system did not constitute a separate business. 

The use of the word “facility” in the Agreement appeared to have been misinterpreted to mean a separate entity or business (slide 10).

Deemed licence holders in terms of the Ports Act
Berth 6 at Island View had historically been used more extensively by the oil majors.  In order to improve flow rates, SAPREF, representing the oil majors, erected fixed loading arms on this berth.  A portion of Berth 6 collapsed in 1999 and the Authority initiated minor repairs followed by the commencement of reconstruction in mid 2005.  It was required of SAPREF to remove its loading arms for construction to proceed.  The berth reconstruction was completed in mid 2007. 

SAPREF held a deemed licence to operate a fixed loading arms on Berth 6.  In terms of section 65 of the Ports Act, entities operating on the 26th of November 2006, when the Ports Act came into effect, enjoyed a deemed licence status. The Agreement referred to was a construction investment agreement to allow the parties to underwrite the investment; and incorporate new requirements to operate the facilities.  SAPREF commissioned the new loading arms in May 2010 in line with its deemed licence provisions (slide 11).
 
Common user concept
The nine petroleum/chemical berths at Island View did not form part of any terminal footprint nor were these dedicated to a specific terminal.  These were termed “common user berths”.  These berths operated on a “first come - first served” basis or according to a berthing plan agreed daily by Island View clients and Port Control.

The mix between petroleum and chemical volumes varied across berths based on various operational and configuration factors.  The common use of these nine berths was open to all petroleum and chemical clients.  There was no restriction on the use of a berth by any vessel, including Berth 6, based upon operational factors. Vessels must load from, or discharge product to, a tank.  All petroleum tanks were currently owned and operated by the Oil Majors and tank capacity was confined to this reality.

The Agreement spelt out that Berth 6 remained a common user berth.  This implied that at its discretion, the Authority may decide to grant rights to other parties to establish and operate additional loading arms on Berth 6.

Petroleum product handling at Island View was determined by tank capacity and ownership.  Tank farms (storage tanks) for petroleum existed in terminals which were 100% owned by oil majors with several tanks directly integrated with the SAPREF and Engen Refineries.

Access to HDIs was based on Section 56 Agreements as per the Ports Act.  In this regard, Lot 100 (Castrol site) had become vacant and was being rehabilitated pending an open tender process. Further, the lease for Lots 63 – 70 (Chevron site) expired in January, 2012 with further opportunity for S56 Agreements and HDI participation (slide 12).

Berth 6 agreement
During 2005 a process of parallel engagements was initiated between the then Department of Mineral and Energy and Transnet on Transnet’s role towards the Energy Security Master Plan as well as specific initiatives to ensure security of fuel supply for the FIFA 2010 Soccer World Cup.

A key risk identified through this engagement was the readiness of Berth 6 against the lack of certainty regarding loading arms on Berth 6.

Transnet considered the following alternatives to mitigate this risk:

Firstly, an independent third party to commission and operate the loading arms.

This option was highly risky from an operational perspective, given that a loading/discharging apparatus did not by any standard qualify as a separate business as indicated previously.  If this was stretched to suggest a separate business, the separation of the terminal from the handling apparatus would pose a risk for security of supply and product quality. 

Secondly, Transnet to fund and operate the loading arms.

This alternative was not feasible given the construction lead time for loading arms of 18 months combined with the short lead time to the FIFA Soccer World Cup. This alternative was further based upon the assumption that Transnet Pipelines would operate the loading arms. Transnet Pipelines subsequently advised that this was not within its area of competence – security of supply.  

Thirdly, the oil industry to commission and operate the loading arms for a short period of approximately five years whilst the concept was being explored further.

Based upon the notion of a deemed licence, competence in the activity and that ownership and operation of handling apparatus is not taken to be a separate business, the existing oil majors were approached in accordance with this alternative.  Stemming from the deemed licence status above, it was not necessary to put this matter to open tender (slide 13).

The oil majors were willing and able to take up this option, but considered the required investment of R 80 million across the proposed short term of 5 years as not commercially viable to the oil majors from an amortization perspective. 

Against this background and weighing up all the relevant considerations, Transnet decided to pursue the third option and factored in “a but” to consider tenure of 20 years along with BBBEE requirements and an additional 5% HDI provision bearing in mind that the oil majors were also BBBEE compliant (slide 14).

Way forward
On 13 October 2010, Transnet met with NERSA to clarify some of the issues raised in NERSA’s Decision to Grant a License to Operate the Loading Facility at Berth 6. Amongst others the following were agreed upon:

Transnet and NERSA would enter into a Memorandum of Understanding to align processes where there were overlapping mandates.

Transnet and NERSA would jointly ensure greater access by HDIs to facilities, including stringent monitoring of uncommitted capacity at Island View.

Transnet supported policy objectives for sustainable presence, ownership or control by historically disadvantaged South Africans on all facets of the liquid fuels industry as stated in the Energy Policy White Paper.

Transnet was committed to making a meaningful contribution, in accordance with applicable laws in the following areas of the Liquid Fuels Charter:

Skills development;
Employment Equity;
Procurement; and
Access to facilities (slide 15).

Discussion
Mr Selau asked what Island View denoted.

Mr Vuyo Kahla responded that Island View encompassed the whole range of births and storage tanks.

Mr Lucas said that the new environmental legislation placed new restrictions and made it more expensive for previously disadvantaged people to enter activities such as oil and energy. These people need to be helped by organisations like Transnet. The Oil Majors owned all the operational arms. This was a missed opportunity. Disadvantaged people were left out and would always be one step behind – there was no catching up and all would stay the same.

Mr Phihlela replied that indeed the laws had become more stringent and demanding. This was why Transnet made sure that those who had caused degradation cleaned it up so as not to burden new players. Transnet worked to ensure that there were opportunities for previously disadvantaged persons.

Mr Selau said that there was a great deal of new terminology – there were many NPAs these days; but the more often the Committee met with Transnet, the more Members and Transnet would understand each other.

Mr Phihlela was glad that there was appreciation of the new language. Transnet had to learn it very quickly and welcomed opportunities to engage further. Transnet wanted to assist all who wanted to enter the industry.

Mr Selau said that the Liquid Fuels Charter had not   produced the desired results. He said that the presentations were good, but they justified the extent that NERSA and Transnet were committed, but they did not tell Members that NERSA and Transnet acknowledged that the Liquid Fuels Charter had not been fully implemented and that NERSA and Transnet were committed to full implementation.

Mr Phihlela said that Transnet was very sensitive to the issues around the Charter.

Mr Phihlela saidTransnet had received a proposal from only one of the majors. They were insisting that it was a big risk. When Transnet had an opportunity to act as an authority it did so.

Mr Kahla replied that Transnet believed that it exercised its responsibilities with the fullest commitment to the application of the laws.  Transnet had already displayed the steps that it took in the ports to ensure that the BBBEE Act was fully complied with.  Transnet had set additional BBBEE requirements, higher than the requirements of the National Ports Act. Transnet's commitment was serious towards BBBEE and it was not leaving it to the other players in the ports.

Mr Ross agreed that Transnet had given a good presentation in terms of Transnet's goals. He agreed with Mr Lucas that there was no transformation in the oil industry. Such a vast amount of capital was required. He asked if Transnet was still developing a process of partnership or was there real progress. Partnership was important because of the large amount of capital required. 

Ms Mathibela said that her questions had largely been anticipated. She thanked Transnet for its commitment.  She observed that Transnet had not put any time frames for skills development, procurement and access to facilities. She agreed with Mr Lucas that there had been little transformation. She noted that previously disadvantaged persons lacked financial muscle.

The Acting Chairperson mentioned that some of the organisations invited to be present at the public hearings had been unable to attend because of lack of funds.

Mr Phihlela said that when Transnet had the opportunity to act as an authority, it did act as such. The Acts and Regulations applicable by choice by the Oil Majors were again similar to his example of the qualification and the ability to obtain certification. “They do enough to get above the existing legislation as the Port Authority or Transnet.”

Mr Phihlela said that he saw lack of transformation to a much greater extent on the operational side of Transnet’s activities. Transnet did not want to see among the players the ones that had always been there. Transnet was aware of the requirement for shareholding. However, for Transnet it was important that one could see the results of transformation amongst the people with whom one dealt on a daily basis – people who had been newly introduced to the industry.

Mr Phihlela acknowledged that the need for capital and technological knowledge was still a hindrance to transformation. “This was why the 5% came in.” It was not enough to see the 5% but one wanted to see people in terms of faces present in the operations. The 5% seemed insignificant and small; it had been fixed at that level so that it could be seen to be affordable in terms of the new Act. “All we need to do is to break the cycle of the chicken and the egg” by creating opportunities for new players, in particular, the previously disadvantaged, to gain the experience necessary to enter the industry and so that they would not be excluded on the excuse that they did not have experience. If such people could have the opportunity to gain the required experience and learn the technologies, then they would be in a position to raise capital. It was all very well just to raise capital and buy shareholdings, but this by itself did not represent full transformation.

Mr Phihlela had to admit that not much had been done in the area of the partnerships with the private sector: it was still dominated by the big companies. However, instead of operating facilities by itself as the Port Authority, Transnet had decided to reach out to the private sector and form partnerships, as opportunities opened up on the oil and petroleum side, but to insist that the groupings or consortia that were formed had a significant BBBEE component.

Mr Phihlela said that there were two aspects to the issue of skills development. With regard to Transnet, he appreciated hat it was not what Members wanted to hear, but Transnet wanted to see skills development happening in the users of the port. Transnet had provided facilities in its own areas for training for the industry.

Mr Phihlela said that in terms of the time frame, maybe Transnet had not been clear enough. However, the Regulator required Transnet from year one to year four to achieve a certain level; so there was a time frame as to the leases which Transnet signed around what targets it wanted to achieve. In terms of the 5% that Mr Phihlela had indicated, Transnet had given the Oil Majors 18 months, so there were areas in which Transnet had set strict time frames. As for the rest, Transnet did the best that it could.

Mr Phihlela said that Transnet was far ahead of its own targets in terms of procurement.

Mr Phihlela said that he had tried to capture most of the questions that Members had asked.  

Mr Radebe asked how far Transnet had assisted the consortia to comply with the BBBEE. He observed that the consortia did not receive advice from Transnet and lost hope for want of advice. “It was the dilemma of the chiefs and pirates.”

Mr Phihlela replied that Transnet made a great effort. It was unfortunate that BPI could not attend, since BPI would have testified, on the basis of extensive discussions with Mr Phihlela, in which Mr Philela had made BPI aware of the need to put these facilities out for competitive tender. What Transnet had indicated to BPI, and what it had indicated to the industry and the consortia in general was that Transnet told them explicitly what the criteria were in terms of BBBEE before they even presented a proposal to Transnet. This was where Transnet got into trouble, because it wanted to assist as much as possible while remaining within the limits of the law. So Transnet provided all possible assistance in terms of procedure, in terms of options and possibilities, and Transnet also engaged with the financial backers. It was really treading a very fine line between providing assistance and being seen to be fair and objective. 

Mr Radebe asked about the expired lease on Island View. To whom would it be offered?

Mr Phihlela replied that Transnet was faced with the same dilemma. Transnet would have to play according to the rules. It was also Transnet’s desire to find new players in the port. This was not just an issue of previously disadvantaged individuals (PDI). It was important that the port was accessible to as many people as possible and not dominated by a few players. Transnet would provide “more weight” to people who were new to the system.

The Acting Chairperson said that when the Committee received complaints, it had an obligation to call the entities concerned to account. The Committee would expect more substantial answers in February 2011: “If nothing is done, we don’t exist.”

The meeting was adjourned.




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