Henry Nhlanhla Gumede

1
Petroleum Products Amendment Bill Petroleum
Pipelines Bill Presentation to the National
Council of Provinces 22th September 2003

• Henry Nhlanhla Gumede
• Chief Director Hydrocarbons
• 012 317 9694
• nhlanhla_at_mepta.pwv.gov.za

2
Introduction

• Liquid fuels sector major policy thrust
• Managed liberalisation with minimal dislocation
• Maintain regulatory system - with improvements -
  until removed
• Re/deregulation after milestones have been met
• Managed liberalisation
• Protect small business and jobs
• Elevate historically disadvantaged
• Lower intermediate input costs (energy) to create
  low-cost platform for economic development esp.
  in industrial heartland
• Reduce monopoly rents in natural monopolies
• Energy Policy White Paper Dec 1998

3
Introduction

• Governments Approach
• Competition between and within energy carriers
• Protect countrys strategic interests
• Appropriate rules of the game for investors
• Facilitate investment projects
• Regulation only where and to extent necessary

4
Introduction

• Liquid fuels sector managed liberalisation -
  phases and milestones
• Phase One Achieve Milestones, Maintain
  regulation
• Phase Two Re/Deregulation
• Phase Three Phase Three - Monitoring and
  corrective action

5
The Petroleum Pipelines Bill
6
Introduction

• The Bill seeks to untangle what has come to be
  known as the Gordian Knot

Natref Neutrality
Location advantage
Gas agreement with Sasol
Gordian Knot
On-railing agreements with Spoornet
Sasol Upliftment agreement
Zone and Service differentials
Fungibility and delivery of specific molecule
Liquid Fuels Price control mechanism
7
Introduction

• Government considerations
• Pipeline network strategic importance e.g.
  Natref fire
• Most pipelines currently state-owned
• Additional capacity investment needed - /-
  2007
• Concerns been raised about derivation of pipeline
  and storage tariffs
• Need for transparency in tariff formulation

8
Consultation

• A number of stakeholders were consulted during
  the formulation of the Bill. Written submissions
  from 8 parties were received
• Cosatu
• Engen (Coastal refiners)
• Groundwork (Environmental NGO network)
• Petronet
• Sasol
• SA Institute of Civil Engineers
• Totalfinaelf
• Umhaba Estates

9
Scope and scale of the Bill

• Purpose of the Bill
• Establish a national regulatory framework
• Establish a Regulator as custodian enforcer of
  regulatory framework
• Provide for issuing of licenses
• Scope of Bill
• Crude oil
• Petroleum products
• Pipelines, storage facilities, off-loading
  facilities
• Excludes production facilities

10
Objects of the Bill

• Promote competition in the construction and
  operation of petroleum pipelines,loading
  facilities and storage facilities
• Promote the efficient, effective, sustainable and
  orderly development, operation and use of
  petroleum pipelines, loading facilities and
  storage facilities
• Ensure the safe, efficient, economic and
  environmentally responsible transport, loading
  and storage of petroleum
• Promote equitable access to petroleum pipelines,
  loading facilities and storage facilities
• Facilitate investment in the petroleum pipeline
  industry
• Provide for the security of petroleum pipelines
  and related infrastructure
• Promote companies in the petroleum pipeline
  industry that are owned or controlled by HDSAs,
  by licence conditions that enable their
  competitiveness
• Promote the development of competitive markets
  for petroleum products
• Promote access to affordable petroleum products
• Ensure an appropriate supply of petroleum to meet
  market requirements

11
The Regulator

• The Bill sets up an independent regulator (legal
  person). The functions of the regulator are to
• Issue licences for
• the construction and conversion of petroleum
  pipelines, loading facilities and storage
  facilities
• the operation of petroleum pipelines, loading
  facilities and storage facilities
• Gather and store information on construction,
  conversion and operation
• Undertake investigations and enquiries into the
  activities of licensees
• Act as mediator or arbitrator
• Set or approve tariffs and charges in the manner
  prescribed by regulation
• Monitor and take appropriate action, to ensure
  access in a non-discriminatory, fair and
  transparent manner
• Expropriate land or any right on behalf of
  licensees
• Promote competition in the petroleum pipeline
  industry
• Take decisions that are not at variance with
  published Government policy

12
The Regulator

• Composition of the regulator
• 5 members full time
• Appointed by Minister for 4 year term, renewable
• Limitations
• RSA citizens solvent no convictions
• Conflict of interest disclosure
• To be phased into a Single Energy Regulator
• Qualifications
• Relevant experience
• Impartial objective
• Balance between continuity capacity building

13
The Regulator

• Meetings of the regulator
• Procedures prescribed by regulator
• Open to public unless confidential, proprietary
  or commercially sensitive information discussed
• Decisions to be reduced to writing
• Record of proceedings
• The Regulator - Duties
• Act in justifiable transparent manner
• Not act in own interests
• Act independently of undue influence or
  instruction
• Act in a manner required expected from holder
  of public office

14
The Regulator

• Decisions of the regulator are bound by a number
  of principles
• Procedurally fair
• Based on facts evidence
• Legally consistent
• In public interest
• Written
• Explained
• Appeals to court having jurisdiction

15
The Regulator

• The regulator will be supported by a competent
  staff
• CEO professional/administrative support staff
• CEO may be person employed by another energy
  sector regulatory authority
• Support to be common to eventual single
  regulatory authority

16
The Regulator

• The regulator will be funded from a number of
  sources
• Appropriation from national revenue
• Levies by separate legislation (has been drafted)
• Fees earned e.g. dispute resolution
• Accounts to be audited by Auditor General

17
Licensing

• Issuing of Licenses
• Applications advertised
• Objections within 30 days
• Decision period 60 days after replies to
  objections
• Separate licenses for each activity
• Existing activities must apply and get licenses

18
Licensing

• Authority may impose licence conditions within
  the following framework (1)
• A licensee must carry out the construction or
  operations activities for which the licence is
  granted
• Promote historically disadvantaged South Africans
• Provide for an appropriate supply of products to
  meet market requirements
• Licensees must provide the prescribed information
  to the Authority on the commercial arrangements
  regarding the participation of HDSAs
• Loading, pipeline and storage activities of
  vertically integrated companies may be required
  to be managed separately, with no
  cross-subsidisation
• A pipeline may be licensed for either crude oil
  or petroleum products, or both
• Sufficient pipeline capacity availed for crude
  oil to enable uninterrupted operation of Natref,
  at its current normal operating capacity
• Shippers must have access to petroleum pipelines
  in proportion to their needs and within the
  commercially reasonable constraints

19
Licensing

• Authority may impose licence conditions within
  the following framework (2)
• Parties allowed to negotiate changes with
  pipeline licensees in the routing, size and
  capacity of proposed petroleum pipelines
• Licensees not obliged to incur any additional
  expenditure to provide the changes and the total
  cost must be shared equitably between parties
• Licensees must allow interconnections with the
  facilities of other licensees
• The interconnection is technically feasible
• Costs are borne by person requesting the
  interconnection
• 3rd parties must have access to loading
  facilities with the capacity in proportion to
  their needs, subject to an appropriate payment
• 3rd parties must have access on commercially
  reasonable terms to uncommitted capacity in
  storage facilities
• On provision that an applicant may elect to give
  users access in proportion to their needs
• Parties may negotiate with storage licensees for
  changes in the capacity of storage facilities

20
Licensing

• Authority may impose licence conditions within
  the following framework (3)
• Tariffs for petroleum pipelines set by the
  Authority
• Tariffs for loading facilities and storage
  facilities approved by Authority
• Licensed loading facilities, petroleum pipelines
  or storage facilities in a fully operational
  condition
• The time period within which pipelines
  facilities must become operational fixed
• Licensees to provide information necessary for
  the Authority to perform its functions
• Standards of construction and operation approved
  by the Authority include HSE standards required
  by the Authority,
• Licensees must
• Submit to the Authority annually an emergency
  plan for implementation
• Train the appropriate operating and maintenance
  employees
• Establish liaison with the appropriate emergency
  response officials
• Pipeline licensees to have a plan for reviewing
  changes in conditions affecting the integrity and
  safety of their pipelines, including periodic
  patrolling
• Licensees to establish and maintain liaison with
  local authorities that issue permissions for
  excavations

21
Licensing

• Other issues that will be considered
• Non-discrimination term amendment, revocation
• Regulator can amend licenses
• Regulator arbitration on request
• Contraventions
• Suspend or revoke
• Fines up to R2 mill / day
• Appeals to high Court

22
Other provisions

• Other provisions
• Entry, inspection information gathering by
  Regulator
• Voluntary resolution of disputes
• Compulsory resolution of disputes
• Expropriation rights of way

23
Regulations

• Made by Minister after consulting Regulator
  inviting public comment
• Procedures
• Record keeping
• Forms
• Publishing of information
• Methodology to be used by Regulator
• Land rehabilitation

24
General

• Prohibition on agreements contrary to Act
• Short Title Petroleum Pipelines Act

25
Petroleum Products Amendment Bill
26
Introduction

• Although there were a number of conflicting
  interests, the formulation of the Bill benefited
  from an extensive interaction with key
  stakeholders
• Most submissions very helpful
• Background and context are very important
• An amendment Bill
• Competition issues public interest prevails for
  the transitional phase
• Ministerial discretion dynamic and complex
  industry
• The drafting complicated by current negotiations
  on main supply agreement

27
The Challenges in the Petroleum sector

• The Bill has been configured in a manner that
  addresses these challenges

Challenge
Response

• Transitional licence conditions
• Regulate key economic inputs
• Regulated system
• Regulated standards/specs
• Licensing Petroleum Pipelines
• Fuel standards regulation
• HUB Manufacturing licensing
• Licensing/Full service
• Regulate for efficiency (Feebate)
• Vertical integration/Licensing

• Liberalization and competition
• Internationally competitive
• Synfuels industry
• Supply of quality products
• Efficient network
• Safety and environment
• Investments - Petrochemicals
• HDSA participation preserve jobs
• Energy Efficiency
• SMME

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Objects of the Bill

• The primary aim for amending this Act was to
  modernise it
• The Petroleum Products Act, 1977 is outdated
• It is no longer in line with the socio-political
  and economic dynamics pertaining to the liquid
  fuels sector
• The PPAB will ensure that governance of the
  liquid fuels sector is in line with Governments
  policy objectives
• It gives effect to policy issues identified the
  Energy White Paper
• It provides for a licensing dispensation that
  includes refiners, wholesalers and retailers
  petroleum
• Give effect to the Charter through licensing
• Allow for provision information

29
Section 2 amendments, extension of regulatory
powers

• The Minister may
• Prescribe conditions under which the selling or
  buying of petroleum products other than in
  accordance with the prescribed, maximum or
  minimum price may take place and oblige any
  person to publish the prices at which petroleum
  products are available for sale
• Make regulations for the purposes of ensuring a
  saving in, and the efficient and safe use of,
  petroleum products
• Prescribe the quantities of crude oil or
  petroleum products to be maintained by any person
  

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Section 2A Prohibition Of Certain Activities

• The Bill prohibits a number of activities
• No person may without a appropriate licence hold
  or develop a site,manufacture petroleum products
  or conduct the business of wholesaler or retailer
• No person may make use of a business practice,
  method of trading, agreement, arrangement, scheme
  or understanding that is aimed at or would result
  in
• Whereby a wholesale oil company may own and
  operate a service station(maintenance of small
  businesses)
• Except for training
• Excludes LPG paraffin
• The sale of petroleum products using a system of
  self-service by consumers

31
Section 2B Licensing Objectives

• The Controller of Petroleum Products must issue
  licences. In considering the issuing of any
  licences, the Controller shall give effect to the
  provisions of section 2C and the following
  objectives
• Promoting an efficient manufacturing, wholesaling
  and retailing petroleum industry
• Facilitating an environment conducive to
  efficient and commercially justifiable investment
• The creation of employment opportunities and the
  development of small businesses in the petroleum
  sector
• Ensuring countrywide availability of petroleum
  products at competitive prices
• Promoting access to affordable petroleum products
  by low-income consumers for household use.

32
Section 2C Licensing Objectives

• Transformation of South African petroleum and
  liquid fuels industry
• In considering licence applications in terms of
  this Act, the Controller of Petroleum Products
  shall
• Promote the advancement of historically
  disadvantaged South Africans
• Give effect to the Charter
• The Controller of Petroleum Products may require
  any category of licence holder to furnish
  information, as prescribed, in respect of the
  implementation of the Charter

33
Section 2D Transitional licensing provisions

• The Act makes provisions for existing businesses
• The provides deems any person to a holder of a
  licence who, at the time of commencement of the
  Petroleum Products Amendment Act, 2003
• Holds and is in the process of developing a site
• manufactures or wholesales petroleum products, or
  retails
• The person shall, within a period of six months
  apply for an appropriate licence
• The licence shall lapse if the person fails to
  apply for a licence within the stipulated period
• The applicant shall, on application,be entitled
  to a licence if the applicant is in compliance
  with all national, provincial and local
  government legal requirements, that are in force
  immediately prior to the commencement of this Act
• Such applicant subject to the general conditions
  of a licence but not financial security
  requirement prescribed by regulation

34
Section 2E - System for allocation supply of
site licenses

• Framework for allocation of site licences
• Intend an optimum number of efficient sites
• Intend equilibrium all participants
• Promote efficient and productive retail
  facilities by
• Cap on number of sites
• Link total sites to total consumption
• Wholesalers can trade obligations to retailers
• Supplies (on spec.) give preference to products
  made from
• Coal, natural gas, vegetable matter
• Other raw materials
• Link new licenses to terminators or transfers

35
Section 2E - System for allocation supply of
site licenses

• The system for allocation and supply of site
  licences is not intended for certain products
• For prescribed products
• Minister to review efficacy of the system
• Against objectives from time to time
• Revise system if necessary

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Licensing in general

• For the purposes of accountability, the applicant
  must be linked to the activity for which the
  licence is intended
• Any person who apply for a licence must
• Manufacturing be property owner or with their
  permission
• Site property owner
• Wholesale retail be business owner

37
Section 2F - System for allocation of licences
for LPG and Paraffin

• Minister may prescribe licensing systems for the
  wholesaling and retailing of liquefied petroleum
  gas or paraffin
• Additional objective promote access to
  affordable petroleum products by low income
  consumers for household use
• New section Minister may regulatesystem for
  LPG/Paraffin licensing targeted at poverty
  alleviation for low income households
• In designated areas may restrict to one or more
  retailers

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Section 4 - Controller of Petroleum Products

• The Minister
• Shall appoint any person in the public service as
  Controller of Petroleum Products
• May appoint persons in the public service as
  regional controllers of petroleum products or as
  inspectors for the Republic
• May, in consultation with the Minister of Finance
  determine, appoint or authorise any other person
  or person belonging to any other category of
  persons to act as regional controller of
  petroleum products or as inspector

39
Section 12 - Offences and Penalties

• Any person who contravenes a provision of the
  Act, shall be guilty of an offence
• Be liable on conviction to a fine
• not exceeding R1 000 000
• Imprisonment for a period not exceeding ten years
• Both such fine and such imprisonment
• Compliance may result in a directive to absolve
  from criminal liability

40
Section 12A - Appeal

• Any person directly affected by a decision of the
  Controller of Petroleum Products may, appeal to
  the Minister against such decision
• An appeal shall be lodged within 60 days after
  such decision has been made known to the affected
  person
• The appeal shall be accompanied by
• A written explanation setting out the nature of
  the appeal
• Any documentary evidence upon which the appeal is
  based
• The Minister shall consider the appeal, and shall
  give his or her decision thereon, together with
  written reasons therefor

41
Section 12B Arbitration

• The Controller of Petroleum Products may, on
  request by a retailer or by a wholesaler,
  alleging an unfair contractual practice, require
  that the parties submit the matter to arbitration
• Arbitrator to make awards to correct unfair and
  unreasonable contractual practices
• Determine if allegations frivolous or
  capricious compensatory awards
• Orders, including costs, final and binding

42
Section 12C - Regulations

• The Minister may make regulations regarding
• Conditions or restrictions in respect of licences
  
• Conditions relating to the advancement of HDSAs
• The obligation of a licence holder to keep
  records and to furnish particular information
• The form and manner of an application for a
  license
• Prohibiting a business practice which conflicts
  with any licensing objective
• The records and information to be kept by the
  Controller of Petroleum Products
• The continuity of supply of petroleum products by
  licensees under normal operating conditions, and
  in cases of potential or actual emergency
• The specifications and standards of petroleum
  products
• The prohibition of the blending or mixing of
  different petroleum products
• The rehabilitation of land used in connection
  with a licensed activity

43
Fuel Specifications and Standards

• In the case of fuel specifications, the Minister
  shall, prior to promulgating any regulation
  contemplated in subsection (1)(e)
• Invite public comment thereon by publishing it in
  the Gazette
• Allow a period of not less than two months for
  the submission of public comment
• duly consider such comments

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Thank you