Committee Report on fuel price increases

Meeting report

Opening Remarks
The Chairperson stated that the issue of the fuel hikes experienced over the past year had been further complicated by the Eastern European conflict. He hoped that there could be peace and harmony and that these particular challenges could be dealt with, without being compounded by external factors. Since the year before, the fuel hikes and price hikes in the country had almost reached crisis levels.

When the Committee took over in 2019, it took over all the work that was done by the former Committee. When the Portfolio Committee of Mineral Resources and the Portfolio Committee on Energy were combined it had meant that responsibility fell on one committee, which would have previously been handled by two.

The Committee had heard a number of presentations on the fuel hikes. The previous year, the Department had been invited, together with the Automobile Association (AA). The Department had subsequently been invited to present before the Committee in 2022. National Treasury was invited as well as Council for Scientific and Industrial Research (CSIR), amongst others. Before the Committee went on recess, it needed to decide on how to approach the crisis. The fuel hikes issue had come about at the same time as the Committee was dealing with a rise in commodity prices. This was influenced by market changes and the conflict in Eastern Europe. The Committee needed to consider what needed to happen to mitigate those issues.

The Committee’s staff, specifically the Content Advisor, had compiled a report that would receive the attention of the Committee. The Committee could then determine what needed to be done. This was a very serious and sensitive matter. He urged them all to focus on the matter at hand and work to find solutions. When the Committee dealt with such issues, it needed to be prepared and accept that there would be different views and perspectives – there was nothing wrong with that. This was a serious matter, in which all South Africans were looking for solutions.

Presentation of the Committee’s first draft report on fuel price increases
Mr Sivuyile Maboda, Acting Content Advisor: Energy Research to the Portfolio Committee on Mineral Resources and Energy, and Mr Arico Kotze, Committee Secretary, presented the report to the Committee.

The Committee held a number of engagements on fuel prices. On 14 April 2021, the Committee held a meeting on fuel prices, wherein it was briefed by the Department of Minerals Resources and Energy (DMRE), and the Automobile Association South Africa (AASA). On 28 April 2021, the Committee held an internal discussion on fuel prices. Further stakeholder engagements on fuel prices were held on 15, and 25 March 2022. The Russia-Ukraine conflict had added a threat to the security of fuel supply and the prices associated thereto. These engagements were necessitated by the exponential increase in fuel prices and the impact thereof on the economy. In these engagements, the Committee was interested in gathering information on measures to mitigate the increasing fuel prices.

In its submission, the DMRE emphasised that the fuel prices have reached an unsustainable level, with South Africa reaching the highest record levels. It was stated that the growing conflict in Europe is not only disruptive to fuel prices, but also to the fuel supply chain. Besides the effects of the Russia-Ukraine on fuel prices and fuel supply, other reasons cited for increased fuel prices included the increased price of crude oil, and the Organisation of the Petroleum Exporting Countries (OPEC+) stance to limit the supply of crude oil. Since the start of the Coronavirus (COVID-19) pandemic and the resultant lockdowns, OPEC+ had made a decision to limit crude oil supply. In the post-COVID-19 vaccination period, there has been a rebound in economies in a number of countries, but OPEC limitations on crude oil supply remain. This also contributes to the high fuel prices. The biggest members of the OPEC+ are the Russian Federation and the United Kingdom.

The Portfolio Committee, having engaged with the stakeholders in the oil and gas sector, made a number of observations. Geopolitics and South Africa’s reliance on imported crude oil was a real security threat. It further noted that, although, for now, the Russia-Ukraine conflict may not have had a significant impact on the Country, it was however a signal that the country should not take the situation for granted. A conflict could occur in any country, including those countries South Africa was importing crude oil from. The Committee observed that even though the Moerane Commission had made strides for South Africa to be self-sufficient, some of its recommendations have not been implemented, including the review of strategic stocks policies. There was a general concern about the closure of South African refineries and how this would impact existing fuel supply challenges. However, it must also be noted that upgrading the existing refineries to meet the cleaner fuels two standard was often cited as a challenge by the companies in the refining sector – arguing that upgrading would not be economically sustainable. Thus, a debate was often on whether a country should invest in upgrading the existing refineries or building a new mega refinery, in line with international trends. The Committee noted that to minimise the impact of load shedding, Eskom used diesel for its plants. If the conflict continued and the fuel supply threat continued, coupled with high prices associated thereto, the country might find itself in a difficult situation. Therefore, it was important that additional generation capacity was brought online through the fast-tracking of the projects currently in the pipeline. The Committee further noted that the domestic aspects (taxes and fuel levies) built into the structure of fuel prices would be the quickest relief to the current high fuel prices. National Treasury had indicated that taxes and fuel levies accounted for about 30 percent of the fuel price. That the price of LPG and Paraffin form part of the fuel prices. These were energy sources mostly used by poor people, especially paraffin. It was also noted that there was VAT built into the LPG and there was no VAT on paraffin. VAT was in the control of the South African Government; thus relief was possible. The Committee conceded that enabling the biofuels industry could assist in minimising the reliance on imports. However, the Government support in this regard was important, as the biofuels industry requires subsidisation. Some progress has been made in this regard, the Biofuels Regulator Framework was approved by the Cabinet on 13 December 2019 and was officially gazetted on 7 February 2020.

The Committee engaged with the stakeholders on measures to address the very high petrol prices. The Minister of Mineral Resources and Energy, in collaboration with the Minister of Finance, should develop mechanisms to address the fuel increases. The review of all aspects of the fuel price structure needed to be expedited. This should include reviewing the LPG and Illuminating Paraffin prices. The review must undergo a broader public consultation process, as it affected various stakeholders across the oil and gas value chain. Investment in the upstream petroleum industry, through the fast-tracking and prioritisation of the Upstream Petroleum Resources Development Bill. There was a need for an urgent review of the Country’s strategic stocks policies, including considerations to factor in provisions to this effect in the Upstream Petroleum Resources Development Bill. The role of the Petroleum Agency of South Africa (PASA) and the Council for Geoscience (CGS), as the key Government entities involved in the upstream petroleum industry, needed to be strengthened and enhanced. The option of building a mega refinery needed to be explored. There needed to be coordination, harmonisation and integration of energy resources on the African continent, through the African Union, in order for the African countries to trade more amongst themselves, especially on the issues of oil and gas. The Department needed to fast-track programmes aimed at increasing electricity generation capacity, such as the Risk Mitigation Independent Power Producer Procurement Programme, amongst others. The government needed to support the growth of the biofuels industry.

Discussion
Mr K Mileham (DA) referred to the submissions of the Fuel Retailers Association. He was concerned that there was a ‘red herring’ being thrown into the report, being the transformation of the industry. He was not disputing the necessity for transformation but rather that this was not the report in which this should be discussed. The report should be focusing purely on the fuel price.

In the observations section of the report, the third bullet point stated that ‘however it must be noted that upgrading the existing refineries to meet the cleaner fuels two standard was often cited as a challenge by companies in the refineries sector, arguing that upgrading would not be economically sustainable.’ He was particularly concerned about the following sentence, ‘thus, the debate was often on if a country should invest in upgrading existing refineries or building new mega refineries in line with international trends.’ That was not the debate. The debate was about whether to invest in refineries at all or if the Country should continue to import crude and refined products. The way the debate was framed in the report was misleading.

In the recommendations section, he indicated that there was a spelling error in the heading. He had no issues with the recommendations, with the exception of the exploration of the options of ‘building a mega refinery.’ He suggested that this be re-worded to state that a business case be developed reviewing the various options for sourcing refined products in South Africa, including upgrading existing refineries, building a mega refinery and/or importing refined products from other countries. He asked that, rather than locking themselves into a particular solution, the Committee should have a rational discussion based on facts and weigh up the options.

The role of the Petroleum Agency in South Africa, this was said before, the Committee may need to look at its regulatory role in relation to the National Energy Regulator of South Africa (NERSA) and make certain that there was no overlap of functions.
 
Ms V Malinga (ANC) agreed with the recommendations made in the report. She agreed with the observations of the Committee. The Fuel Retailers Association had spoken about the Road Accident Fund (RAF); the person presenting was not clear enough about what the intention was. The scrapping of RAF tax would assist to cushion burdened motorists. Would the scrapping of RAF require public hearings?

Mr J Lorimer (DA) highlighted the third point under recommendations, on investment in upscaling the petroleum industry to the fast-tracking and prioritisation of the Upstream Petroleum Resources Development Bill. He was concerned about the lack of timeframes. He asked if a timeframe could be included in the recommendations section, relating to the progress by the Department on the Upstream Petroleum Resources Development Bill. He wanted to see a plan of when the Bill would come to Parliament. If the Committee asked the Department to report back on this, there may be faster action. He noted that the fourth bullet point stated the need for the urgent review of the country’s strategic stocks policies – ‘urgent’ review could end up taking a long time. He suggested a timeframe or a request for a report back from the Department be included there. He suggested this could be scheduled into the Committee’s meetings in the following term.

Ms P Madokwe (EFF) stated that Mr Lorimer had highlighted a lot of what she had wanted to say about the inclusion of timeframes. She suggested timeframes should be attached to all the recommendations. Some of the recommendations made were made in similar discussions about fuel prices and the refinery industry the year before. She was not sure what happened to those recommendations. She did not see the issue of the freight premium being addressed in the report. One of the presentations, in the meeting the year before, flagged the freight premium as something that did not make sense. This was going to be reviewed. How far were the Department and relevant stakeholders in reviewing the freight premium?

The Chairperson stated that the Committee should encourage South Africans to use all necessary voluntary measures to mitigate the fuel situation, such as reducing speed. Reducing speed on the roads would not only lessen road ‘carnage’ but save on fuel costs. It was important that this was emphasised. He stated that Mr Mileham’s comments were taken into account. The report should be able to draw a distinction between what was immediate and what was an emergency. It would be committing a crime to ask the Minister to consider a tax exemption on all matters related to fuel or petroleum products. This was a crisis. When the Department presented, through the mouth of the Minister, it had been highlighted that it was only a projection of two months. After two months, the country could be in a worse situation. He asked if the Committee was in agreement on the issue of levies and RAF. Countries, such as Swaziland, had cheaper fuel prices. It was suggested that this was because these countries did not have RAF. Should the Committee be bold enough to say that both the Minister of Mineral Resources and Energy and Minister of Finance should consider moving RAF out of the Department? It was an offence if one was on the road without insurance.

This report would need to be sent, debated and tabled in the House, he asked for confirmation from Mr Kotze on the required process. By the time the first term finished, the Committee needed to have made a determination on the way forward. The Department should make recommendations to the Committee, particularly where legislation was concerned. The Upstream Petroleum Resources Development Bill was already in the corridors of Parliament. Based on the challenges the country faced, when did the Minister think he could present the Bill to the Committee? That would be straightforward. There were a number of issues that might be a bit more technical. On the issue of refineries, he agreed with Mr Lorimer that the various business case options be considered. In the second quarter, the Department should present on this, the upgrading, establishment of a mega-refinery or importation options. Some of the issues were long-term considerations.

Mr Mileham agreed with the Chairperson. RAF sat with the Department of Transport, it would be worthwhile pulling them in on the discussion, particularly on RAF. RAF was covered in legislation, in the RAF Act. A joint meeting might need to take place with the Department of Transport and the Portfolio Committee on Transport in order to address that issue.

The Chairperson acknowledged this and stated that there was an in-principle agreement. The Committee would ask for a presentation. He suggested the Committee involve Treasury. He suggested the meeting be arranged with the Department of Transport and Treasury. This would be a high priority in the second term. He asked if there was a mover for the report with amendments.

Mr Mileham moved for the report to go back to the staff for amendment.

Ms Malinga seconded this. 

The decision to make amendments to the report was agreed upon.

Consideration and adoption of outstanding minutes

Meeting Minutes of 18 March 2022
In the meeting held on 18 March 2022, the Committee received a briefing from the Mineral Council of South Africa (MINCOSA), the National Union of Mineworkers (NUM), Association of Mineworkers and Construction Union (AMCU) and the United Association of South Africa (UASA) respectively on the impact of the High Court Judgement in September 2021, relating to the Mining Charter. The Committee considered and adopted outstanding minutes from 15 March 2022 in that meeting.

Ms Malinga moved to adopt the minutes.

Mr Mileham seconded the adoption of the minutes.

The minutes of the meeting held on 18 March 2022 were adopted.

Meeting Minutes of 22 March 2022
In the meeting held on 22 March 2022, the Committee received a briefing from the Department of Mineral Resources and Energy on the Amendment to the Convention on Physical Protection of Nuclear Material (CPPNM), tabled in terms of section 231(2) of the Constitution 1996 and the Explanatory Memorandum of the Amendment to the Convention on Physical Protection of Nuclear Material.

Mr Mileham moved to adopt the minutes.

Ms Malinga seconded the adoption of the minutes.

The minutes of the meeting held on 22 March 2022 were adopted.

Matters Arising
Mr Mileham stated that he had sent a letter to the Chairperson the week before about the oversight visit to Koeberg. The Committee had been scheduled to go on an oversight visit to Koeberg in early 2021 but it was cancelled due to the pandemic. He had a discussion with the Chairperson during the Gas Amendment Bill Public Participation process about it – it was something that needed to be prioritised. He asked that it be put on the programme for the second quarter, possibly in the Committee week at the end of April 2022. He asked if this would be possible.

The Chairperson stated that it was something that the Committee should consider. This, as well as Mossel Bay, would be prioritised. 

The meeting was adjourned.