Petroleum Pipelines Bill June 2003

SAPIA supports regulation of the petroleum pipelines industry  Industry is of vital national importance  Key to determining commercial success of all industry players  Key to enabling BEE participation in industry BUT  Is the duplication of cost and infrastructure justified having regard to government’s intention to harmonise energy regulation legislation in less than a year?  Wide regulatory power of Minister derogates from Parliament’s legislative authority  Vague ambit and overlapping jurisdictions cause for concern

Ambit of Bill not clear  pipeline definition is currently too wide and could even include pipelines integral to the manufacturing process within a party’s plant.  Suggested change: should be defined as pipelines utilised for the sole or primary purpose of providing a service for profit, and specifically exclude pipelines that are integral to the manufacturing process or which are within or between storage facilities falling outside the ambit of the Act.  loading facility clearly refers to SBM, but it is not clear precisely which other facilities are covered. SBM and certain facilities in harbours are also covered by National Ports Authority Bill which creates a problem of duplicating licensing requirements/ regulatory jurisdiction  Suggested change: clarify definition and ensure that any regulatory requirements are covered in only one piece of legislation.

Ambit of Bill not clear (continued)  loading facility (continued)  Sapia’s interpretation, which needs to be confirmed, is that the present definition covers the SBM, SPM, connecting pipelines to the coast and such common facilities in harbours as are utilised for the loading or offloading of crude and petroleum product tankers Storage facility definition also does not make clear precisely which industry facilities are and are not covered  petroleum products definition is unnecessarily broad and could cover gas, LPG, chemical feedstocks, solvents, lubricant base oils etc.  Suggested change: amend definition to include only those liquid hydrocarbon fuels handled in the facilities falling within the ambit of the Act.  price is not defined, but used several times eg s 16(2)(e), s 21, s 28 (2)(a) and s 33(1)(f)  Suggested change: delete price from Bill, as Regulator does not set prices

Which legislation applies ?  Presently there are a number of draft bills that together apply to all the manufacturing, distribution and marketing processes of industry  Petroleum Products Amendment Act  National Ports Authority Bill  Petroleum Pipelines Bill  In several instances the different bills appear to attempt to regulate the same facilities in different ways  Plants and facilities are potentially subject to different pieces of legislation with overlapping jurisdiction which makes compliance extremely difficult  Multitude of regulators, with differing objectives, having equal say over vital part of business does not bode well for investment climate

Is the Authority independent?  Members are appointed by Minister  Members may be removed by Minister  Members execute regulations promulgated by Minister  Members are obligated to follow published Government policy  Suggested changes:  Delete provision requiring Authority to follow Government policy and substitute with obligation on members to pursue objectives of Act  Incorporate matters for regulation in Act similar to international regulatory provisions to ensure investor certainty and scrutiny of Parliamentary process  Provisions for donations from persons to the Authority creates potential conflicts of interest and derogates from Authority’s independence  Parliament’s delegation of legislative power to Minister  Regulations will prescribe methodology for price-setting  Regulations will prescribe manner in which third-party access is obtained  Regulations will prescribe commercial terms for use of facilities These are all crucial commercial issues which are not defined in the Bill and therefore removed from the scrutiny of the Parliamentary process

Does the Bill promote investment?  Investor certainty  Non definition of regulated tariff-setting methodology makes evaluation of investments impossible  Regulated methodology must be stable, continuous and certain in order to ensure sound investment decisions (must be contained in the Act)  Non-transferability of licence detracts from value of pipeline asset  Variation of licence conditions by rule on application by third party creates uncertainty as to consistent returns  Other issues  Exorbitant fines of R2 million per day  Concurrent jurisdiction  Petroleum Products Amendment Act  National Ports Authority Bill,  Environmental legislation  Expropriation The investor has to comply with a raft of legislation and regulation with concurrent jurisdictions possibly prescribing differing requirements – no upfront certainty of regulatory regime applicable to investment

Licence conditions  S20(1) (c): Requirement to manage loading, pipeline and storage facilities with separate accounts and data is onerous and impractical to the extent it applies to oil industry, the normal nature of which is integration across the value chain  S20(1) (e):Uncommitted capacity in pipelines is not clearly defined and it is suggested that any uncommitted capacity should be determined by the Service Provider and confirmed by the Authority.  S20(1)(f): In applying the common carrier principle, there should be adequate provisions attached to prevent disruptions of existing supplies

Licence conditions (continued)  S20(1)(x) Any HSE standards incorporated in licensing conditions should merely refer to existing legislation with which we have to comply and should not impose additional requirements.  S16(2)(c)Licence applicants must have financial, technical and operational experience.  S35(1) Applications should be made within six months after the appointment of the Regulator, not the commencement of the Act.

Application of Act Sapia interprets the wording of the Bill as excluding most oil company owned facilities from its ambit, but requests that this understanding be confirmed by the drafters’ making clear precisely which oil company assets are in fact included.