Petroleum Products Amendment Bill: briefing; Petroleum Pipelines Levies Bill: adoption

Meeting report

MINERALS AND ENERGY AND FINANCE PORTFOLIO COMMITTEES: JOINT MEETING
10 September 2004
PETROLEUM PRODUCTS AMENDMENT BILL: BRIEFING; PETROLEUM PIPELINES LEVIES BILL: ADOPTION

Chairpersons: Mr E Mthethwa (ANC) and Dr R Davies (ANC)

Documents handed out:
Petroleum Products Amendment Bill [B16-2004]
Petroleum Pipelines Levies Bill [B18-2004]

SUMMARY
The Committees met jointly for briefings on the Petroleum Products Amendment Bill [B16-2004] by the Department of Minerals and Energy (DME), and the Petroleum Pipelines Levies Bill [B18-2004] by the National Treasury. The Petroleum Products Amendment Bill is designed to rectify an oversight in the 2003 principal Act by enabling the Minister of Minerals and Energy to take a more flexible approach to liquid fuels sales and purchases and to adopt a market-oriented approach to service station rationalisation. The Committee will further consider the bill on 15 September.

The Petroleum Pipelines Levies Bill introduces a levy on the volume of petroleum products transported via South Africa's pipeline network to fund the operations of the Petroleum Pipelines Regulatory Authority. The Bill provides that the levy will exist for a period of five years and can only be re-imposed after a satisfactory assessment of the performance of the Regulatory Authority. The Committee unanimously adopted the Bill.

MINUTES
Department presentation on the Petroleum Products Amendment Bill
The DME's Deputy Director-General: Hydrocarbons and Energy Planning, Dr R Crompton, conducted the briefing. He reminded Members that they had passed the Petroleum Products Amendment Act in late 2003. This Act constituted a major overhaul of the 1977 principal Act which had become outdated and was no longer in line with the changing dynamics of the petroleum industry.

The major objectives of the 2003 Act were to transform the industry; to promote historically-disadvantaged interests; to give effect to the oil industry empowerment charter; to promote an efficient manufacturing, wholesaling and retailing petroleum industry and to facilitate an environment conducive to efficient and commercially justifiable investment.

The key elements of the Act included that all activities would be licensed; a 10-year system to gradually reduce the number of retail sites by 20 to 30 percent would be introduced; balance would be achieved between retailers and wholesalers via arbitration; full service would be guaranteed and vertical integration would be prohibited.

However, due to an oversight further amendments to the 2003 Act were necessary as an unintended consequence of that Act could be to postpone, rather than phase in, the reduction in the number of retail service stations when the industry is eventually deregulated. The Department therefore proposed that a more market-oriented approach be followed by enabling the Minister of Minerals and Energy to introduce regulations to curb the potential excesses of the market should this become necessary.

This would be done by amending the conditions of the purchase and sale of petroleum products and by authorising the Minister to make regulations changing the licensing system. In essence, Crompton said, the amendment bill proposed the substitution of "must" with "may" in the relevant sections of the Act, thereby providing the Minister with a large measure of flexibility to respond to the changing dynamics of the industry.

Discussion
Mr Mthethwa commented that the Bill seemed "straightforward" and acceptable as it would increase the Minister's flexibility. Prof I Mohammed (ANC) wanted to know if the proposed changes would mean that the purchase of petroleum products may be made from licensed or unlicensed wholesalers or manufacturers. Dr Crompton responded that the Act provided that only licensed wholesalers or manufacturers were able to sell products.

Ms B Tinto (ANC) wanted to know whether the proposed amendments would destroy or save jobs. Dr Crompton said the amendment bill would have no effect on jobs in the retail sector.

There being no further questions, this part of the meeting was concluded and Mr Mthethwa handed over to Dr Davies.

Treasury briefing on the Petroleum Pipelines Levies Bill
In his introductory remarks, Dr Davies reminded Members that the Petroleum Pipelines Levies Bill was a money bill which the Committee could either accept or reject, but could not amend. The Bill was referred to the Portfolio Committee on Finance for consideration in conjunction with the Portfolio Committee on Minerals and Energy.

Treasury's Director: Indirect Taxation, Mr H Overmeyer, informed Members that the South African pipeline network was of strategic national importance. The vast majority of the network was state-owned through Petronet, a subsidiary of Transnet. However, private operators had shown increasing interest in owning and operating pipelines and Government had decided to allow this, but in a regulated environment. Parliament had therefore passed the Petroleum Pipelines Regulatory Authority Act in 2003. That Act provided that tariffs would be levied on the transportation of liquid fuels via the pipeline network to, among others, fund the operations of the Regulatory Authority.

He described the Bill as a standard money bill. He drew specific attention to clause 5 that provided for levies to lapse after a five-year period. They could be re-imposed by the Minister of Minerals and Energy in consultation with the Minister of Finance only after a satisfactory assessment of the performance of the Regulatory Authority had been conducted.

Discussion
Mr B Mnguni (ANC) wanted to know how the levies would impact on the consumer and the inflation rate. Dr Crompton responded that there would be a negligible impact as Government was actually cutting costs by merging the three main regulators into one national energy regulator, while the efficiency of the pipeline component would be checked by the assessment requirement in the Bill.

Ms R Joemat (ANC) wanted to know whether there were any pipeline transportation charges before the involvement of the private sector. Dr Crompton confirmed that Transnet had previously established tariffs for usage of the pipelines it owned.

Dr Davies asked whether the levies would have a significant impact on the price of petrol and for more information on the size of the Pipelines Regulatory Authority. Dr Crompton said that currently pipeline transportation costs between Durban and Gauteng added 11c/l to the cost of liquid fuel sold inland. He expected the levies to add less than 1c/l to that cost. He also pointed out that the regulator employed less than 10 people.

Mr C Kekana (ANC) wanted to know how the pipeline levy would benefit the poorest segment of South Africa's population. Dr Crompton indicated that benefits would flow from the more efficient use of state assets such as petroleum pipelines. If the state benefited from lower input costs, increased economic activity would result in higher growth and more job creation to the benefit of all.

Dr Davies tabled the motion of desirability on the Bill. It was adopted unanimously.

The meeting was adjourned.