SA Pipeline Tariffs

THE National Energy Regulator of SA (Nersa) has turned down Transnet’s request for an 82,5% pipeline tariff increase. Instead, it cut the utility’s existing tariff 10,38% — the first time it has reduced an existing tariff. This comes as a blow to Transnet’s plans to build a new R12,7bn multiproduct pipeline from Durban to Gauteng. The utility had hoped to recover some of the costs of construction of the pipeline from higher tariffs.

BP Southern Africa, a fierce opponent of Transnet’s application, welcomed the move yesterday. CE Sipho Maseko said: “In taking its decision, the regulator has recognised the legal compliance and anticompetitive effects of Transnet’s proposed tariff increase.

“Any funding mechanism must take into account macroeconomic effects such as the impact on employment and inflation.” BP and Chevron SA have argued that steep increase would commercially benefit Sasol and Total, which are owners of an inland refinery.

Nersa said that the single largest factor contributing to its decision was that the law did not allow Nersa to set tariffs for existing pipelines to enable a licensee to recover the costs of pipelines which were under construction. Transnet said it was in talks with the government about “an alternative funding mechanism for the portion of the (new multiproduct petroleum pipeline) that was responsible for ensuring security of fuel supply to the inland market.

Transnet took a swipe at the Nersa decision. “The Nersa determination, which results in an aggregate 10% decrease in tariffs, appears to be based on an inconsistent application of the tariff methodology compared to the previous year. “This, together with a commercially unacceptably low return on capital employed, will not enable sustainable pipeline operations and needs urgent review”.

Transnet said it was assessing the decision, “and will take such action as is appropriate once the review has been completed”. Rod Crompton, head of petroleum pipelines regulation at Nersa, said Transnet was well within its rights to apply for the tariff increase “but it is our duty to take decisions that are in the public interest”.

At recent Nersa hearings, BP’s legal representative, David Unterhalter, urged Nersa to dismiss Transnet’s application because Transnet had highlighted the planned new pipeline as the motivation for the request for the increase. Unterhalter argued that the application was therefore based on an “irrational foundation”.

Nersa said the new tariffs would apply from tomorrow. As April, the first month of Transnet’s financial year, had already passed, the reduction would be spread over 11 months, resulting in an actual tariff reduction of 11,17%. “This translates into a 1,37c/l reduction in the Gauteng petrol price,” it said.

Source: Business Day, Tuesday, 5 May 2009.