Pipeline mess to pump up petrol price

Next year motorists can expect to pay up to 30 cent per litre more for fuel as a result of the cost increases of Transnet’s new fuel pipeline being built between Durban and Gauteng. This amount includes a 5 cent per litre levy, which is a direct result of the project’s costs having increased by 51% over the past year.

Transnet also submitted an application to the National Energy Regulator (Nersa) to increase the pipeline’s tariffs by 128% next year, which economists reckon could add a further 25 cent per litre to the fuel price.

This increase, which could be introduced on April 1 2011, is needed to help finance the new pipeline. On Wednesday Transnet announced that the cost of this pipeline had gone up by 51% to R23.4bn. The previous cost estimate was announced ten months earlier on March 10 when Transnet said the pipeline would cost R15.5bn. Dr Rod Crompton, Nersa’s pipeline specialist, said Transnet’s initial tender for building the pipeline in 2006 had been R7bn. This means that the cost of the project over four years has ballooned by 234%.

Henk Langenhoven, chief economist of the South African Federation of Civil Engineering Contractors (Safcec), said this type of increase in the cost of the project was unusual.

A pipeline was a unique project, he said, and could not easily be compared with other big civil projects. Every project was different.

Other economists said they had no doubt that Transnet’s management of the project required thorough investigation.

An independent analyst who wished to remain anonymous said that the average increase of a major South African project today was largely in line with inflation. This type of increase would be between 4% and 8%. The increase in the cost of the pipeline was absurd and could largely be ascribed to mismanagement, he declared.

Investment Solutions economist Chris Hart said he was convinced that the original Transnet cost estimates had been very flawed.

The question was whether Transnet and the regulator really believed that the cost estimate had been accurate. If not, heads should roll, he said.

Hart said the cost increases had significant implications for the South African economy.

It would increase the price of fuel and impede our economy’s ability to grow. A pipeline should reduce the costs of transporting fuel inland. The types of tariffs that Transnet now required would mean that companies would transport their supply by road.

Hart said that he believed that the licence that Transnet had received from Nersa in 2007 to build the pipeline should be taken away from the parastatal.

Source: fin24, Sunday, 12 December 2010