Department of Energy, National Energy Regulator of South Africa, PetroSA & SASOL on the gas sector, with Deputy Minister

Energy

09 September 2014
Chairperson: Mr F Majola (ANC)
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Meeting Summary

According to the Department of Energy (DoE), South Africa’s current energy mix was made up of coal (65.7%), crude oil (21.6%), biomass (7.7%), gas (2.8%), nuclear (1.9%) and hydro (0.2%). Some of the challenges the DoE faced around the gas sector were affordability, security of supply and the empowerment (lack of) of Historically Disadvantaged South Africans (HDSAs). South Africa had limited oil and gas resources. All crude refinery feedstock was imported from the high seas for ~4,000 barrels per day of indigenous crude oil. Shale gas however was a potential game changer. Some of the challenges to the realisation of shale gas opportunity within the country were the availability of equipment for effective scientific baseline and continuous monitoring thereafter, insufficient expertise and skills and lack of transformation within the industry as a result of the capital intensive nature of the industry and the inadequate access to infrastructure. The downstream petroleum industry was regulated through the Petroleum Products Acts of1977. Upstream legislative framework on oil and gas was covered by the Minerals and Petroleum Resources Development Act, 2002 (MPRDA), which was administered by the Department of Mineral Resources (DMR).

The National Energy Regulator of South Africa (NERSA), was a Schedule 3A Public Finance Management Act of1999 establishment, a public entity which was established on 1 October 2005 in terms of the National Energy Regulator Act, 2004 to regulate the electricity industry, the piped-gas industry and the petroleum pipelines industry. The White Paper on Energy Policy (WPEP) of 1998 was the overarching policy for the gas industry. The WPEP promotes fuel diversification in the South African energy mix, and recognises natural gas as an attractive option for the country. It also provides the basis for the development of the National Integrated Energy Plan (INEP). The Gas Act however primarily promoted the orderly development of the gas industry and facilitated the development of a competitive gas market; it facilitated investment and promotes competition. With regard to the pipeline infrastructure, Sasol Gas owned the majority of the pipeline network, followed by ROMPCO, which owned the transmission pipeline from Mozambique to Secunda and with Transnet and PetroSA also owning some of the transmission pipelines. Nersa regulates about 70% of the existing pipeline infrastructure. With regard to the regulation of gas prices and tariffs, Nersa’s mandate was to monitor and approve, and if necessary, regulate tariffs for transmission and storage. In addition, Nersa’s mandate was also to approve the maximum prices for all classes of customers where there was inadequate competition in terms of the Competition Act. Nersa did not set gas prices.

PetroSA was well positioned to be the gas aggregator and the agent of the State to take on the challenge of growing the gas sector in South Africa. PetroSA was established in 2002 and owned one of the world’s largest Gas to Liquid (GTL) refinery with multiple years of experience in developing and operating gas infrastructure. PetroSA was a producer of diesel, gasoline, kerosene and specialty products with an upstream presence in South Africa, Equatorial Guinea and Ghana. Currently, gas accounted for only 2.8% of the country’s energy needs. The declining feedstock of GTL was a challenge and the Mossel Bay economy needed to be sustained. However gas supply sources were limited and under-developed; PetroSA was embarking on various initiatives to grow the role of gas in the energy mix. The proposed LNG terminal in Mossel Bay would comprise of offshore infrastructure, onshore infrastructure and associated pipeline infrastructure. Opportunities to supply Independent Power Producers (IPPs) would also be created. PetroSA was actively positioning itself for shale gas development; however current regulatory uncertainty resulted in a delay in the development of unconventional resources.

Sasol was an integrated energy and chemical company, with 64 years experience in coal-to-liquids (CTL) and gas-to-liquids (GTL) technology and a global leader in GTL and CTL; the world’s largest producer of synthetic fuels. Sasol has been building on gas production experiences in Mozambique since 2004. The gas market in South Africa has tripled over the last 10 years and 2014 marked the 10th anniversary of Sasol’s natural gas project in Mozambique. Sasol’s multilateral involvement in the gas sector was underpinned by public-private partnerships.

Some of the questions raised by Members were as follows: How determined was the DoE in moving this forward? How far was the DoE in building the country’s gas capacity? What was the country’s potential for tracking the development of gas within the SADC region? Why did PetroSA decide not to go ahead with the floating terminal in Moseel Bay? Was the terminal still an option, given the problematic geographical conditions of the areas? How were the challenges of transformation being addressed within the gas sector? How were new players being brought into the sector? Have the stakeholders considered reducing the size of the gas cylinders being distributed to communities? What job creation initiatives did the DoE and the entities have in place; how would the sector be contributing towards job creation? Which pieces of legislation were currently impeding investment into the sector? Does PetroSA have the internal skills competencies for the exploration of gas? How far was Nersa on the Mthombo refinery? What plans were in place to ensure the sustainability of Mossel Bay seeing that there were concerns around security of supply? Where would the money for investments in infrastructure come from? What was the holdup with GUMP? Could PetroSA provide clarity on the job losses as a result of Project Phoenix?

 

Meeting report

Ms Thembisile Majola, Deputy Minister, DoE thanked the Committee for the invitation and highlighted that the presentation was structured to consider the key challenges, the resources endowment, the policy and regulatory framework, work in progress and the DoE’s way forward. The gas sector was a very important industry. As part of the on-going work, Members were invited to the signing ceremony of the agreement on energy between South Africa and the Democratic Republic of Congo (DRC); slated for the afternoon of the presentation. The Grand Inga Treaty, which was signed by the two presidents has been reviewed by Cabinet and was in the process of being submitted to Parliament for ratification. The agreement would enable the DoE to do work around Inga and other energy related sectors and provide policy framework and certainty. The DRC was richly endowed with all forms of energy, particularly clean energy.

The Chairperson welcomed the invitation for the signing ceremony.

Department of Energy (DoE) – the South African Gas Sector
Mr Muzi Mkhize, Chief Director: Hydrocarbons Policy, DoE thanked the Deputy Minister for the introductory remarks. He explained that some of the challenges the DoE faced around the gas sector were affordability, security of supply and the empowerment (lack of) of Historically Disadvantaged South Africans (HDSAs). And these were difficult to balance. South Africa’s current energy mix was made up of coal (65.7%), crude oil (21.6%), biomass (7.7%), gas (2.8%), nuclear (1.9%) and hydro (0.2%).

Although Southern Africa was richly endowed with oil and gas resources, South Africa had limited oil and gas resources. All crude refinery feedstock was imported from the high seas for ~4,000 barrels per day of indigenous crude oil from PetroSA’s offshore Oribi/Oryx Oil Field. There was therefore a need to supplement the dwindling indigenous natural gas feedstock for the gas-to-liquids (GTL) facility in Mossel Bay – owned by the national oil company, PetroSA. Shale gas however was a potential game changer.

With regard to policy, pre-2001 the gas industry was not regulated whereas the downstream petroleum industry was regulated through the Petroleum Products Acts, 1977 (Act No. 120 of 1977). South Africa’s energy policy in the current democratic dispensation was therefore founded on the White Paper on Energy Policy of 1998. The White Paper aimed, amongst others, to: ensure security of energy supply through diversification (broadening the energy mix); increase access to affordable energy services; stimulate / improve economic development; improve the management of energy-related environmental, health and safety issues; and enhance energy governance.

With regard to the regulatory framework,  the upstream legislative framework on oil and gas was covered by the Minerals and Petroleum Resources Development Act, 2002 (MPRDA), which was administered by the Department of Mineral Resources (DMR), with promotion aspects being under the Petroleum Agency of South Africa (Prasa). Prasa promoted exploration for onshore and offshore oil and gas resources and their optimal development, it regulated exploration and production activities (through the processing and recommendation of application rights and permits); and acted as the custodian of the national petroleum exploration and production database. The downstream regulatory framework was covered by the Gas Act of 2001 and was regulated by the National Energy Regulator of South Africa (Nersa) through licensing. The Ports Authority also weighed in on ports infrastructure. The downstream oil/ petroleum regulatory framework was covered by the Petroleum Products Act of 1977.

On Integrated Energy Planning, the convergence of energy carried demands for integrated planning; this meant linking energy plans with other national plans such as the National Development Plan and the New Growth Path for example. The Integrated Energy Plan 2010 and the Gas Utilization Master Plan (GUMP) were both subsets of the Integrated Energy Plan 2030. South Africa requires ~43,000MW of new electricity generation capacity by 2030 and by 2030 it was envisioned that gas would contribute 14% towards the country’s energy needs. He explained that the development of the GUMP, the amendment of the MPRDA and the amendment of the Gas Act were still works in progress. The Draft Gas Amendment Bill has been discussed at the National Economic Development and Labour Council (Nedlac) and has been revised for onward transmission to the Office of the Senior State Law Advisor for final pre-certification. Some of the challenges to the realisation of shale gas opportunity within the country were the availability of equipments for effective scientific baseline and continuous monitoring thereafter, insufficient expertise and skills and lack of transformation within the industry as a result of the capital intensive nature of the industry and the inadequate access to infrastructure.

A way forward for the country would therefore be to conclude the amendments of the MPRA, the National Energy Regulator Act and the Gas Act, the completion of GUMP and the revision of the IRP 2010. Institutions also need to be aligned so that there could be coordination of the various institutions and the development of a streamlined framework. Transformation challenges needed to be addressed and more domestic opportunities for sources of gas to be explored.

National Energy Regulator of South Africa (Nersa) on the South African Piped Gas Industry
Ms Phindile Baleni, Chief Executive Officer, Nersa thanked the Committee for the invitation and gave an introductory overview of the gas industry. The National Energy Regulator of South Africa (NERSA), was a Schedule 3A Public Finance Management Act, 1999, public entity established on 1 October 2005 in terms of the National Energy Regulator Act, 2004 to regulate the electricity industry, the piped-gas industry and the petroleum pipelines industry.

NERSA’s mandate was anchored on four primary Acts:

The National Energy Regulator Act 2004

The Electricity Regulation Act 2006

The Gas Act 2001

The Petroleum Pipelines Act 2003

The White Paper on Energy Policy (WPEP) of 1998 was the overarching policy for the gas industry. The WPEP promotes fuel diversification in the South African energy mix, and recognises natural gas as an attractive option for the country. It also provides the basis for the development of the National Integrated Energy Plan (INEP). The Gas Act primarily promotes the orderly development of the gas industry and facilitates the development of a competitive gas market; it facilitates investment and promotes competition. The functions of the Act include: Licensing gas infrastructure, Pricing and tariffs, Compliance monitoring and enforcement and Investigations and dispute resolution.

With regard to the pipeline infrastructure, Sasol Gas owned the majority of the pipeline network, followed by ROMPCO, which owned the transmission pipeline from Mozambique to Secunda and with Transnet and PetroSA also owning some of the transmission pipelines. Nersa regulated about 70% of the existing pipeline infrastructure. South Africa currently had six licensed gas traders. Sasol Gas directly supplied gas to approximately 370 customers in Mpumalanga, Free State, Gauteng and KwaZulu Natal. In addition, gas was also largely consumed for industrial, commercial, domestic, transportation and power generation purposes. Some of the immediate demand for gas included: Power generation (gas has benefits over nuclear and coal in its capital costs, carbon footprint, construction lead times and energy efficiency), Gas for transport (gas is a substitute for conventional transport fuels and is always priced 20-30% below the petrol price), Gas for Gas-to-Liquid (GLT).

With regard to the regulation of gas prices and tariffs, Nersa’s mandate was to monitor and approve, and if necessary, regulate tariffs for transmission and storage. In addition, Nersa’s mandate was also to approve the maximum prices for all classes of customers where there was inadequate competition in terms of the Competition Act. It was therefore important that the Gas Act makes a regulation between ‘tariff’ and ‘price’. Price was charged for the gas molecule and the tariff was charged for the network service. Nersa did not set gas prices.

Ms Nomfundo Maseti, Regulator Members: Piped Gas Regulation, Nersa explained that in the absence of a transparent gas market price in South Africa, the maximum price for gas energy would be determined by reference to energy price indicators. However Nersa was currently not in a position to forecast gas prices going forward. In conclusion, the challenges facing the South African gas sector continued to hamper development, and the growing gas market required more gas and more infrastructures. South Africa’s gas supply needed to be diversified and policy certainty was needed, as well as the alignment of the Integrated Energy Plan, the Integrated Resource Plan and the Gas Utilization Master Plan (GUMP). GUMP needed to be fast-tracked and its legal status needed to be cleared.

PetroSA – Overview of the South African Gas Sector and the Role of PetroSA
Ms Nozizwe Nokwe-Maiamo, Group Chief Executive Officer, PetroSA, said PetroSA was well positioned to be the gas aggregator and the agent of the State to take on the challenge of growing the gas sector in South Africa. PetroSA projects were of national significance, beyond Mossel Bay and were fully aligned to the National Development Plan. In addition, the integration of iGas into PetroSA would complement existing capabilities to be able to strengthen the value proposition of PetroSA in the gas sector.

PetroSA was established in 2002 and owned one of the world’s largest Gas to Liquid (GTL) refinery with multiple years of experience in developing and operating gas infrastructure. PetroSA was a producer of diesel, gasoline, kerosene and specialty products with an upstream presence in South Africa, Equatorial Guinea and Ghana. Currently, gas accounted for only 2.8% of the country’s energy needs. The declining feedstock of GTL was a challenge and the Mossel Bay economy needed to be sustained. Markets for upstream and shale gas needed to be established. Gas was cleaner, cheaper and more efficient in comparison to other sources of energy. However gas supply sources were limited and under-developed; PetroSA was embarking on various initiatives to grow the role of gas in the energy mix, and these included: Sustaining the GTL refinery through the development of additional feedstock, Importation of LNG and associated pipelines to increase the usage of natural gas in the country, for power generation, GTL and industrial customers, Continued offshore exploration and commercialization and of offshore gas, Participation in the exploration and development of onshore gas (shale gas), Targeting discovered gas in neighboring countries such as Mozambique and Tanzania

The proposed LNG terminal in Mossel Bay would comprise of offshore infrastructure, onshore infrastructure and associated pipeline infrastructure. Opportunities to supply Independent Power Producers (IPPs) would also be created. PetroSA was actively positioning itself for shale gas development; however current regulatory uncertainty resulted in a delay in the development of unconventional resources. Shale gas is a game-changer for South Africa and PetroSA was the most capable agent to supply the growing gas market in South Africa.

Sasol on the South African Gas Sector
Ms Wrenelle Stander, Senior Vice President: Public and Regulatory, Sasol thanked the Committee for the invitation and explained that Sasol was an integrated energy and chemical company, with 64 years experience in coal-to-liquids (CTL) and gas-to-liquids (GTL) technology and a global leader in GTL and CTL; the world’s largest producer of synthetic fuels. In the last three years, Sasol has invested R 60 billion in capital expenditure, R 91 billion to direct and indirect taxes and has spent over R 3 billion on skills and socioeconomic development.

Sasol has a presence in 37 countries across the world comprising a combination of exploration, development, production, marketing and sales operations; gas was key in the company’s value chain. Sasol has been building on gas production experiences in Mozambique since 2004. The gas market in South Africa has tripled over the last 10 years and 2014 marked the 10th anniversary of Sasol’s natural gas project in Mozambique.

Sasol has been involved in the gas industry in South Africa for over 50 years, and was the only company to have monetised Mozambican gas. Sasol’s multilateral involvement in the gas sector was underpinned by public-private partnerships. In addition, the Regulatory Agreement between Sasol and the government of South Africa provided the regulatory certainty required and led to the tripling of the size of the gas industry in the last 10 years

Discussion
Mr L Greyling (DA) agreed that gas was a very exciting field, with huge potential. However more clarity was needed from the DoE on its plans, especially on GUMP. How determined was the DoE in moving this forward? It seemed that because gas vines were located outside the country’s borders, South Africa was forced to pay international prices. How far was the DoE in building the country’s gas capacity? What was the country’s potential for tracking the development of gas within the SADC region; the development of gas throughout the whole region would result in cheaper prices.  Why did PetroSA decide not to go ahead with the floating terminal in Moseel Bay? Was the terminal still an option, given the problematic geographical conditions of the areas?

Ms Z Faku (ANC) expressed concern about the lack of transformation within the sector and requested statistics on this from the DoE and other entities. How were new players being brought into the sector? Have the stakeholders considered reducing the sizes of LPG cylinders being distributed to communities; affordability of these cylinders was still a challenge. Could Sasol provide some clarity on the development of shale gas?

Mr R Mavuda (ANC) said Nersa during their presentation made reference to regulated gas by municipalities; where there any guidelines for municipalities to follow in this regard? Abnormal pricing needed to be guided against. What job creation initiatives did the DoE and the entities have in place; how would the sector be contributing towards job creation and were there statistics in this regard?

Ms L Makhubele-Mashele (ANC) said the Chief Executive of Sasol had in a media briefing that week, indicated that a lot of money was readily available to invest within South Africa’s energy sector, however the country’s legislation was impeding such investments, especially on gas innovations. One of the “challenging” piece of legislation was the Minerals and Petroleum Resources Development Act (MPRDA). It was imperative that Members set aside time as a Committee to assess such pieces of legislation in an attempt to figure out how Parliament could unblock these investments so that processes could be fast-tracked. On Nersa, cost-reflective tariffs were permitted however Eskom did not do the same because Nersa did not approve Eskom’s tariffs; could Nersa provide clarity on the matter? With regard to amendments to the Gas Act, she said the discussions had gone to  National Economic Development and Labour Advisory Council; would it be possible that these discussions be made available to Members as well so that Members could familiarize themselves with how the discussions between Nedlac and its social partners went?

Ms T Mahambehlala (ANC) was impressed that the majority of presenters were women.  PetroSA in its presentation indicated that the entity was well positioned to be the gas aggregator and agent of the state to take on the challenges within the gas sector; could PetroSA explain what the basis for this bold assertion was? Does PetroSA have a comprehensive business plan to back up such statements? Does PetroSA have the internal skills competencies for the exploration of gas? How far was Nersa on the Mthombo refinery? What plans were in place to ensure the sustainability of Mossel Bay seeing that there were concerns around security of supply?

Ms N Louw (EFF) shared the same sentiments that the Committee needed to sit and discuss the legislation which was problematic. She asked that the DoE provide the Committee with the list of companies which were given exploration rights for gas. What criteria were used in selecting these companies? She What benefits would the gas sector contribute towards the local economy?

Mr M Mackay (DA) asked that the DoE clarify its intense need for investment in gas infrastructure; where would this money come from? The private sector was not motivated to invest in the sector because of the MPRDA. On the Integrated Resource Plan (IRP) the country currently had 2.8% of its energy needs being secured from gas, however the DoE envisioned that this would increase to 14% by 2030; the DoE did not put forward any concrete suggestions on how this target would be achieved considering that the gas sector was a very constrained market. Could the DoE explain what the holdup was with regard to GUMP; Members were promised this framework during the last Parliament. He  Could the DoE explain to Members what the exact problem was with regard to the Shale Gas Regulatory framework and how was the DoE addressing these? When exactly could the Committee expect to see the regulatory framework? The Minister of Energy also promised to deliver within the first 90 days of her being in office; however this has not been the case. He thanked Nersa for a comprehensive and well-researched presentation and asked whether Nersa could inform Members of any anti-competitive behavior within the sector. He criticized the presentation from PetroSA saying it was full of action words without corresponding much action. He asked that Sasol provide Members with statics on the job losses as a result of Project Phoenix.

Mr S Radebe (ANC) asked about the progress the DoE had made in ensuring that Historically Disadvantaged South Africans (HDSAa) were getting into the gas sector. How far was the DoE in engaging Transnet on storage facilities? Was the DoE engaging the Department of Transport on the challenges faced with the National Ports Authority? Nersa still had a lot of work to do with regard to monitoring the downstream gas sector; there were still many loopholes and many consumers were being exploited by suppliers. While appreciating the work which PetroSA was doing, there was however still space for improvement.

Mr J Esterhuizen (IFP) directed concerns on prices which were still a serious matter to Nersa; many rural communities were dependent on gas for household usages. It was also of some concern that Sasol owned most of the gas pipelines and was therefore dominating the sector, especially with regard to setting prices. How much gas was lost during transportation? On shale gas, mining was done outside the country’s borders; what impact would offshore drilling have on geology?

Mr Mkhize thanked Members for their engagements with the presentation and noted that the DoE has provided enough clarity on where the department was going with its plans. On the MPRDA  it was important that chaotic situations be avoided. The Gas Act was still in place and it provided clarity on a number of issues. The MPRDA was being administered by the Department of Mineral Resources (DMR) and the DoE was busy engaging the DMR on issues which needed to be resolved. The  t DoE was considering  engaging the whole SADC region on gas exploration. Currently the DoE had signed gas trade agreements with Mozambique and a Gas Commission has also been established. South Africa was committed to regional cooperation and development. African states needed to enjoy maximum benefit from the region’s mineral exploration initiatives. Furthermore a conference was planned on these matters by the DoE and the public would be engaged. On GUMP, the DoE never promised that Plan would have been completed; GUMP was still being developed and would reach the public domain by the end of October 2014. On transformation, it would be very difficult for the DoE to provide figures at this stage; the actual figures would come from the various entities. However, the Gas Amendment Bill was looking to empower HDSAs. LPG was controlled by the Petroleum Products Act as a petroleum product; it was not piped. Issues around the LPG cylinders such as price and management would be reviewed, however reducing the size of the cylinders would not automatically mean that the price would also be reduced. On gas regulated by municipalities, during the amendments of the Gas Act, the DoE consulted with all municipalities, which were regulated by by-laws and various guidelines were developed. On legislation, stakeholders needed to indicate which problems were impeding investment so the DoE could carefully assess such pieces. On infrastructure, regulatory certainty on its own would help the DoE with securing investments on infrastructure, however there still needed to be more clarity on the tariff and pricing regime. The DoE had the regulations in place to address these. Gas was a globally traded commodity and pricing was unfortunately outside the DoE’s regulatory framework. The DoE would be engaging the Department of Transport on the Ports Authority. The existing regulatory framework needed to be improved and the Gas Act needed further amendments. Feedback on the Nedlac process would be provided to the Committee; the report was still with the Minister.

Mr Mavunda asked how local communities would benefit from job creation within the gas sector.

Ms Louw reminded the DoE that the question about which companies were granted exploration rights and the criteria used in the selection was yet to be answered.

Mr Mkhize responded to the question on jobs and said the individual companies were required by DoE to indicate what jobs they would be creating through certain projects, both during the projects and post commissioning; what the permanent jobs would be versus the temporary jobs. The DoE therefore looked at individual projects, therefore Members could indicate any specific projects they would like more information on and it would be provided to the Committee. On the exploration rights, the Exploration and Production (ENP) side upstream was administered by the DMR using the MPRDA, with Pasa being the one tasked with handling the technical evaluations and submits these for ministerial approval. The regulatory framework for shale gas has been finalized; these were published last year and were currently being discussed in the public domain. Shell was one of the companies which were in the forefront in terms of shale gas activity in the country, however no exploration rights have been provided yet.

Ms Baleni responded to the question on municipalities and the regulation of reticulation, noting that the issue ran very deep; the Constitution under Schedule B outlined matters of reticulation, as one of the areas for municipal competence. Therefore because the Constitution gave municipalities these rights it became the municipal right to set the tariff. Even though Nersa tried to provide municipalities with some guidelines on handling gas consumers, pricing would still be determined by the Municipal Finance Management Act process. There was therefore very little which the regulator could do. The best Nersa could do was to work on the municipal by-laws by providing direction. On the question on jobs, the regulator’s role was catalytic, meaning Nersa was only an enabler for job creation and did not create direct employment. Nersa only had a role to play in regulating the industry in such a way that the industry would be favorable to growth, which in turn would lead to more opportunities for employment. Nersa therefore was not in a position to provide Members with figures on job creation. On cost reflective tariffs one of the challenges was that some of the laws were written at different points in time, and were therefore somewhat conflicting, one example was that of legislation pertaining to gas versus that pertaining to electricity, and how the legislation stipulated matters of investment and tariffs. The DoE however provided the electricity pricing framework, however the shifting timelines for implementation of the framework was somewhat challenging.

Ms Maseti responded to the question on transformation in the gas sector, and said one of Nersa’s functions was to promote companies which were owned or controlled by HDSAs. This was outlined in the objectives of the Gas Act. Nersa needed to be given some powers to give effect to this mandate. Nersa was also responsible for licensing, in terms of Section 21 of the Gas Act. Nersa obtained information on what the licensees were doing in the market to promote HDSAs, however this was objective. In addition, Nersa licensed companies which were 100% owned by HDSAs, such as Reatile Gas and Spring Lights Gas. On the question on reticulation and the municipal by-laws, Nersa approved prices for companies which operated reticulation; Nersa approved gas prices to Egoli Gas. However the prices which Egoli Gas set for their customers going forward were approved by municipalities. On job creation, when Nersa worked with licensing applications, especially from Sasol Gas, Sasol was required to provide Nersa with information on each application, information pertaining to skills development and equity. This information collected by Nersa was then presented to the DoE during the quarterly performance presentations. On the question on uncertainty in legislation, part of the uncertainty was not confined to legislation only, but also in policy signals which were communicated to the market. The turnaround time on the decisions of some of these key plans, such as GUMP, was not fast enough. On regulatory certainty Nersa developed guidelines and provided the required transparency to investors around pricing and tariffs. The Gas Act also provided the necessary clarity in this regard. There was a need forbe proper alignment and coordination in the various pieces of legislation, the current fragmentation creates serious confusion. For instance on the questions asked on LGP; it needed to be clarified which regulatory authority was responsible for which part of the gas sector. Some of this fragmentation therefore needed to be clarified. Storage of LPG was done by Nersa, while the actual product was the responsibility of the DoE, and the Gas Act on the other hand only made mention to LPG only in the definitions. However, Nersa’s enforcement model was very weak; the way that legislation was crafted made it very difficult for Nersa to intervene. On distribution, the tariff was at R 10.49 but Nersa approved R 5.49 for transmission, there was a 50% discrepancy between these two tariffs. This was therefore an area which Sasol could exploit and there was nothing which Nersa could do. On the question on whether there was anti-competitive behavior within the sector, the fact that Nersa was regulating prices did not necessarily mean there was anti-competitive behavior within the sector. However, the regulatory agreement with Sasol gas enabled them the power to do certain things which were anti-competitive, such as price discrimination. Sasol was exempted from the competition authority for pricing. Nersa could therefore only monitor the legacy of this regulatory framework, and this put a lot of pressure on Nersa’s monitoring resources. 

The Chairperson said there would be a follow up meeting with Nersa to discuss all the relevant issues.

Ms Maiamo responded to the question on PetroSA’s readiness to participate in the gas sector and said the first part of PetroSA’s strategy was to sustain the GTL plant in its current form. However PetroSA was also considering bringing in alternative products into the plant, and this was PetroSA’s short term response to the country’s gas challenges. PetroSA was faced with a feedstock challenge, and alternative feedstock for the plant was being considered. For the long term plans, PetroSA had a comprehensive strategy and the different initiatives for attaining the organizations 2020 vision have been outlined. However it was important that Members understood that this was a journey, and these challenges would not be sorted over night. PetroSA was walking along a timeline. On the feedstock in Mossel Bay, PetroSA’s primary focus was to ensure the sustainability of the plant, not only because PetroSA had a mandate to do so as a national oil company, but also because PetroSA was aware of the value which the plant brought to the Mossel Bay area. The plant was the livelihood of the whole area and PetroSA was doing everything to make sure it remained sustainable. As a result, PetroSA was currently drilling off-shore Mossel Bay in a quest to sustain the current operations as they were. The gas aggregator was another source of income for PetroSA. PetroSA was working very closely with Eskom on the use of gas in an attempt to diversify income for PetroSA. On the question of whether or not PetroSA had the skills internally to tackle shale gas, the issue of shale gas was not exactly aligned with what PetroSA was currently mandated to do, however PetroSA had the base knowledge on shale gas; the organization needed to up-its skills profile in order to have a better understanding of what was required of it. On the question on the floating terminal and whether PetroSA was continuing with it, the issue was that PetroSA conducted an Environmental Impact Assessment and the floating terminal was for the LNG project and the future receipt of liquefied natural gas; this in the longer term would be for sale to upcoming IPPs. However the weather conditions in Mossel Bay were not conducive and PetroSA therefore needed to consider an alternative location along the coast. On job creation within the gas industry, PetroSA did not have concrete numbers, mainly because the gas sector was still a new industry and this would lead to different activities being created along the value chain. This would have the propensity to create a number of jobs.

Ms Stander responded to the question on the Project Phoenix. The purpose of the project was to secure long term growth and competitiveness for Sasol, with three key focus areas; to improve operational performance with a huge emphasis on improving the plant’s stability, to reduce complexity and to streamline the operational model. Sasol has 18 business units, with Sasol Gas being one of them, and going forward there would be two upstream businesses, one focusing on oil and gas, and the other focusing on mining. All 18 business units had 18 Boards, 18 Executive Committees and 18 Managing Directors but these were being significantly reduced. This has therefore been the focus of Project Phoenix. Sasol wanted to increase revenue and reduce costs and the entity was well on its way to achieving this. With regard to the impact on staff, Sasol was aware about the process for some time, therefore the entity was trying to limit the impact on staff in a number of ways, such as redeployment of people. However the emphasis of the project has been on senior staff members; over 200 senior executives have either taken voluntary retrenchment or voluntary early retirement packages. With respect to the gas sector, the industry was a long term growth area for Sasol, and no impact was anticipated in the gas sector yet from Sasol, the business was simply looking to grow. On gas prices it was important to differentiate between LPG and natural gas. Natural gas prices within South Africa were globally competitive and it was competitive relative to other energy sources within the country. Statistics would be provided to Members. On ownership of the pipeline, Sasol did not own all of the pipeline, there were three owners; the first being ROMPCO, Transnet and Sasol. Sasol owned the majority. The trend internationally was that public-private partnership, and this was an area the Committee needed to look into. On job creation, Sasol did not have a figure to provide to Members, however for example, there were about 500 people employed upstream and this figure was set to increase to about 670 people. In the pipeline operation business, there were 250 people looking after 2500 kilometers of pipeline with 1000 kilometers of distribution pipeline. On unaccounted for gas, the concern was not necessary as this was carefully measured by all stakeholders because every inch of gas was worth money. The internationally accepted level for unaccounted for gas was 1%, but within Sasol Gas nothing above 0.5% was ever achieved.

The Chairperson reminded PetroSA that the question of Mthombo project had not been responded to.

Ms Maiamo said pre-feasibility study had been completed. PetroSA would be embarking on the feasibility study. The challenge was that PetroSA did not yet have an anchor South African Development Financing Institute to partner with PetroSA with on the feasibility study.

The Chairperson thanked all the entities for their presentations and the Members for their engagements with the presentations.

The meeting was adjourned.

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