Gas Bill: deliberations

Meeting report

MINERALS AND ENERGY PORTFOLIO COMMITTEE
21 August 2001
GAS BILL: DELIBERATIONS

Chairpersons: Mr M D Nkosi

Relevant Documents:
Gas Bill [B18-2001] [Current working draft not available to the public]
Gas Bill: Comments on Submissions Chapter 1
Gas Bill: Comments on Submissions Chapter 2
Gas Bill: Comments on Submissions Chapter 3
Gas Bill: Comments on Submissions Chapter 4
Department’s Additional Recommendations, 20 August 2001

SUMMARY
In its deliberations on the Gas Bill, the Committee decided to focus only on those clauses that were of concern to members. The discussion focussed predominantly on Clauses 2, 6, 11, 20 and 32. Much of the discussion revolved around the Gas Regulator, specifically to its functions, composition and autonomy. Some concern was also raised over the discretionary powers of the Minister, particularly as the Minister may direct the Regulator to grant licences preferentially to state-owned entities. Many of the issues discussed remained unresolved and were flagged to be raised at later meetings.

MINUTES
Dr Crompton (Department) proceeded to take the Committee through the Bill clause by clause, highlighting amendments that the Department had effected to the Bill in response to public submissions. The Chairperson requested that the Committee only raise issues on those clauses that they were of concern to them. This was suggested as a matter of expediency.

Chapter 1: Definitions and Objects
Clause 1: Definitions
"distribution"
Much discussion ensued on the definition of "distribution". In the Bill, distribution refers to the transportation of bulk gas supplies via pipelines at an operating pressure of not more than 2 bar gauge and less than 15-bar gauge to points of ultimate consumption.

Mr I Davidson (DP) felt that the 15 bar limit was not needed. He stated that the Department’s claim that the 15 bar limit is the international norm was totally untrue. Evidence apparently shows that there is substantial variation internationally. Mr Davidson suggested that the cut-off rather be set as a statement of function. He pointed out that if "transmission" could be defined by function, why was it not possible to define " distribution" by function. Defining "distribution" by function would in no way prevent competition in the industry by way of blocking third party access as is averred by the Department.

Dr Crompton replied that the 15 bar limit was set in order to ensue competition in the industry by means of guaranteeing third party access. He emphasised that it should be borne in mind that our gas industry is still in its infancy and can therefore not be strictly compared to its counterparts internationally. Dr Crompton refuted the claim by Mr Davidson that the Department had stated that the 15 bar limit was the norm internationally. He had stated that the 15 bar limit was a rough ballpark figure on what the international norm. Attempts had been made by the Department to define "distribution" functionally, but all their attempts were in conflict with the objective that they had to bear in mind ie to ensure third party access to the industry. It is for this reason that the limit had been set at 15 bars.

Mr Davidson remained unconvinced by the Department’s explanation.

Mr G Oliphant (ANC) felt that the Department’s explanation sufficed.

Mr J Nash (ANC) agreed. He stated that the Committee has to decide what the correct alternative for the South African context is, irrespective of the international practice. He felt that if a 15 bar limit is appropriate in the South African context, then let it be.

The Chairperson stated the that the aim was to keep the Bill’s definitions on "reticulation", "distribution" and " transmission" in line with what it is internationally. He felt that this should be the starting point for all work on the Bill. It was evident that the matter remained unresolved. The Chair suggested flagging the issue for later discussion and the Committee agreed.

"eligible customer"
Mr Davidson asked what are the advantages attached to having this classification. He stated that obtaining gas at a cheaper price is definitely not one of them as the price is fixed by the Regulator.

Dr Crompton stated that an "eligible customer" has a choice of supplier whereas the ordinary customer does not. The ordinary or smaller customer is however protected by the Regulator.

The Chair asked Mr Davidson if he had suggestions on amending the definition of "eligible customer" in view of what he had previously asked.

Mr S Louw (ANC) agreed with Mr Davidson and felt it important to know what the benefits of being an "eligible customer" was. Mr Oliphant had no problem with the definition as it was.

Mr Oliphant proposed that the Committee should revisit the issue especially in view of the fact on how it impacts on Clauses 4(h) and 21(n).

The Committee agreed to flag the definition for later discussion.

Clause 2: Objects of Act
Mr Davidson suggested that the Committee should have say in the persons that are appointed by the Minister to serve on the regulating body. He proposed that the Committee could interview likely candidates and thereafter submit a shortlist to the Minister for consideration.

Mr Oliphant seemed sceptical of the suggestion. He added that it would be a mammoth task.

Mr A Nel (NNP) agreed with Mr Oliphant and suggested that the Committee discuss the practicalities of the suggestion in detail.

Mr S Mongwaketsi (ANC) stated that it is not as complicated as it seems. He stated that many portfolio Committees are already doing what Mr Davidson had suggested.

Dr Crompton stated that the practicalities of performing this function would have far reaching consequences. If the Committee performs the above function for one regulator then it would have to perform it for all.

The Committee agreed to flag the issue for later discussion.

Chapter 2: National Gas Regulator
Clause 4: Functions of the Gas Regulator
This clause states that the Gas Regulator "must" in accordance with the Act issue licences for: (i) the construction, conversion and operation of gas transmission, storage and distribution facilities
(ii) trading in gas.

Mr Davidson asked why there is a positive obligation on the Gas Regulator to grant licences. The use of the word, "must" makes it peremptory on the Regulator to issue licences. What if all requirements have not been met.

Dr Crompton stated that the State Law Advisors had insisted on using the word "must" as the use of the word "may" would weaken the Regulator.

Mr Davidson disagreed and felt that the Regulator would be strengthened by the use of the word "may" as it would be given a discretionary power.

Mr Oliphant disagreed with Mr Davidson. He suggested that the Committee deal with the issue later.

Professor I Mohamed (ANC) pointed out that the clause had been wrongly read and that the word "must" should be read in context. It should be read as follows: " The Gas Regulator must, in accordance with this Act, issue licences".

The Committee nevertheless agreed to come back to Clause 4.

Clause 6: Disqualifications and requirements regarding appointment to Gas Regulator
The aim of the clause is to set out the requirements and grounds for disqualification for appointment of a person to the board of the Gas Regulator.

Mr Davidson stated that persons serving on the board of the Regulator should have sufficient knowledge of the industry whilst at the same time not have an interest in the industry itself. He felt it extremely difficult to achieve a balance so as to prevent a conflict of interest. Mr Davidson was also concerned about persons who are not South African citizens being excluded from serving on the board. What happens in the event that a South African does not have the required skills, knowledge and experience and a foreigner does in fact fulfill these requirements?

Mr Lucas agreed with these sentiments.

The Chair stated that there is no quick fix to the problem and asked Mr Davidson to formulate concrete proposals in this regard. Mr Davidson agreed and the Committee agreed to return to the issue later.

Clause 11: Personnel of Gas Regulator
This clause makes provision that the Minister may in her own discretion determine that the Gas Regulator may appoint or make use of persons employed by another licensing or regulatory authority which also falls under the Minister’s jurisdiction.

Mr Davidson was concerned that there would be no limit on the overlapping as is provided for in the clause. The concern was that the independence of the various regulators would be lost.

Dr Crompton stated that he understood the concern but reassured the Committee that the key functions of the regulators would not overlap but merely their administrative functions or support structures such as secretaries and cleaning staff. He added that Cabinet is undertaking an investigation into how the overlapping of functions by regulatory bodies is to take place.

Mr Oliphant stated that if there is a pending investigation on how the process is to work, it is best that the Committee await the outcome of this investigation before making a decision. The Committee should have faith in the discretion of the Minister and consequently felt that the clause could remain as is.

The Chair commented that the outcome of the investigation would show what resources are available and it would indeed identify whether the need for overlapping exists.

Dr Crompton stated that the aim behind the provision is to make provision for what might develop in the future.

Mr Nash found no fault with having one major energy regulator as long as provision is made for separate departments dealing specifically with their respective fields, that is, gas, electricity and nuclear energy.

The Committee agreed to flag the issue for later discussion.

Chapter 3: Gas licences and registration
Clause 16: Application for licence
This clause makes provision for any application for a licence to be accompanied by the plans and the ability of the applicant to comply with all applicable labour, health, safety and environmental legislation. The clause goes further to list pieces of legislation with which the applicant would have to comply.

Mr Davidson disagreed with the listing of the pieces of legislation. The Chair on the other hand supported the clause as it makes provision for the Bill to comply with other pieces of South African legislation. Mr Oliphant shared the Chair’s sentiments.

Dr Crompton suggested that an alternative to listing the pieces of legislation could be that the Regulator could from time to time publish applicable legislation.

Mr J Blanche (FA) felt the suggestion to be a good one.

However the Chair suggested that they flag the clause and the Committee agreed.

Clause 20: License to entity controlled by State
This clause makes provision for the Minister to direct the Regulator to grant a licence to a state controlled entity for the establishment and operation of gas transmission pipelines provided that it is in the national interest.

Mr Davidson disagreed with the provision and asked that the clause be deleted. He wondered what is the aim of the clause. Is it not correct that the Regulator is to promote competition in the industry? Why then should preference be given to state-controlled entities? Mr Davidson strongly asserted that the clause is contrary to the principles of fair competition.

Prof Mohamed agreed. He stated that the problem is that the Minister may award tenders to state-owned companies when there are competent private companies that have the ability to outperform state-owned entities. The idea behind fair competition is for state-owned entities to use state funds to compete on an equal footing with privately-owned companies.

Dr Crompton stated that the clause should be looked at in South Africa’s historical context. The idea is to try to balance out some of the inequalities of the past. He assured members that allowances have been made for private and public investment in the sector.

Mr Davidson suggested that the Minister should publish the objectives and thereafter all companies both private and public could tender equally.

The Committee agreed to flag the issue for later discussion.

Clause 21: Conditions of licence
The Committee agreed to deal with the clause later as it ties in with the unresolved definition of an "eligible customer".

Chapter 4: General provisions
Clause 31: Investigations by Gas Regulator
The Committee was divided on what the wording of the clause should be. The Committee agreed to flag the issue for later discussion.

Clause 32: Expropriation of land by Gas Regulator
This clause makes provision for the Gas Regulator to expropriate land for gas transmission, storage and distribution if it is in national interest.

Mr Nel asked why expropriation was being done in terms of Section 25 of the Constitution and not the Expropriation Act.

Dr Crompton stated that the State Law Advisors had insisted that reference should rather be made to Section 25 (Property) of the Constitution rather than the Expropriation Act.

Mr Oliphant asked what the difference was if reference is made to either of the two Acts.

Mr Nel explained that using the Constitution allows for further issues to come into play. It would have been sufficient to refer to the Expropriation Act.

The Chair stated that it does not matter which Act is referred to as long as the Expropriation Act and the Constitution are not in conflict with one another.

Dr Crompton suggested asking the State Law Advisors for the exact reasoning behind their decision and the Committee agreed.

Clause 33: Rights of licencee in respect of premises or land belonging to others
The Committee felt that the various provisions of the clause needed to be rearranged. The Department agreed.

The meeting was adjourned.