30 May 2003

SACOB COMMENTS ON THE
PETROLEUM PIPELINES BILL, B22-2003

INTRODUCTION

SACOB is a business organization that through its affiliated membership structure represents some 35 000 businesses – small, medium and large throughout South Africa. As an organization representing a large number of independent Chambers of Business/Commerce, Trade Associations and individual corporate enterprises, it strives among its other activities to speak on behalf of the formal business sector on various legislative issues that impact on business. As transport costs comprise a substantial proportion of the price of liquid fuels, specifically the pump prices of petrol and diesel, the provisions contained in the Petroleum Pipelines Bill will affect all South Africans, no sector more so than the business sector. It is in that context that SACOB makes comment on the proposed legislation.

SACOB also wishes to place on record that, owing to time constraints, it has not been possible to fully implement normal consultative and mandating processes, and that we may wish to amend our submission at a later stage.

GENERAL OBSERVATIONS

SACOB refers to the Cabinet directive that a rationalized Energy Regulator be established for the regulation of various aspects of the energy sector, and notes that there is great similarity between this proposed legislation and the Gas Act, Act 40 of 2001. As there already is a Gas Regulator Levies Act, No 75 of 2002 that provides for funding of the National Gas Regulator, with duties akin to those that the proposed Petroleum Pipelines Regulatory Authority will be expected to undertake, it would be logical to have one Act covering the gas and the petroleum industries. This would also result in lower costs as it would obviate the need for two separate structures performing virtually identical duties.

SACOB therefore recommends that, notwithstanding some differences between the two, that can be appropriately accommodated, the Gas Act, No 40 of 2001 and the Petroleum Pipelines Bill be merged to form one Act providing for both the petroleum and gas industries.

SACOB also notes that two of the objectives of the Bill are to promote the development of competitive markets for petroleum products and access to affordable petroleum products. SACOB respectfully points out that as the liquid fuels industry is currently highly regulated, with government controlled prices, these objectives will not be realized through this legislation.


DETAILED COMMENTS

Chapter 1

Definitions and Objects

Definitions

Clause 1
"loading facility" – SACOB questions why this definition only refers to marine facilities. Surely loading and off-loading of petroleum products can take place at facilities that are not marine in nature?

Objects of Act

Clause 2(a)
SACOB supports the overall object of the proposed legislation to promote competition in the construction and operation of petroleum pipelines, loading facilities and storage facilities. It sees this as an important step in process towards the deregulation of the liquid fuels industry.

However, the construction of pipelines and loading and storage facilities would normally be carried out by construction companies. A well-established civil engineering construction industry exists, that would in the normal course of events be invited to tender for the construction of pipelines and loading and storage facilities. Thus there appears to be little need to emphasise the promotion of competition in these areas. But there is certainly a need to introduce competition into the operation of pipelines.

However, bearing in mind the comments made under paragraph 2, SACOB believes that references in this clause should not be confined to petroleum pipelines, but should also include gas pipelines as well.

Chapter 2

Authority and Members

Establishment of Authority

Clause 3
SACOB refers to its comments under paragraph 2. The powers, authority and duties of the Gas Regulator and those proposed for the Petroleum Pipelines Regulatory Authority are practically identical. SACOB thus believes that it would be expedient for the two authorities to be merged into one, in accordance with the Cabinet directive that a single energy regulator be established. Obviously, there would be a need, at some stage, to consider how the National Electricity Regulator and the "gas and petroleum products" regulator could be merged into one organization.

Powers and Duties of Authority

Clause 4(b)
The Bill is silent on what the Authority would do with the information it would be required to collect and store. These activities could be costly, and should serve some purpose. SACOB suggests that the Bill include a clause on what the Authority should do with the information other than collecting and storing it.

Clause 4(f)
It is the intention that the Bill should promote competition. It is therefore incongruous that the Authority should set tariffs. In line with regulators in other industries, the Authority should be limited to approving tariffs.

Meetings of Authority

Clause 8(b)
While SACOB agrees that the Chairman should be given flexibility regarding the holding of meetings, it may be prudent to stipulate that a minimum number of meetings take place annually.

Clause 8(80(a)
In principle SACOB supports the provision that all meetings of the Authority should be open to the public. However, there is no provision for informing the public of such meetings.

Duties of members of Authority

Clause 9(b)
SACOB suggests that the members should at all times act in the interests of the industry and general public rather than in those of the Authority.

Funds of Authority

Clause 12(b)
On numerous occasions SACOB has highlighted the need to keep the costs of doing business as low as possible. A main contributor to the costs of doing business is an increasing number of levies that business has to pay. SACOB therefore cautions against this trend, and appeals for circumspection in the implementation of levies.

Chapter 3

Licences

Activities requiring licence

Clause 15(2)(b)
SACOB suggests that a person engaged in any of the activities requiring a licence doing so without a licence, should not be required to cease the activity without being given an opportunity to obtain one.

Clause 15(3)
SACOB sees a need for a provision relating to confidentiality in this clause.

Application for a licence

Clause 16(3)
Delete the phrase "…which are available to the public" at the end of the sentence.

Advertising of application for licence

Clause 17(2)(f)
SACOB queries why any objection to an application for a licence needs to be substantiated by way of an affidavit or solemn declaration.

Particular information supplied by applicant

Clause 18(a)
SACOB suggests that this clause should not be limited to supplying reasons why the application should not be considered subject to additional conditions, but should also include a provision that the applicant could amend his application to accommodate the additional conditions.

Finalisation of application

Clause 19(2)
A provision for an appeal against a refusal to grant a licence should be included.

Conditions of licence
Clause 20(b)
SACOB submits that proof of adherence to the Black Economic Empowerment legislation (currently under consideration) should be sufficient evidence for the purposes of this clause.

Clause 20(10(f)
This clause requires that the capacity of pipelines at the time of coming into effect of this legislation should be shared between all customers in proportion to their needs. The capacity of any particular pipeline is finite. SACOB is therefore concerned about possible consequences if subsequent to the coming into effect of this legislation one customer significantly increases his or her market share, and has a greater need for capacity. The Bill does not cover this eventuality and does not make provision therefor.

Clause 20(1)(h)
SACOB is of the view that the State should not control new pipelines coming into operation after the commencement of this Act. In fact, it should take positive steps to move out of the industry, and introduce measures to transfer is existing operations to private operators.

Clause 20(1)(r)
As commented on under Clause 4(f), the Authority should not set tariffs, but restrict its activities in this area to the approval of tariffs.

Clause 20(u)
It is desirable for some flexibility to be built into timeframes. There may be circumstances beyond the control of the applicant for a facility not being operational within the time allowed.

Clause 20(w)
SACOB trusts that where standards exist, the Authority will refer to them, and not establish its own new standards and requirements.

Clause 20(2)(a)
This clause makes it possible for the Authority to act as judge and jury over its own actions. SACOB believes that an appeal to an outside body should be possible, without denying the individual the right to appeal to a court of law if he or she so desires.

Term of Licence

Clause 22(5)
This clause differs from those found in other legislation where licences are required for certain operations. Other legislation, including proposed legislation such as the National Environmental Management Air Quality Bill allows for the transfer of a licence under certain circumstances, for example, when ownership changes. SACOB recommends that this be possible under this legislation if the new operator qualifies, rather the making it mandatory for a new application to be lodged.

Amendment of Licence

Clauses 23(1)(c) and 23(1)(d)
SACOB believes that in these two cases, the licence holder should be given a time frame within which to adjust to the requirements of the amended licence conditions.

Clause 23(e)
SACOB believes that should an amendment to a licence be mooted as a result of an application by an affected party, a full investigation should be undertaken and the licence holder should be given adequate opportunity to present his or her case before a decision is made.

Revocation of licence
Clause 24(2)
SACOB believes that this clause may be difficult to comply with. It may not be possible for the licence holder to give 12 months written notice of intention to cease operation – he may have to sell the operation due to ill health; severe economic set backs could occur requiring him to sell it; he may die, etc.

Revocation of Licence by court

Clauses 26(1) and 26(2)
It seems to SACOB that these two clauses provide for extreme action. There may, for example, be extenuating circumstances why a facility is not built in time. The ambit of the Bill is such that the Authority should have the power to revoke the licence without recourse to a court of law. All possible avenues for rectifying the situation should be explored before resorting to court action to revoke a licence.

Setting and approval of tariffs

Clauses 28)(1) and 28(2)
As commented previously, SACOB does not support the provision that the Authority should set tariffs. Likewise, SACOB does not believe that a fixed formula should be followed in setting tariffs, as this would defeat the objective of introducing competition into the pipelines industry.

Chapter 4

General Provisions

Clause 29(1)(b)
SACOB queries whether each of the activities mentioned should form part of the activities of the Authority. For example, it should not inspect equipment or machinery, but could confirm that a factories inspector has done so. Likewise, it should not inspect an account, but could look at audited statements.

Regulations and rules

Clause 33
SACOB submits that in order to give certainty, the Minister must make regulations and rules according to which applications for licences have to lodged and adjudicated, and which govern the operations of the Authority. This should not be a discretionary power.

4 CONCLUSION

SACOB recognizes that the intention of the proposed legislation is to Introduce competition into the petroleum pipelines industry, and welcomes this as an important step in the process towards the deregulation of the liquid fuels industry. However, SACOB detects considerable state control in the proposals. SACOB trusts that the members of the Portfolio Committee will consider its comments in a positive light, as they are submitted in a spirit of ensuring that the legislation, once promulgated, will indeed achieve the objectives as contained in the preamble.

SACOB is willing to participate in discussions with the department to ensure that implementation takes place in a manner that is beneficial to South Africa as a whole.