Petroleum Pipelines Bill

June 2003

SAPIA supports regulation of the petroleum pipelines industry

Industry is of vital national importance Key to determining commercial success of all industry players Key to enabling BEE participation in industry

BUT Is the duplication of cost and infrastructure justified having

regard to government’s intention to harmonise energy regulation legislation in less than a year?

Wide regulatory power of Minister derogates from Parliament’s legislative authority

Vague ambit and overlapping jurisdictions cause for concern

Ambit of Bill not clear pipeline definition is currently too wide and could even include pipelines integral to

the manufacturing process within a party’s plant.

Suggested change: should be defined as pipelines utilised for the sole or

primary purpose of providing a service for profit, and specifically exclude pipelines

that are integral to the manufacturing process or which are within or between

storage facilities falling outside the ambit of the Act.

loading facility clearly refers to SBM, but it is not clear precisely which other

facilities are covered. SBM and certain facilities in harbours are also covered by

National Ports Authority Bill which creates a problem of duplicating licensing

requirements/ regulatory jurisdiction

Suggested change: clarify definition and ensure that any regulatory

requirements are covered in only one piece of legislation.

Ambit of Bill not clear (continued)

loading facility (continued)

Sapia’s interpretation, which needs to be confirmed, is that the present definition

covers the SBM, SPM, connecting pipelines to the coast and such common

facilities in harbours as are utilised for the loading or offloading of crude and

petroleum product tankers

• Storage facility definition also does not make clear precisely which industry facilities

are and are not covered

petroleum products definition is unnecessarily broad and could cover gas, LPG,

chemical feedstocks, solvents, lubricant base oils etc.

Suggested change: amend definition to include only those liquid hydrocarbon fuels

handled in the facilities falling within the ambit of the Act.

price is not defined, but used several times eg s 16(2)(e), s 21, s 28 (2)(a) and s 33(1)(f)

Suggested change: delete price from Bill, as Regulator does not set prices

Which legislation applies ? Presently there are a number of draft bills that together apply to all the

manufacturing, distribution and marketing processes of industry

Petroleum Products Amendment Act

National Ports Authority Bill

Petroleum Pipelines Bill

In several instances the different bills appear to attempt to regulate the same

facilities in different ways

Plants and facilities are potentially subject to different pieces of legislation

with overlapping jurisdiction which makes compliance extremely difficult

Multitude of regulators, with differing objectives, having equal say over vital

part of business does not bode well for investment climate

Is the Authority independent? Members are appointed by Minister Members may be removed by Minister Members execute regulations promulgated by Minister Members are obligated to follow published Government policy

Suggested changes:Delete provision requiring Authority to follow Government policy and substitute with obligation on members to

pursue objectives of ActIncorporate matters for regulation in Act similar to international regulatory provisions to ensure investor

certainty and scrutiny of Parliamentary process Provisions for donations from persons to the Authority creates potential conflicts of interest and

derogates from Authority’s independence Parliament’s delegation of legislative power to Minister

Regulations will prescribe methodology for price-setting Regulations will prescribe manner in which third-party access is obtained Regulations will prescribe commercial terms for use of facilities

These are all crucial commercial issues which are not defined in the Bill and therefore removed from the scrutiny of the Parliamentary process

Does the Bill promote investment? Investor certainty

Non definition of regulated tariff-setting methodology makes evaluation of investments impossible

Regulated methodology must be stable, continuous and certain in order to ensure sound investment decisions

(must be contained in the Act)

Non-transferability of licence detracts from value of pipeline asset

Variation of licence conditions by rule on application by third party creates uncertainty as to consistent returns

Other issues

Exorbitant fines of R2 million per day

Concurrent jurisdiction

Petroleum Products Amendment Act

National Ports Authority Bill,

Environmental legislation

Expropriation

The investor has to comply with a raft of legislation and regulation with concurrent jurisdictions possibly

prescribing differing requirements – no upfront certainty of regulatory regime applicable to investment

Licence conditions

S20(1) (c): Requirement to manage loading, pipeline and storage

facilities with separate accounts and data is onerous and impractical

to the extent it applies to oil industry, the normal nature of which is

integration across the value chain

S20(1) (e): Uncommitted capacity in pipelines is not clearly defined

and it is suggested that any uncommitted capacity should be

determined by the Service Provider and confirmed by the Authority.

S20(1)(f): In applying the common carrier principle, there should be

adequate provisions attached to prevent disruptions of existing

supplies

Licence conditions (continued)

S20(1)(x) Any HSE standards incorporated in licensing conditions

should merely refer to existing legislation with which we have to

comply and should not impose additional requirements.

S16(2)(c) Licence applicants must have financial, technical and

operational experience.

S35(1) Applications should be made within six months after the

appointment of the Regulator, not the commencement of the Act.

Application of Act

Sapia interprets the wording of the Bill as excluding most oil

company owned facilities from its ambit, but requests that

this understanding be confirmed by the drafters’ making

clear precisely which oil company assets are in fact

included.