Transnet Pipelines2013/14 tariff Decision

Presentation to Parliamentary Portfolio Committee on Energy

27th March 2013

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• Transnet has a network of 32 Pipelines

• Approx 3,800km of pipelines

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Transnet NMPP project

• Transnet: 24” Durban to Gauteng + other– Running more than 3 years late. Not complete yet– Scheduled completion Q3 2010 – latest Q4 2013– Cost escalations:

• Initial estimate R9.5bn• 2007 R 11 bn• 2009 R 12.6 bn• 2010 R 15.4 bn• 2010 R 23.4 bn • next ????

• NMPP = big influence on tariffs• “User pays” policy - motorists carry the bigger burden.

Budget speech – no mention of further help• Minister of Public Enterprises commissioned

investigation. • NERSA starting a prudency review of NMPP

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Public consultation on tariffs

EVENT DATE

Application published for public comment

17 Sep 2012

Draft tariff decision published for public comment

03 Dec 2012

Consultations with Government Departments

Nov - Jan

Public Hearing 14 Jan 2013

NERSA decision 13 March 2013

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Decision: Allowable Revenue

• Transnet application: + 22.6%

• NERSA: + 8.5%

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Notable “issues” in this application1. Single year tariff application instead of multi-

year

2. Large clawback

3. Decline in volumes – total network volumes decline

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2013/14 Application vs. NERSA

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TransnetApplication

R million/%

NERSA decision

R million / %

Regulatory Asset Base 19,155.80 19,900.35

Weighted Average Cost of Cap 5.47% 5.79%

WACC ReturnOperational ExpensesDepreciationF-factorClawbackClawback defermentTax allowance

1,047.501,007.30

453.70466.10

(315.43)

498.40

1,152.77913.67483.97

0.00(453.51)

226.76471.96

Allowable Revenue (AR) 3,157.57 2,795.61

% increase in AR 22.58% 8.53%

Debt ratioEBIT/ Interest cover

55.82%2.00

40.52%2.05

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Decision 1.4 c/l

Impact on inland petrol price ULP 93

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April 2013 (est.)Petrol ULP

93 (c/l)

Basic Fuels Price 773.590Incremental Inland Transport Recovery Cost 3.000

Wholesale Margin 58.000

Petroeum Products Levy 0.150

Transport Cost 26.800

Delivery Cost 25.500

Retail Margin 99.200Demand side management levy 0.000

Slate Levy 10.960

RAF 96.000

Customs &excise 4.000

Fuel tax 220.0

Rounding 0.3

Retail price 1317.500

%

International component + refining margin

59

Taxes & Levies

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Administered prices

16 100

Petrol price structure

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Cost drivers:•Accident rate•Admin costs

Small businessJob creation 26c/l

Pipeline Volumes• Lower volumes = higher tariffs = higher

inland fuel prices

• NERSA concerned Transnet annual report for 2011/12: 7.1% reduction in total volumes

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200

400

600

800

1,000

1,200

1,400

1,600

300

350

400

450

500

550

600

Lit

res

Transnet Pipeline Volumes trended monthlyRefined Dbn - Gauteg

Crude Inland Network Total System

Decline in volumes

Decline in volumes

Possible reasons:

1. Price regulation:a) Incremental Inland Transport Cost Recovery Levy;

b) Revised service differential in petrol price regulation - unintended consequence;

2.Oil companies: changing procurement and marketing strategies;

3.Market/Transnet: Increased demand for niche products not transported in pipelines;

4.Economy: lower/flat growth in fuel demand.

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• NERSA collaborating with DoE to see what, if anything, can be done

• Transnet forecast 4.6% increase in volumes in 2013/14

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Thank You

18www.nersa.org.za