Gas Bill: deliberations

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Mineral Resources and Energy

22 August 2001
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Meeting report

MINERALS AND ENERGY PORTFOLIO COMMITTEE

MINERALS AND ENERGY PORTFOLIO COMMITTEE
22 AUGUST 2001
GAS BILL: DELIBERATIONS

Chairperson: Mr D M Nkosi

Documents issued:
Gas Bill [B18 - 2001]: Working draft as of 17h00 21 Aug 01 (not available to the public)
Department's comments on Sasol's submission /Sasol response to Department's comments on Sasol's submission (email
info@pmg.org.za for these documents)

SUMMARY
Clause 34 dealing with Regulations has been amended to distinguish between what matters the Minister may make regulations on and on what matters the Gas Regulator may make rules. The Committee wanted clarity on the distinction between rules and regulations. Debate ensued about why a distinction needed to be made and why both the Regulator and the Minister could not issue the regulations. The responsibilities of the Minister and the Gas Regulator were clarified.

Sasol and the Department briefed the Committee on the Mozambique gas pipeline agreement and the necessity for this agreement to appear in Clause 36 of the Gas Bill. The Committee felt that it is untenable that they have to pass legislation when the agreement has not been finalised. The agreement has to be finalised in order for the Bill to be promulgated but not necessarily for the Bill to be passed.

MINUTES
CHAPTER IV
Clause 34. Regulations
Dr Crompton said the department recommended acceptance of Texaco's proposal that 'class of gas' be changed to 'gas specification' in 34 (1) (k). This is simply to make the clause consistent with what is in the definition.

There is a recommendation that the terms liquefaction and re-gasification be inserted in (i) and (j). The term 'supply of gas' should be substituted with 'producer of gas'.

Dr Crompton noted that Eskom had recommended that the Regulator rather than the Minister should issue regulations. He said they have revisited Clause 34 and have tried to apply the test as to whether it is absolutely essential that the Minister should issue each type of regulation in the list of possible regulations in Clause 34. The following subclauses in 34 (1) a, b, d, e, f, g, i, l, m, o, q, t have been changed to state that the Regulator will make rules on these. For the others, the Minister will make regulations.

The Chairperson said he hoped the Committee were in a position to distinguish between what are rules and what are regulations. Mr Davidson (DP) echoed this when he asked for the distinction between rules and regulations. According to his knowledge, a regulation has a certain statutory significance in terms of implementation and enforcement. What jurisprudential backing has a rule?

Dr Crompton replied that in discussion with the state law adviser, it emerged that a regulation has a legal backing whereas a rule has not.

Mr Davidson wanted to know why it is not possible for both the Minister and the Regulator to make regulations. Why do they have to make a distinction between rules and regulations?

Dr Crompton said the different words were used to show that there are things that the Regulator cannot do and things that the Minister can do. If one uses the same word, there might be a confusion as to who could do what.

Mr Davidson was not satisfied with that answer as he argued that each would be according to their defined authority which would be defined in the Act. He said a Regulator by definition issues regulations, if suddenly a regulator issues rules there would be confusion.

Dr Crompton corrected Mr Davidson saying that in South African law the Regulator does not issue regulations, it is the Minister or government who tends to issue regulations. The regulator administers regulations.

Mr Oliphant said, in trying to find some compromise on this issue, in other statutes it states that the Minister can make rules after consultation with the regulator. Thus this should not be made an issue. Mr Davidson said he did not want to press the point.

The Chairperson concluded that each function should be defined clearly to avoid a situation where the two find themselves not knowing who does what.

Clause 36 Mozambique Gas Pipeline Agreement
Dr Crompton said there are various submissions relating to this agreement and SASOL would be making a presentation regarding the study of the agreement.

Dr Crompton cited the comment by Eskom that the rights in terms of this section are subject to ongoing compliance with licence conditions, failing which the regulator should have the power to act in terms of its powers. He said the provisions of the Bill relating to compliance with licences still stands.

General Technical Standards
Certain issues were raised by Petronet concerning the American code ASME B31.8. It was agreed that this falls under the Department of Labour's jurisdiction in terms of the vessels under pressure regulations in the Occupational Safety Act. He said they had had a number of meetings with Petronet and the Department of Labour and they are satisfied that they have addressed Petronet's concerns about the technical design of the pipelines.

Schedule 1
Dr Crompton said that there is a suggestion that a fourth item be added to the schedule which specifies those who are exempt from the provisions of the Act. There was a concern that loading or discharging gas at harbours or depots should be exempted in some way. At the moment the exemption applies to people who will be transporting gas for their own purposes or small gas bar projects in rural communities and gas reticulation.

Presentation by Sasol and Department on Mozambique pipeline agreement and importance of Clause 36
Mr P de V. Greeff (Sasol) asked Dr Crompton to tell the Committee when this definitive agreement will be ready for signature by the Minister.

In explaining the importance of the agreement, Dr Crompton said Sasol had come with a proposition to the government that would lead to the introduction of a gas pipeline from Mozambique. Sasol had made certain decisions on a very substantial project that amounts to billions of rands of commitment to the parties involved. Sasol was prepared to make those decisions in the absence of legislation.

The alternative would have been to wait until the legislation was in place before the project could commence. However, in their estimation the effect of that would have resulted in the project being delayed by four to six years. The government of South Africa took a decision to entertain this proposal and an interdepartmental gas task team (Departments of Minerals & Energy and Trade & Industry) has been negotiating with Sasol for the past two years.

Sasol has sought from the government some security because of the absence of law to address issues of licences and so on. Sasol also wanted a situation whereby they could have some assurance that they would get returns on their investments. However, Dr Crompton quickly pointed out that there are no guarantees at the moment, the risks are still there. The purpose of the agreement is to mitigate the risks in as far as the South African gas industry is concerned. The decisions that have been made so far are the basis of the agreement.

From the government side, they have sought to, on the one hand, to allow a certain monopoly situation for a limited period and on the other hand to protect the interest of customers and consumers. Included in the agreement is what is called a price-capping clause which will be using international benchmarks from specified countries with available data on gas prices.

Dr Crompton said that there is no signed agreement between the parties other than the basis of the agreement. He said the reason for the delay is that the government has discovered that there are insufficient gas reserves in Mozambique to justify the 25-year project. He said this is not to say that there is no gas lying somewhere in Mozambique but the Department and the bankers were trying to mitigate the risks. Regarding the rest of the agreement, many complicated issues has been agreed on.

On the issue of when the agreement will be finalised, Dr Crompton said the Department was meeting with Sasol that very evening to look at whether they could finalise the money issues and possibly some of the bigger issues. If they do not agree on the bigger issues, they will be referred to the Minister. If everything is agreed on, they could be in a position to finalise the agreement in the following week.

Mr de V Greeff stated that the purpose of the whole agreement is to create an environment conducive for investment. The project involved building a long transmission pipeline of more than 800 kilometers from the gas fields in Mozambique to Secunda in South Africa. It also involved converting the present gas network supplying about 600 industrial and commercial customers from the present coal gas to natural gas.

Concerning gas reserves in Mozambique Mr de V. Greeff said on a proven basis certified by external reserve auditors there are no gas reserves for 25 years in Mozambique . However, there is an international norm by which companies and businesses decide to approve natural gas projects and the development of gas fields. This is based not only on proven, but proven and probable reserves. On that basis they are prepared to take the project to the Sasol board to recommend it for approval.

Discussion
The Chairperson commented that the Committee had completed a study tour of the gas fields in Secunda and Mozambique where some of these issues had been covered. Noting the significance of the agreement in the Act, he asked the Committee to consider what issues need clarifying to ensure that the Committee can make a decision about retaining or not retaining part or all of Clause 36.

Mr Nash (ANC) asked Sasol why there is a delay in naming the areas where they have licences.

Mr de V. Greeff replied that it is not really a delay, it is only an extensive exercise to complete the mapping. There are discussions between Sasol and the Department on the areas. He added that they have produced maps previously and they had negotiations about those maps and they have now been revised. The maps are available if the Committee wanted to view them.

Prof. Mohamed (ANC) asked Mr de V. Greeff what he meant by 'proven and probable' reserves.

Mr de V. Greeff replied that 'proven' reserves normally means that one has reasonable certainties that it will have a certain volume of gas and that one would be able to economically extract that gas on a 90% probability basis. Probability is the same definition but on a 50% probability basis. Sasol is prepared to take on this project on a 'proven and probable' description.

Prof. Mohamed wanted to know, given the uncertainty about the clause, why do they not just leave it out?

Mr de V. Greeff responded that the reason they should have Clause 36 in the Gas Bill is to give effect to the terms and conditions of the agreement between Sasol and the Ministers of Mozambique and South Africa. It would mean that the regulator would be bound by the terms and conditions of that agreement and also gives the regulator certain powers in the implementation of the agreement and as well as the administration of the agreement.

Mr Mongwaketse (ANC) commented that the committee as lawmakers would be comfortable if the agreement would have long been finalised. As of now he believed there is still uncertainty concerning the agreement.

Mr de V. Greeff responded that he does not believe that there are so many uncertainties out there. He said the basis of the agreement which is in the Committee's possession is largely based on the agreement. There are two or three issues that still need to be agreed upon; a number of issues have been agreed on as Dr Crompton earlier indicated.

Mr Blanche (FA) asked if there are any similar Acts passed in Mozambique so that the committee can refer to those Acts.

Dr Crompton replied that there is legislation in Mozambique relating to exploration and production as much as South Africa has. There is also a cross-border gas trade agreement between South Africa and Mozambique which has been approved. In terms of this agreement it monitors the taxes and other diplomatic arrangements and there is a commission of representatives from both governments who work on those issues. They also have a petroleum Act which regulates the gas and pipeline business in Mozambique similar to the Gas Bill introduced here.

Ms Motubatse (ANC) asked if the agreement between the government and Sasol will come to the Committee for discussion because it will be difficult to pass the Bill without understanding the contents of the agreement.

With regard to whether the Committee would get the agreement, Dr Crompton said he could not answer that. But he was aware that the basis of the agreement had been requested by the Committee and the Minister has given them a copy of that.

The chairperson told the committee that the reason why the presenters are here is because they wanted to inform them what is taking place at the moment.

Mr Nel (NNP) asked if any further negotiations could affect Clause 36 as it stands?

Dr Crompton replied that it need not affect the wording as presented in the Bill. He added that that any agreement should be reached before the commencement of the Act, that is, before the President promulgates this Act.

Mr Oliphant (ANC) said it is unfortunate for the Committee to be put in a situation where they have to pass legislation on an agreement that has not been finalised. However, the Committee cannot be held to ransom by that process. The Committee should pass the legislation without the agreement being finalised.

Mr Louw (ANC) suggested that the Committee proceed with other sections of the Bill and continue the process but when they come to Clause 36 they should wait for the agreement. He acknowledged the fact that everybody was uncomfortable with the way things are at the moment.

The Chairperson told the Committee that they still have time regarding this matter. As of now they should merely understand what is being presented.

The meeting was adjourned.

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