Reference: E2003/005/JM/sr
The Chairman
PORTFOLIO COMMITTEE ON MINERALS AND ENERGY
Telephone: 361-1312 Fax: 361-1365 Date: 27 May 2003
Dear Mr Goniwe
PETRONET SUBMISSION – PETROLEUM PIPELINES BILL [B22-2003]
Thank you for the opportunity to comment on the Petroleum Pipelines Bill (PPB).
1. PETRONET’S VIEW ON THE BILL
Petronet is not opposed to the principle of Regulation and has participated in the process to date vide several workshops since 2000. This included specific comment on the draft Bill in 2001.
Regulation of pipelines is the international norm and for Petronet offers a potentially better alternative to the current environment.
It is envisaged that regulation, which sets the standards, will also afford Petronet protection against unfair competition from pipelines of possible lower standards in the future.
The main impact of this Bill will be on the Commercial activities of Petronet ie. Tariffs, conditions of conveyance, financial reporting and control, etc.
Physical operations and operating competencies are not addressed in the Bill which in our opinion is a shortcoming. The remaining areas of envisaged regulation such as Technical, Health, Safety, Environment and Security are in our opinion adequately covered in various existing pieces of legislation and will not have a significant impact.
The Bill acknowledges the Strategic role that the Petronet network plays in the transport of fuel in South Africa. This leads us to the conclusion that all ensuing regulation will have to be supportive of this. This being the case the risk of any regulation which will be disruptive to the functioning of the network or lead to an unsustainable situation is very low.
d) Regulation should enhance the environment for the management and provision of pipeline infrastructure by spelling out the applicable rules or guidelines pertaining to investment, allowable returns, tariff policy, etc.
How the Energy Policy objective of lowering the transport component of Petroleum products will be achieved by the Regulation of pipelines and related facilities whilst the alternative modes of transport (i.e. Road and Rail) remain unregulated is not clear. This is possibly best explained by sketching the following scenario: Once a regulated pipeline has reached capacity and before such time as it is economically feasible to increase such capacity by expansion or the construction of a new pipeline, suppliers will have no option but to utilise road or rail transport. This being the case and without regulation of these modes the price of fuel transport by these modes will be taken to whatever the market forces will allow.
2. SPECIFIC COMMENTS/QUERIES/SUGGESSTIONS FOR CONSIDERATION
The following comment is in the order of sequence of the Bill and is not in any order of priority.
2.1 Definitions
Petroleum Pipeline
This is a very broad definition based on product type. Consideration should be given to other possible parameters such as diameter, length, pressure, etc.
2.2 Section 10 - Decisions of Authority
It is recommended that the "right of appeal" be included as per section 25 (3).
2.3 Section 15 - Licences
15 (1) It is recommended that the word "person" be replaced with "owner".
This will clear up any uncertainty as to who the licencee is.
2.4 Section 16 - Application for licence
16 (2) (c) Given the importance it is considered essential that applicants also be required to demonstrate their "Operating" abilities.
16 (3) It is requested that the following be considered.
The authority will at all times adhere to the requirements of the "Access to Information Act" in terms of obtaining/using/controlling and making public any information obtained from any applicant.
2.5 Section 18 - Particular Information to be supplied by the applicant
18 (a) This clause is unacceptable unless:
no additional costs are incurred by the licensee, or
where costs are incurred the 3rd party has agreed to pay the additional costs, or
the authority makes provision for such additional costs in approving tariffs.
2.6 Section 20 - Conditions of licence
20 (1) (d) This clause in Petronet’s opinion is restrictive and has the potential to create inefficiencies and artificial capacity constraints within an integrated pipeline network. It will be far more efficient to convey refined products through a crude oil pipeline which has surplus capacity then to provide additional refined pipeline capacity.
Optimal utilisation of very expensive (Capital Intensive) existing pipeline capacity must be allowed for. Not only under emergency conditions.
20 (1) (f) (i) In order to comply with this requirement customer "needs" will have to be defined within the act. Capacity is not the only consideration in a pipeline. Consideration will have to be given to Technical and product compatibility, minimum batch (slug) sizes, frequency of utilisation, etc. Suggested change is to include the following:
"…………………to their needs and within the operational constraints of the pipeline system/network".
20 (1) (r) & (s) Why tariffs would be set by the authority for petroleum pipelines and only approved for storage facilities is not understood.
20 (2) (a) to (c) Should the right to appeal as allowed for in 25 (3) (2) not also be included in 20 (2)?.
2.7 Section 21 - Non-discrimination
The terms "objectively justifiable" and "identifiable" are inadequately descriptive and need to be expanded to ensure compliance with this requirement.
Section 22 - Term of Licence
22 (5) It is requested that this clause be amended to make provision for the transfer of a licence in the case of State owned entities. A possible mechanism for this is the Transnet Legal Succession Act.
2.9 Section 24 - Revocation of licence on application
24 (2) It is unreasonable to expect an uneconomical business to continue for 12 months after notice. Suggest that the period of notice on licensed activities be reduced from 12 months to 3 months in the case of uneconomical services and 6 months for any other reason.
2.10 Section 27 - Health, Safety, Security and Environment
i) This clause has indeterminable financial and legal liabilities for an undefined period. In order to facilitate and encourage investment, parameters will need to be fixed or limited.
The Bill is lacking with respect to the issue of security. Petronet currently experiences major difficulties in managing the activities of 3rd parties both over and adjacent to its pipeline servitudes. Encroachments by informal developments as well as the increasing number of encroachments inadvertently approved by various local authorities pose a major risk to health and safety the environment as well as the disruption of the essential services. Consideration should be given to including enabling legislation in this Act.
2.11 Section 28 - Setting and approval of tariffs
In the absence of Regulation it is not possible to comment on what effect the setting of tariffs for existing pipelines may have.
2.12 Section 34 - Prohibition of agreements contrary to Act
34 (1) It is not clear from this clause whether existing commercial agreements such as the tariff link agreement between Petronet and Natref will be dealt with in terms of 34 (2) or 20 (1) (f) (ii).
2.13 Section 33 - Regulations and rules
The discretionary power given to the Minister with respect to the making of regulations that can and will affect the financial performance of companies in the relevant petroleum business or activities is of concern. Such a situation is not condusive to attracting or promoting the affected industries. It is recommended that the relevant aspects be identified and included in the Act or alternatively draft regulations be made available for comment before approving of the Bill. By way of example further clarity is needed on:
33 (1) (b) The form and quantum of this financial liability.
33 (1) (f) Tariff methodology
2.14 Section 35 - Transitional provisions
35 (1) it is recommended that this clause be amended to allow for the licence applications to be made within six months after the appointment of the Authority and not six months after the commencement of the Act.
_________________
J. Morgan
Manager (Technical & Projects)