Nersa could minimise Sasol’s locational advantage, Transnet avers

16th April 2009 By: Chanel de Bruyn - Creamer Media Senior Deputy Editor Online

Tariffs to fund freight logistics group Transnet’s new multiproduct pipeline (NMPP) could be structured by the National Energy Regulator of South Africa (Nersa) in such a way as to ensure that the so-called ‘locational’ advantage for inland refiners was minimised, group executive of legal services Vuyo Kahla said on Thursday.

Trasnnet has requested a tariff hike of 83% for this year and 74% for 2010.

Coastal refiners had not only objected to the quantum of the proposed tariff increase, but also to the fact that Sasol and Total, which operate inland refineries, would receive an even larger revenue advantage than was currently the case.

Some of the oil companies have suggested a national supply-security levy to offset a revenue shortfall to Transnet, which had applied for an 80%-plus tariff hike to cover rising costs and enable it to fund a new R12,5-billion NMPP.

But speaking at another round of hearings held by Nersa, Kahla said that, while implementing a levy could reduce the level of increases required, a levy mechanism was not in place to do so.

Instead, Group CFO Sharla Pillay suggested that applying a tariff structure that spread the load of recovering the required revenues equitably could ameliorate many of the problems related to the locational advantage of the inland refineries.

This would result in lower tariffs and a much reduced locational advantage of R851-million, compared with the almost R2,1-billion locational advantage should Nersa’s draft tariffs schedule be used.

Pillay added that other alternatives highlighted by stakeholders had also not taken into account the negative impact that would result if tariffs remained “too low”.

She argued that if the NMPP was delayed it could lead to significant supply interruptions amounting to about R925-million a day, as well as more expensive road transport.

Further, if the NMPP were to proceed, but with crosssubsidisation from rail and ports, as proposed by other stakeholders, this would lead to higher costs in other parts of the supply chain and the economy. It could also precipitate a downgrade in Transnet’s credit rating, higher financing costs and even higher tariff increases.

But senior counsel for BP South Africa, David Unterhalter, disagreed, saying that the requested tariff increase would raise transport costs to levels as high as, if not higher, than current road and rail costs.

If the transportation of petroleum products by road and rail were cheaper than the pipeline, users would rather make use of the former, leading to excess capacity for the pipeline and subsequently higher tariffs, he argued.

This was supported by spokesperson for Chevron South Africa, Graeme Yager, who also forecast a diversion to road and rail should the tariff increases be implemented.

Meanwhile, BP South Africa CEO Sipho Maseko reiterated the oil company’s previous concerns about the economic implications for consumers and coastal refiners.

Maseko added that it still believed the tariffs were too high when compared with those used in the US and Europe.

In response to comparative data previously mentioned by BP South Africa, Pillay noted that Transnet was not clear on which countries had been included in the analysis, adding that it had not seen the supporting data.

However, she stated the proposed pipeline tariffs would, in the short term, be somewhat higher than the averages in the US and Europe, but would not be higher than those of other developing countries.