1. PETROLEUM PIPELINES BILL MANNY SINGH Director : Petroleum Policy Department of Minerals and Energy 9 TH June 2003 Presentation to the NCOP

2. WHITE PAPER ON ENERGY POLICY (December 1998) “Government will promote competition in the transport of liquid fuels.” “The petroleum regulatory regime will inhibit monopolistic abuse of pipelines and storage facilities. Pipelines will be required to provide non-discriminatory open access to uncommitted capacity, transparency of tariffs, and disclosure of cost and pricing information to a suitable authority.”

3. BACKGROUND TO BILL Why regulate now?  Strategic importance to RSA  Supply to Industrial heartland  Reduce monopoly rents in natural monopolies  Competition between and within carriers  “Rules of the game” for Investors  Regulation where necessary  Govt has duty to ensure accessibility to infrastructure

4. Governments Consideration  Strategic importance eg. Natref Fire  Almost all pipelines State owned  Additional capacity/investment required by 2007  Not clear if tariffs market related  Transparency in tariff composition

5. Government process this far….  IEA survey 1996  WP energy Policy 1998  Consultants appointed 2000  Three stakeholder workshops  Published for Comment  Submissions/presentations to PPC  Now in final stages of finalisation

6. Submissions Received at PPC  COSATU/CEPPWAWU  Coastal refineries  Inland Refineries  Groundwork  Petronent  Sasol  TOSACO  Total FinaElf  Sacob  SAPIA  Competition Commission  Bp/Caltex/Engen/Shell  AMEF

7. Objectives of Bill  Promote Competition  Promote Efficient,effective,sustainable and orderly development

8. Objectives continued…  Equitable access  Safe,efficient,economic and environmentally responsible  Facilitate investment  Provide for security of pipelines and related infrastructure  BEE  Promote development of competitive markets  Promote access to affordable petroleum products

9. KEY ISSUES Establishment of Regulator Licensing dispensation Common Carrier principal

10. Scope  Crude oil  Petroleum Products  Pipelines,storage facilities, off- loading facilities

11. Stakeholder Submissions  General jurisdiction  Transport neutrality  Implications for BEE  Licensing regime  Tariff methodology  Independence of Regulator  HSE  Definitional querries  Multi-purpose use

12. NON-COMPETITIVE SEGMENTS Price control  Natural monopoly  Efficiency ( by pricing ) Rate of return  Book value versus replacement value Price cap e.g.Argentina  Adjusted for inflation 6 monthly  Reviewed every 5 years

13. GENERAL PRINCIPLES OF REGULATION Rule of law - appeal to the judiciary Transparency – consultation & accessibility Neutrality Predictability and consistency Independence – adequate skills, resources, information Accountability – especially for general management

14. REGULATORY INDEPENDENCE Ensures transparency and a level playing field Regulatory capture:  By stakeholders (particularly monopolies), problem of information, selection, no financial interests or revolving door with industry  By politician – must comply with government policy (not instructions), irrevocable mandate

15. INDEPENDENCE SAFEGUARDS Fixed periods of appointment No conflicts of interest – financial or revolving door Stable and reliable funding Competitive salaries Transparent decision making process Review by courts

16. REGULATORS’ QUALIFICATIONS “Integrity, competence, the ability to exercise independent judgement, and the strength to resist pressure are indispensable to regulators, while technical experience in the regulated industry is generally considered to be of secondary importance.” (Regulatory Institutions – IEA)

17. AIMS OF REGULATORS Transparency and efficiency; Tariff mechanisms; Ensuring non-discriminatory access; Fostering competition; Encouraging the growth of transport capacity and interconnections; Promoting adequate infrastructure investment; Contributing to long-term security of supply.

18. COMMON CARRIERS A pipeline company obliged by law to provide service to all interested parties without discrimination to the limit of the pipeline’s capacity. Once the pipeline’s capacity is reached the service must be offered to all shippers in proportion to the amounts tendered for shipment.

19. OVER-BOOKING! In Canada the 3 700 km Inter-provincial Pipeline (IPL) carries two thirds of western Canada’s oil production to eastern Canada April 1995 shippers’ nominations were twice the oil production of western Canada Penalties of $2.70/barrel imposed Penalty funds used to lower overall tariffs, thus rewarding responsible nominators