Gas Bill: Briefing by Minister on Outstanding Issues

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Mineral Resources and Energy

29 August 2001
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Meeting report

This Report is a Contact Natural Resource Information Service
Taking Parliament to People, and People to Parliament


The aim of this report is to summarise the main events at the meeting and identify the key role players. This report is not a verbatim transcript of proceedings.

Mineral and energy affairs Portfolio Committee
29 August 2001

Documents handed out:

Chairperson: Mr D. Nkosi

Minster Mlambo-Ngcuka briefed the Committee on two crucial outstanding issues in the Bill, namely Clause 20 and Clause 36. The Minster confirmed that the rationale behind Clause 20 was to ensure that the State had control over strategic gas pipeline infrastructure. The Minister stated that this was essential in order for the State to regulate the industry and ensure that the nation's interest in providing affordable energy to all South African's, was protected. Committee members raised various concerns in relation to Clause 20 namely: it afforded a State controlled entity preferential treatment; it prejudiced private enterprise and that the licence to establish and control the gas transmission pipeline should be awarded following a normal tender process. The Minster acknowledged the Committee's concerns and proposed that the Department draft a new formulation of Clause 20 for consideration by the Committee. The Minster confirmed that the Mozambique Gas Pipeline Agreement, referred to in Clause 36 of the Bill, was near to being completed and acknowledged the Committee's concerns about finalising the Bill prior to this Agreement having been concluded. The Committee agreed to meet next week to attempt to finalise the Bill.

The Chairperson welcomed Minister P. Mlambo-Ngcuka and confirmed the importance of having input from the Minister on two crucial outstanding issues in Clause 20 and Clause 36. Clause 20 deals with the issuing of a licence to a State controlled entity responsible for the establishment and operation of transmission pipelines. Clause 36 deals with the Mozambique Gas Pipeline Agreement presently being negotiated between Sasol and the South African Government. The Chairperson stated that the Minister's input on these two issue was crucial so as to enable the Committee to decide how to proceed to finalise the Bill. He then requested the Minster to address the Committee.

Clause 20:
The Minster summarised the Committee's concerns regarding this Clause as follows:
- it afforded a State controlled entity preference in obtaining the licence for the establishment and operation of specified gas transmission pipelines;
- the establishment of this infrastructure should be left to private enterprise;
- nothing prohibited the State controlled entity disposing of the preferential licence if it wished to do so.

The Minster then explained the rationale behind the Clause. She explained that the costs associated with the establishment of infrastructure of this nature was high and would accordingly probably need State input. She confirmed that foreign experience had shown that infrastructure of this nature was usually provided by the State. She further confirmed that Cabinet's approach was that the provision of energy was not a commercial industry but rather a service offered to the nation as a whole. The State therefore wished to strictly regulate the infrastructure so as to ensure that the high cost associated with its establishment was not passed on to the end user. She stated that this aim could only be achieved is the State controlled the establishment and operation of the strategic transmission pipelines. If this were not the case, she stated that the risk was created that private enterprise could potentially hold the nation to ransom.

Mr I. Davidson (DP) acknowledged the rationale behind the Clause but stated that it unduly limited the opportunity of private enterprise in tendering for the licence to establish and operate the transmission pipelines. He stated that in terms of the present Clause, even were a private company to tender a better bid than that of a State controlled entity, the Minster still had the discretion to award the licence to the latter entity irrespective of the wishes of the Regulator or the merits of the tenders. Davidson argued that this was contrary to the principles of transparency and openness.

Professor I. Mohamed (ANC) raised two additional points. He queried why the State controlled entity could not simply tender for the licence in the ordinary way and not be afforded preferential treatment. He stated that as the wording presently read, the Minister could ignore the input of the Regulator and appoint a State controlled entity even were better tenders submitted to the Regulator. He was also concerned about the potential disposal of part of the State controlled entity to a third party and that there appeared to be no limitation on the identity of this latter party.

The Minister responded by pointing out that if the State controlled entity wished to dispose the whole or any part of its assets, this would follow the recognised public tender process. She stated that clear objective criteria existed to assess bids and that empowerment was not the sole criteria. She further responded that it was not the intention for the State controlled entity to be afforded preferential treatment and that it would have to tender for the licence in the ordinary manner.

Dr Crompton (Department) then proposed that the following conceptual framework to resolve the issue:

- The State controlled company would have to apply for the licence in the ordinary manner;
- Clause 20 was limited to the transmission pipeline licence;
- All applications would have to be published and subject to public comment;
- If rival private enterprise bids were made for the licence, the Regulator would have to apply its mind properly to these;
- If the Regulator preferred a private tender it would have to provide reasons therefore to the Minister;
- The Minister couls still elect to award the licence to the State controlled company;
- If the State controlled company was privatised this would be done in an open and accountable manner.

Mr Davidson again raised his concern that even if the private tender was better than that of the state controlled company, the Minster still had a discretion to elect the State tender.

The Minister responded by stating that the government welcomed private investment in the gas industry but in reality it was not a high return industry. She was weary that if the State was not in control of the transmission infrastructure, the nation could be held to ransom by private enterprise wishing to make a high profit through the distribution of gas. She stated that the State had an interest in the provision of energy to the nation and therefore the Minister should have discretion to look after the nation's interests. She referred to Mr Davidson's concerns and stated that if a private company with a key focus on looking after the nation's interests tendered for the licence, its should be considered along with the bid of the State owned company. She agreed that the Clause should provide for this.

The Chairperson then raised the question of why Clause 20 was limited to "transmission" pipelines.

The Minister responded by saying that these pipelines were large scale and of strategic importance. She accordingly believed that these should be subject to strict State control but that less strategically important pipelines should be left to municipal authorities.

Mr G. Oliphant (ANC) emphasized that even "distribution" pipelines could be strategic and suggested that this issue should be looked at in the future.

Mr E. Lucas (IFP) stated that he was happy that the transmission pipelines be subject to State control as were they subject to private control, private interests often clouded the issue.

The Chairperson concluded the debate on this Clause and requested Dr Crompton to come back with a new formulation embodying all the member's concerns.

Clause 36:
The Chairperson summarised the Committee's concerns on this Clause. He confirmed that the Committee was weary of finalising the Bill without knowing what the content of the Agreement was or at what stage of completion it was.

The Minster responded stating that she understood the Committee's concerns. She confirmed that the Agreement had not yet been signed and that Sasol had requested that the Bill be finalised before the 3rd of September 2001 Sasol Board Meeting. She acknowledged that is was unlikely that the Bill would be finalised by this date and further notified the Committee that it was also unlikely that the Agreement would be finalised by this date as Minister Alec Erwin would not be available to continue the negotiations owing to overseas traveling commitments.

The Chairperson requested that the Committee be given some indication of when the Agreement would be finalised.

Dr Crompton confirmed that they wished to finalise the Agreement before the 3rd of September Board Meeting. He further indicated that the negotiations the following day would "make or break" the Agreement.

Prof Mohamed confirmed the catch twenty two situation the Committee presently faced. They did not want to jeopardise the Agreement by failing to finalise the Bill but they similarly did not want to finalise the Bill without the Agreement having been finalised.

Mr Lucas similarly reiterate the serious predicament the Committee faced and questioned whether or not there was not an alternate mechanism which could be used in the interim. He proposed that the Clause be excluded from the Bill and that it be included after the fact through regulation.

Mr Oliphant had similar concerns but stated that he believed that the Committee was being more than accommodating in the circumstances. He raised an additional concern that in terms of the Bill, the Agreement had precedent over South African law.

Mr Davidson proposed that Clause 36 be excluded but that Sasol be granted the licence in terms of Clause 20.

The Chairperson responded to the various member's comments by stating that the rationale behind the need for the Agreement to be concluded prior to the Bill being finalised, was that no Regulator had yet been appointed. The Agreement itself contained provisions relating to regulation which needed to be in place until such time as the Regulator was established. He further stated that there were very few outstanding issues between the negotiators and that the Committee did not wish to hamper the negotiation process. All the Committee required was to be updated on the process.

The Minister emphasized that the bona fides of the Committee had never been in question and that they had been very accommodating in trying circumstances. She reiterated that she understood the Committee's concerns but requested that the negotiators be given the freedom to conclude the Agreement.

The Chairperson concluded the meeting and proposed that a further meeting be scheduled for next week at which the Committee would hopefully be in a better informed position to assess how to proceed with the Bill. The meeting was adjourned.

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