1 NERSA CEO: Smunda Mokoena 14 September 2010 Presentation to the Portfolio Committee on Energy and the Select Committee on Economic Development PUBLIC HEARINGS ON THE LIQUID FUELS CHARTER

CONTENTS Roles and Responsibilities Petroleum Products Act Petroleum Pipelines Act Third Party Access Charter Provisions on Petroleum Infrastructure NERSA Licensing Storage Licences Granted Issues Raised by HDSAs Challenges Conclusion 2

ROLES & RESPONSIBILITIES POLICY MAKER -Minister of Energy LEGISLATION -Parliament (Acts) -Minister of Energy (Regulations) ADMINISTRATOR -National Energy Regulator -Petroleum Pipelines Act, 2003 ( Act No. 60 of 2003); -Department of Energy (DoE) -Petroleum Products Act, 1977 (Act No 120 of 1977) 3

PETROLEUM PRODUCTS ACT (Products Act) The Liquid Fuels Charter Petroleum Products Amendment Act, 2003 (Act No. 58 of 2003) Administered by the DoE (not NERSA) DoE issues manufacturing, wholesale, site or retail licences Section 2C(1) 1.In considering licence applications in terms of this Act the Controller of Petroleum Products shall— a)promote the advancement of historically disadvantaged South Africans; and b)give effect to the Charter. 2.The Controller of Petroleum Products may require any category of licence holder to furnish information, as prescribed, in respect of the implementation of the Charter. 4

PETROLEUM PIPELINES ACT (Pipelines Act) NERSA mandate derived from –Petroleum Pipelines Act read with the –National Energy Regulator Act, 2004 (Act No. 40 of 2004) Powers and functions include : –Licensing the construction, operation and conversion of petroleum pipelines, storage facilities and loading facilities; –Gathering and storing of information relating to these activities; –Undertaking investigations into these activities; and –Setting and approving tariffs in a manner prescribed. 5

PIPELINES ACT Object 7 - promote companies in the petroleum pipelines industry that are owned and controlled by historically disadvantaged South Africans (HDSAs), by means of licence conditions to enable them to become competitive Section 20(1)(b) – NERSA may only impose licence conditions to promote HDSAs, in the manner prescribed 6

PIPELINES ACT Regulations made by Minister ito the Petroleum Pipelines Act – Published on 4 April 2008 – Regulation 8(1) of Regulation made i.t.o the Pipelines Act Applicants for licences must, and existing licensees must annually, submit information regarding commercial arrangement made for the participation of HDSAs in their activities; Including information regarding: Shareholding by HDSAs; Directorship by HDSAs; Management by HDSAs; Procurement of HDSAs; Compliance with Employment Equity Act Plans and actions taken for development of HDSAs 7

PIPELINES ACT Regulation 8(2) of Regulation made i.t.o the Pipelines Act NERSA must use the information gathered in such a manner so as to facilitate ownership, control or management of operations of petroleum pipelines, storage facilities and loading facilities 8

THIRD PARTY ACCESS TO INFRASTRUCTURE Pipelines Act section 20(1)(n) -Licence condition – licensee must allow third party access to uncommitted capacity in storage facilities; Regulation 6 -storage licensee submit to NERSA & publish their capacity allocation mechanism 9

CHARTER PROVISIONS ON INFRASTRUCTURE Access and Ownership of Joint Facilities “Access to large infrastructure for the movement and storage of crude oil and petroleum products….is acknowledged as critical in the supply chain of emerging companies. In this regard owners of such facilities (will) provide third parties with non-discriminatory access to uncommitted capacity” Retailing / Wholesaling “The parties agree to create fair opportunity for entry to the retail network and commercial sectors by HDSA companies” 10

NERSA LICENSING Licensing rules - Applications for licences must include information concerning mechanisms to promote HDSAs as required by the Regulations Decision Making - Information submitted considered when deciding to grant or not to grant a licence Licence Conditions - Licensees required to submit HDSAs related information annually as per the Regulations 11

STORAGE LICENCES GRANTED  Number of facilities applied for: 194  Number of licences granted to date: 190  Oil companies : 147 (77%)  Oil company JVs: 12 (6%)  Merchants: 6 (3%)  State entities: 1 (0.5%)  Resellers: 24 (12%)  Number of licensees: 30  Oil companies: 6 (20%)  Oil company JVs: 6 (20%)  Merchants (IVS, Vopak, Petroline): 3 (10%)  Resellers (e.g. BP Mpumalanga, Power Petroleum): 14 (47%)  State entities:1 (3%) 12

BEE COMPOSITION 13

ISSUES RAISED BY HDSAs WITH NERSA Access to joint facilities With regards to loading and pipelines, the Pipelines Act requires proportional access by all according to needs, thus there is no access issues The challenge is that practically loading facilities and pipeline cannot be used if one does not have access to storage facilities There are 28 storage facilities connected to the Transnet Pipelines pipe from Durban to Johannesburg; the DJP and 27 them are owned by the oil companies One facility is owned by Transnet Pipelines. 14

ISSUES RAISED BY HDSAS WITH NERSA Access to joint facilities For storage facilities the Pipelines Act defines uncommitted capacity as “capacity determined by the (NERSA) that is not required to meet contractual obligations”. Regulations 6 requires that storage licensee submit to NERSA their capacity allocation mechanism The allocation mechanism must be commercially and operationally reasonable and non-discriminatory (regulation 9) HDSA complain that the oil companies say that there is no uncommitted capacity at their storage facilities, this has proven difficult to prove The oil companies have amongst themselves contracts for reciprocated use of each other’s storage facilities and this may limit the uncommitted capacity available 15

ISSUES RAISED by HDSAs WITH NERSA (2) Ownership of facilities – loading & pipelines No HDSA owns any petroleum loading facility or pipeline; at a recent NERSA hearing on the granting of a licence to construct and operate loading facilities on berth 6, Durban, an HDSA organisation objected on the grounds that: Its members had applied for the use of the same berth, and were not responded to by the ports authority They wanted ownership and /or control of the new facility The ports authority had not followed proper procedure in granting the oil companies access to the facility. 16

ISSUES RAISED BY HDSAs WITH NERSA (3) Ownership of facilities - storage All HDSA or small wholesaler owned facilities are stand alones and are not connected to any import loading facilities or pipelines. Statements from the HDSA suggests that the oil companies have closed down a number of facilities to “rationalise” operations, including 23 that were connected to the Transnet pipelines HDSA complain that the oil companies are not prepared to sell them any of the closed storage facilities 17

ISSUES RAISED BY HDSAs WITH NERSA (4) Retailing / Wholesaling Two workshops were with the industry and HDSA wholesalers regarding the creation of fair opportunity for the entry of HDSA into the industry. HDSA made statements to the effect that conducive relationships between an HDSA and the oil companies are necessary for access to product and infrastructure and for the HDSA to gain entry into the market 18

CHALLENGES 1.Legislative - Enforcement Powers NERSA has no powers to enforce compliance with the charter; NERSA has powers to collect prescribed information relating to the participation of HDSAs in the industry; NERSA can only take action against licensees - no power to act against non licensees (S25 of the Petroleum Pipelines Act); 19

CHALLENGES 2.Quality of Information Submitted  Depends on size/ type of licensee – with smaller ones having difficulties complying with the Rules and the Regulations;  Ownership issues (even for big multinationals) – lack of proof ownership of some facilities  Backlog of facilities to be licensed – necessitating prioritisation of licensing and not compliance 20

CHALLENGES 3.Non- alignment of HDSAs Instruments  BBBEE Act;  Ports Authorities Rules;  Liquid Fuels Charter;  Petroleum Pipelines Act & Regulations 21

CONCLUSION The presentation covers NERSA’s contribution in terms of its mandate Enforcement of the Charter does not lie with NERSA NERSA mandate is limited by legislation Alignment of all HDSAs related instruments 22

23 THANK YOU