Minerals and Energy for Development and Prosperity Henry Nhlanhla Gumede Chief Director – Hydrocarbons Petroleum Products Amendment Bill & Petroleum Pipelines Bill Presentation to the National Council of Provinces 7 th October 2003

Minerals and Energy for Development and Prosperity The Petroleum Pipelines Bill

Hydrocarbons Chief Directorate 3 Department of Minerals and Energy Minerals and Energy for Prosperity and Development Introduction The Bill seeks to untangle what has come to be known as the “Gordian Knot” Sasol Upliftment agreement Gordian Knot Liquid Fuels Price control mechanism Gas agreement with Sasol Fungibility and delivery of specific molecule On-railing agreements with Spoornet “Natref Neutrality” “Location advantage” Zone and Service differentials

Hydrocarbons Chief Directorate 4 Department of Minerals and Energy Minerals and Energy for Prosperity and Development Scope and scale of the Bill Purpose of the Bill Establish a national regulatory framework Establish a Regulator as custodian & enforcer of regulatory framework Provide for issuing of licenses Scope of Bill Crude oil Petroleum products Pipelines, storage facilities, off-loading facilities Excludes production facilities

Hydrocarbons Chief Directorate 5 Department of Minerals and Energy Minerals and Energy for Prosperity and Development The Regulator Composition of the regulator 5 members – full time Appointed by Minister for 4 year term, renewable Limitations  RSA citizens; solvent; no convictions  Conflict of interest – disclosure To be phased into a Single Energy Regulator Qualifications Relevant experience Impartial & objective Balance between continuity & capacity building

Hydrocarbons Chief Directorate 6 Department of Minerals and Energy Minerals and Energy for Prosperity and Development Licensing Authority may impose licence conditions within the following framework (1) Promote historically disadvantaged South Africans Loading, pipeline and storage activities of vertically integrated companies may be required to be managed separately, with no cross-subsidisation A pipeline may be licensed for either crude oil or petroleum products, or both Sufficient pipeline capacity availed for crude oil to enable uninterrupted operation of Natref, at its current normal operating capacity Shippers must have access in proportion to their needs and within the commercially reasonable constraints

Hydrocarbons Chief Directorate 7 Department of Minerals and Energy Minerals and Energy for Prosperity and Development Licensing Authority may impose licence conditions within the following framework (2) Tariffs for petroleum pipelines set by the Authority Tariffs for loading facilities and storage facilities approved by Authority Licensees to provide information necessary for the Authority to perform its functions Standards of construction and operation approved by the Authority include HSE standards required by the Authority, Licensees must submit to the Authority annually an emergency plan for implementation

Hydrocarbons Chief Directorate 8 Department of Minerals and Energy Minerals and Energy for Prosperity and Development Regulations Made by Minister after consulting Regulator & inviting public comment Procedures Record keeping Forms Publishing of information Methodology to be used by Regulator Land rehabilitation

Minerals and Energy for Development and Prosperity Petroleum Products Amendment Bill

Hydrocarbons Chief Directorate 10 Department of Minerals and Energy Minerals and Energy for Prosperity and Development Objects of the Bill The primary aim for amending this Act was to modernise it The Petroleum Products Act, 1977 is outdated It is no longer in line with the socio-political and economic dynamics pertaining to the liquid fuels sector The PPAB will ensure that governance of the liquid fuels sector is in line with Government’s policy objectives It gives effect to policy issues identified the Energy White Paper It provides for a licensing dispensation that includes refiners, wholesalers and retailers petroleum “Give effect” to the Charter through licensing Allow for provision information

Hydrocarbons Chief Directorate 11 Department of Minerals and Energy Minerals and Energy for Prosperity and Development Section 2A Prohibition Of Certain Activities The Bill prohibits a number of activities Holding or develop a site, manufacturing, wholesaling, retailing petroleum products without a licence Vertical integration between wholesaling and retailing  Excludes LPG & paraffin & training sites  Wholesalers can still own sites Self-service by consumers

Hydrocarbons Chief Directorate 12 Department of Minerals and Energy Minerals and Energy for Prosperity and Development Section 2B Licensing Objectives In considering the issuing of any licences, the Controller shall give effect to the provisions of section 2C and the following objectives Promoting an efficient manufacturing, wholesaling and retailing petroleum industry Facilitating an environment conducive to efficient and commercially justifiable investment The creation of employment opportunities and the development of small businesses in the petroleum sector Ensuring countrywide availability of petroleum products at competitive prices Promoting access to affordable petroleum products by low- income consumers for household use

Hydrocarbons Chief Directorate 13 Department of Minerals and Energy Minerals and Energy for Prosperity and Development Section 2C Licensing Objectives Transformation of South African petroleum and liquid fuels industry In considering licence applications in terms of this Act, the Controller of Petroleum Products shall  Promote the advancement of historically disadvantaged South Africans  Give effect to the Charter Licence holders to furnish information, in respect of the implementation of the Charter

Hydrocarbons Chief Directorate 14 Department of Minerals and Energy Minerals and Energy for Prosperity and Development Section 2D Transitional licensing provisions The Act makes provisions for existing businesses The Bill deems any person to be a holder of a licence who, at the time of commencement of the Petroleum Products Amendment Act, 2003  Holds and is in the process of developing a site  manufactures or wholesales or retails petroleum products The person shall, within a period of six months apply for an appropriate licence The applicant shall, on application,be entitled to a licence if the applicant is in compliance with all national, provincial and local government legal requirements, that are in force immediately prior to the commencement of this Act Such applicant subject to the general conditions of a licence but not financial security requirement prescribed by regulation

Hydrocarbons Chief Directorate 15 Department of Minerals and Energy Minerals and Energy for Prosperity and Development Section 2E - “ System” for allocation & supply of site licenses Framework for allocation of site licences Intention: an optimum number of efficient sites & achieve equilibrium amongst all participants Promote efficient and productive retail facilities by  Cap on number of sites  Link total sites to total consumption Wholesalers can trade obligations to retailers Supplies (on spec.) – give preference to products made from  Coal, natural gas, vegetable matter  Other raw materials Link new licenses to terminators or transfers

Hydrocarbons Chief Directorate 16 Department of Minerals and Energy Minerals and Energy for Prosperity and Development Section 12C - Regulations The Minister may make regulations regarding Conditions or restrictions in respect of licences Conditions relating to the advancement of HDSAs The obligation of a licence holder to keep records and to furnish particular information The specifications and standards of petroleum products The prohibition of the blending or mixing of different petroleum products The rehabilitation of land used in connection with a licensed activity

Hydrocarbons Chief Directorate 17 Department of Minerals and Energy Minerals and Energy for Prosperity and Development Concerns raised by oil companies Concerns have been raised with respect to intentions of section 2B(6) (6) It shall be a condition of a wholesale licence that the licensee must purchase and sell petroleum products—  (a) manufactured from coal, natural gas or vegetable matter;  (b) that meet prescribed specifications and standards where applicable;  (c) when such petroleum products are available; and  (d) at mutually acceptable prices, subject to section 2 of this Act;  before purchasing and selling petroleum products manufactured from other raw materials

Hydrocarbons Chief Directorate 18 Department of Minerals and Energy Minerals and Energy for Prosperity and Development Concerns raised by oil companies Concerns have been raised with respect of section 2E(3)(f) (3) A system contemplated in subsection (1)—  (f) may specify that petroleum products which— o(i) are manufactured from coal, natural gas or vegetable matter, owhen available; o(ii) meet prescribed specifications and standards, where applicable; o(iii) are at mutually acceptable prices, subject to section 2 of this Act Does this provision apply to existing sites? ….No, for only application for new sites

Hydrocarbons Chief Directorate 19 Department of Minerals and Energy Minerals and Energy for Prosperity and Development Department's proposal (6) It shall be a condition of a manufacturing licence or a wholesale licence, as the case may be, that the licensee must purchase or sell, or purchase and sell, petroleum products— (a) manufactured from coal, natural gas or vegetable matter; (b) that meet prescribed specifications and standards where applicable; and (c) when such petroleum products are available in South Africa ; before purchasing or selling, or purchasing and selling petroleum products manufactured from other raw materials;

Hydrocarbons Chief Directorate 20 Department of Minerals and Energy Minerals and Energy for Prosperity and Development Department’s proposal Section 2E(3)(f) (f) may specify petroleum products which- (i)are manufactured from coal, natural gas or vegetable matter when available in South Africa; (ii)meet prescribed specifications and standards, where applicable; must be supplied to a licensed retailer before the supply of prescribed petroleum products manufactured from other raw materials may be supplied;

Minerals and Energy for Development and Prosperity Thank you