State-owned transport utility Transnet has indicated that a cap of R4,5-billion has been set for the amount of capital it can extract from that portion of the increase in the fuel levy to help it fund a R12-billion fuel pipeline from Durban to Johannesburg.

In his inaugural Budget address, Finance Minister Pravin Gordhan confirmed an increase in the general fuel levy of 10c/l, as well as an additional 7,5c/l levy on both diesel and petrol to help fund the pipeline over the next three years. Further, a Road Accident Fund levy of 8c/l, from 64c/l to 72c/l, was also proposed.

Together, these increases would be implemented from April 7, 2010, raising taxes as a percentage of the pump price from around 23% to 33,9% on petrol and 31,3% on diesel for 2009/10.

The levy for Transnet would reportedly only cover the "security of supply component" of the so-called new multiproduct pipeline (NMPP), which was currently under construction.

But it has also been confirmed that private pipeline developers - which could ultimately compete with Transnet Pipelines for a share of the inland market - would not be able to access the fuel levy in instances where they could prove that portions of their projects also met a security-of-supply requirement.

In an emailed response to questions posed by Engineering News Online, the National Treasury said that the levy would be exclusively for Transnet's benefit, and should be seen as a "shareholder recapitalising" a State-owned enterprise.

The National Treasury also confirmed that all fuel consumers would be charged, despite the fact that coastal consumers would not benefit directly from the pipeline development.

But the levy would be dissolved within three years and a smaller increase in the general fuel levy would be implemented immediately once the R4,5-billion cap was reached.

The NMPP would replace the existing Durban-to-Johannesburg pipeline, the capacity of which was at its limit. The NMPP construction had since emerged as the single biggest item in Transnet‘s R93,4-billion five-year rolling capital investment programme.

Transnet indicated that the Department of Energy's predecessor, the Department of Minerals and Energy, had stipulated that the NMPP be designed to ensure the security of supply of petroleum products to the inland market for at least 20 years into the future.

As a result, a larger diameter pipe was specified than would otherwise have been the case. Under development, therefore, is a new 544-km 24-inch pipeline, as well as a 160-km 16-inch line, four pumpstations, a coastal and inland terminal and a new operating system.

POLICY SHIFT

Transnet, which, until Thursday, had a self-funding mandate for its capital programmes, initially tried to part-fund the project through tariff increases.

However, the National Energy Regulator of South Africa (Nersa) somewhat spectacularly rebuffed a request by Transnet for an average 74,42% pipeline-tariff increase for 2009/10, announcing in May last year that it had instead decided to institute a tariff reduction of 10,38% for the financial year.

Nersa asserted that it did not have the legal authority to set tariffs for existing pipelines in a manner that enabled a licensee to recover the costs for pipelines that were still in the process of being constructed.

At the time, Transnet said that it was in talks with the government regarding an alternative funding mechanism for the portion of the NMPP that was responsible for ensuring security of fuel supply to the inland market.