henry nhlanhla gumede chief director – hydrocarbons 012 317 9694 [email protected]

Min

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Henry Nhlanhla GumedeChief Director – Hydrocarbons012 317 9694

[email protected]

Petroleum Products Amendment Bill & Petroleum Pipelines Bill

Presentation to the National Council of Provinces

7th October 2003

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The Petroleum Pipelines Bill

Hydrocarbons Chief Directorate3

Department of Minerals and Energy

Minerals and Energy for Prosperity and Development

Introduction

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

Sasol Upliftment agreement

Gordian Knot

Liquid Fuels Price control mechanism

Gas agreement with Sasol

Fungibility and delivery of

specific molecule

On-railing agreements with

Spoornet

“Natref Neutrality”

“Location advantage”

Zone and Service differentials




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




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




Licensing

Authority may impose licence conditions within the following framework (1)

• Promote historically disadvantaged South Africans

• 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 in proportion to their needs and within the commercially reasonable constraints




Licensing

Authority may impose licence conditions within the following framework (2)

• Tariffs for petroleum pipelines set by the Authority

• Tariffs for loading facilities and storage facilities approved by Authority

• 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




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

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Petroleum Products Amendment Bill




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 Government’s 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




Section 2A Prohibition Of Certain ActivitiesThe Bill prohibits a number of activities

• Holding or develop a site, manufacturing, wholesaling, retailing petroleum products without a licence

• Vertical integration between wholesaling and retailing

Excludes LPG & paraffin & training sites Wholesalers can still own sites

• Self-service by consumers




Section 2B Licensing Objectives

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




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

• Licence holders to furnish information, in respect of the implementation of the Charter




Section 2D Transitional licensing provisions The Act makes provisions for existing businesses

• The Bill deems any person to be 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 or retails petroleum

products• The person shall, within a period of six months

apply for an appropriate licence

• 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




Section 2E - “System” for allocation & supply of site licenses Framework for allocation of site licences

• Intention: an optimum number of efficient sites & achieve equilibrium amongst 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




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 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




Concerns raised by oil companies

Concerns have been raised with respect to intentions of section 2B(6)

• (6) It shall be a condition of a wholesale licence that the licensee must purchase and sell petroleum products—

(a) manufactured from coal, natural gas or vegetable matter;

(b) that meet prescribed specifications and standards where applicable;

(c) when such petroleum products are available; and

(d) at mutually acceptable prices, subject to section 2 of this Act;

before purchasing and selling petroleum products manufactured from other raw materials




Concerns raised by oil companies

Concerns have been raised with respect of section 2E(3)(f)

• (3) A system contemplated in subsection (1)—

(f) may specify that petroleum products which—

o (i) are manufactured from coal, natural gas or vegetable matter,

o when available;o (ii) meet prescribed specifications and

standards, where applicable;o (iii) are at mutually acceptable prices, subject

to section 2 of this Act• Does this provision apply to existing sites?….No, for only application for new sites




Department's proposal

(6) It shall be a condition of a manufacturing licence or a wholesale licence, as the case may be, that the licensee must purchase or sell, or purchase and sell, petroleum products—

(a) manufactured from coal, natural gas or vegetable matter;

(b) that meet prescribed specifications and standards where applicable; and

(c) when such petroleum products are available in South Africa ;

before purchasing or selling, or purchasing and selling petroleum products manufactured from other raw materials;




Department’s proposal

Section 2E(3)(f)

(f) may specify petroleum products which-

(i) are manufactured from coal, natural gas or vegetable matter when available in South Africa;

(ii) meet prescribed specifications and standards, where applicable;

must be supplied to a licensed retailer before the supply of prescribed petroleum products manufactured from other raw materials may be supplied;

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Thank you

henry nhlanhla gumede chief director – hydrocarbons 012 317 9694 [email protected]

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