PETROLEUM PIPELINES BILL

MANNY SINGH

Director : Petroleum Policy

Department of Minerals and Energy

9TH June 2003

Presentation to the NCOP

WHITE PAPER ON ENERGY POLICY (December 1998)

• “Government will promote competition in the transport of liquid fuels.”

• “The petroleum regulatory regime will inhibit monopolistic abuse of pipelines and storage facilities. Pipelines will be required to provide non-discriminatory open access to uncommitted capacity, transparency of tariffs, and disclosure of cost and pricing information to a suitable authority.”

BACKGROUND TO BILLWhy regulate now?

Strategic importance to RSA Supply to Industrial heartland

Reduce monopoly rents in natural monopolies

Competition between and within carriers

“Rules of the game” for InvestorsRegulation where necessary

Govt has duty to ensure accessibility to infrastructure

Governments Consideration

Strategic importance eg. Natref FireAlmost all pipelines State ownedAdditional capacity/investment

required by 2007Not clear if tariffs market related

Transparency in tariff composition

Government process this far….

IEA survey 1996WP energy Policy 1998

Consultants appointed 2000Three stakeholder workshops

Published for CommentSubmissions/presentations to PPCNow in final stages of finalisation

Submissions Received at PPCCOSATU/CEPPWAWU

Coastal refineriesInland Refineries

GroundworkPetronent

SasolTOSACO

Total FinaElfSacobSAPIA

Competition CommissionBp/Caltex/Engen/Shell

AMEF

Objectives of Bill

Promote CompetitionPromote

Efficient,effective,sustainable and orderly development

Objectives continued…

Equitable accessSafe,efficient,economic and environmentally responsible

Facilitate investmentProvide for security of pipelines and

related infrastructureBEE

Promote development of competitive markets

Promote access to affordable petroleum products

KEY ISSUES

•Establishment of Regulator

•Licensing dispensation

•Common Carrier principal

Scope

Crude oilPetroleum Products

Pipelines,storage facilities, off-loading facilities

Stakeholder Submissions

General jurisdictionTransport neutralityImplications for BEE

Licensing regimeTariff methodology

Independence of RegulatorHSE

Definitional querriesMulti-purpose use

NON-COMPETITIVE SEGMENTS

• Price control Natural monopoly Efficiency ( by pricing )

• Rate of return Book value versus replacement value

• Price cap e.g.ArgentinaAdjusted for inflation 6 monthlyReviewed every 5 years

GENERAL PRINCIPLESOF REGULATION

• Rule of law - appeal to the judiciary• Transparency – consultation & accessibility• Neutrality• Predictability and consistency• Independence – adequate skills, resources,

information• Accountability – especially for general

management

REGULATORY INDEPENDENCE

• Ensures transparency and a level playing field

• Regulatory capture:By stakeholders (particularly monopolies),

problem of information, selection, no financial interests or revolving door with industry

By politician – must comply with government policy (not instructions), irrevocable mandate

INDEPENDENCE SAFEGUARDS

• Fixed periods of appointment

• No conflicts of interest – financial or revolving door

• Stable and reliable funding

• Competitive salaries

• Transparent decision making process

• Review by courts

REGULATORS’ QUALIFICATIONS

• “Integrity, competence, the ability to exercise independent judgement, and the strength to resist pressure are indispensable to regulators, while technical experience in the regulated industry is generally considered to be of secondary importance.” (Regulatory Institutions – IEA)

AIMS OF REGULATORS

• Transparency and efficiency;• Tariff mechanisms;• Ensuring non-discriminatory access;• Fostering competition;• Encouraging the growth of transport capacity and

interconnections;• Promoting adequate infrastructure investment;• Contributing to long-term security of supply.

COMMON CARRIERS

• A pipeline company obliged by law to provide service to all interested parties without discrimination to the limit of the pipeline’s capacity. Once the pipeline’s capacity is reached the service must be offered to all shippers in proportion to the amounts tendered for shipment.

OVER-BOOKING!

• In Canada the 3 700 km Inter-provincial Pipeline (IPL) carries two thirds of western Canada’s oil production to eastern Canada

• April 1995 shippers’ nominations were twice the oil production of western Canada

• Penalties of $2.70/barrel imposed• Penalty funds used to lower overall tariffs,

thus rewarding responsible nominators