1 DEPARTMENT OF MINERALS AND ENERGY Petroleum Pipelines Bill Feedback from the DME Feedback from the DME 11 June 2003 Minerals and Energy for Development and Prosperity

2 General Remarks Many constructive and appreciated Usual differences of degree between legislation and regulation SAPIA, AMEF & Competition Commission: “common carrier” – accepted. Minerals and Energy for Prosperity and Development

3 Single Energy Regulator Implementation of plan about to commence. First step – advertise for 5 full time regulators. Minerals and Energy for Prosperity and Development

4 Restructuring / Privatisation Act neutral in respect of restructuring/ ownership of existing pipelines Nedlac Act not applicable. Minerals and Energy for Prosperity and Development

5 Governance Constitution 33(3)(c): promote an efficient administration 41(1)(e) : respect ….powers and functions in other spheres Economic Environment Health & Safety Pet Pipelines Act NEPA Occ H & S Act DME DACST Dept of Labour

6 Other concerns..”not at variance with government policy”. Balance between inappropriate influence by government and Authority frustrating the political will. IEA independence – shield regualtors from short term political influence.

7 Inland Refinery (Natref) Broad Objectives: –Move away from distortions of apartheid economics to normal market economics –Move away from hidden subsidies to rational, transparent regulation Minerals and Energy for Prosperity and Development

8 Inland Refinery (Natref) Natref’s Proposal: Entrench in the statutes an apartheid economics subsidy, –to be paid by inland motorists Minerals and Energy for Prosperity and Development

9 Inland Refinery (Natref) NOTE: Origional decision: –not commercial economics, –not based in law – hidden subsidy Investment subsidised by tax payers and motorists for about 40 years. Case for subsidy not proven. Hidden background: tough negotiations between oil companies over end of Sasol supply agreement

10 Inland Refinery (Natref) OPTIONS Reinforce & perpetuate apartheid economics and entrench in statute? OR Ignore completely? OR Recognise (declining) strategic benefit to industrial heartland of continued supply of crude oil & need for greater competition in inland markets?

11 Inland Refinery (Natref) CONCLUSION: Separate notions: supply and subsidy. Definitely exclude subsidy from Act. Authority to guarantee crude oil supply at commercial rates for existing refining capacity for so long as continues to operate. If a case for subsidy can be proven apply to Government and it will decide if it wants to and who should pay. If so, there are other legal instruments & mechanisms

12 Definitions Petroleum products – tighten Storage – trying to open up a tightly held market – amend to clarify for bulk & include auxiliary equipment. Exclude for own use, for retailing, agricultural co-ops, during road, rail, sea and air transport. Petroleum pipelines: Exclude –premises of manufactures & storers for own use –premises of retailers & agricultural co-ops Minerals and Energy for Prosperity and Development

13 Other Multi product pipelines: Accepted but crude supply for Natref at current level. Common carrier – accepted for pipelines, loading and an option for storage facilities –Distinction between state and private pipelines – falls away –Existing contracts 5 years – falls away (supply guaranteed) –Inclusion of storage facilities implies incentive to independent storers and disincentive to vertically integrated oil companies. Minerals and Energy for Prosperity and Development

14 Other Methodology for setting tariffs – remove from regulations, provide guidance in the Bill & leave specific methodolgy to Authority Many other suggested improvements accepted. Minerals and Energy for Prosperity and Development