Gas Bill: deliberations

Meeting report

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This Report is provided by Contact Natural Resource Information Service
Taking Parliament to People, and People to Parliament
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The aim of this report is to summarise the main events at the meeting and identify the key role players. This report is not a verbatim transcript of proceedings.

MINERALS AND ENERGY Portfolio Committee
23 August 2001
GAS BILL: DELIBERATIONS

Chairperson: Mr M D Nkosi

Documents handed out:
Gas Bill [B18-2001] - Version 11H00 23 AUG 01 (attempts are being made to obtain a copy)
Definitions of Transmission and Distribution: Department of Minerals and Energy

SUMMARY
The deliberations on the Gas Bill addressed those issues that had previously been flagged for further discussion. The discussions focused primarily on Clauses 1, 5, 6 and 11 of the Bill and dealt with possible discretionary powers being afforded to the Gas Regulator, the composition of the Gas Regulator and who is empowered to appoint its members. The Committee also discussed the issue of the sharing of employees between the various regulatory authorities. Many of the issues remained unresolved and were flagged to be addressed at later meetings.

In the afternoon session, discussion ensued on Clause 20 which provides for the Minister to direct the Regulator to grant licences to state-owned entities. The concern was that undue preference would be shown to state-owned entities at the expense of private enterprises. It was felt that this was in direct violation of the principle of a free market economy which encourages equal and open competition. The matter was unresolved.

Concerns were also raised about Clause 21 which deals with the conditions and requirements that would have to be met in order to qualify for a licence. The clause goes further to provide for an appeal procedure in the event that a licence application has been refused. The Committee are undecided on the appropriate appeal mechanism that should be included in the clause.

MINUTES
The Chairperson opened the meeting and asked Dr Crompton (Department) to go through the issues flagged for further deliberation.

Dr Crompton introduced the lastest working draft of the Gas Bill and proceeded to go through the flagged issues.

Chapter 1: Definitions and Objects
Clause 1: Definitions
"liquefaction and re-gasification"
Dr Crompton suggested the definition of "liquefaction and re-gasification" be treated as accepted and not be discussed every time it appeared in the Bill. The Committee agreed to this and the Chairperson asked for the meeting to proceed.

"distribution"
The Committee again addressed the definition of "distribution" thoroughly.

Mr I Davidson (DP) expressed concern about the definition regarding limiting the operating pressure to between 2 bar gauge and 15 bar gauge. He proposed that the Regulator be allowed to use his/her discretion to alter these pressure boundaries should it prove necessary. He further stated that this would be in line with international practice and suggested the insertion of "…or by such higher pressure as Regulator may permit…" between the words "…15 bar gauge…" and "…to points of ultimate consumption…" in the Clause 1, line 8.

Dr Crompton commented on Mr Davidson's proposal and suggested that if "higher" was inserted, "lower" should also be included.

Mr Mongwaketse (ANC) expressed concern about leaving it to the Regulator and giving the Regulator too much discretion and freedom.

Mr Louw (ANC) also expressed concern about leaving it to Regulator and proposed that the Committee stick to the present wording in the definition.

The Chairperson summarised Mr Davidson's proposal and requested the Department's comments on the issue.

Dr Crompton pointed out that the proposal would place a large amount of power in Regulator's hands and he questioned whether this would be desirable.

Mr Davidson argued that the Regulator would be the only person in a position to properly determine whether there would be a need to alter the operating pressure boundaries. He therefore stated that the Regulator should be given a discretion to do so should the need arise.

Mr Oliphant (ANC) was convinced the 15 bar limit was correct, but agreed that Mr Davidson's proposal should not be rejected without proper consideration. He requested the proposal to be made in writing.

Dr Crompton suggested that if such an amendment were made, there should be regulations promulgated setting out the criteria that the Regulator must consider in exercising any discretion.

The Chairperson suggested that the definition be left as it is and the addition suggested by the Department be accepted and looked at later.

Dr Crompton suggested that the definition be altered by inserting the words "…or by pipelines with such other operating pressure as the gas Regulator may permit according to criteria prescribed by the regulations…". He confirmed that the Department would include this wording in the following draft document for future discussion.

"eligible customers"
The Committee then turned to address the definition of "eligible customer" flagged in Clause 1, and its impact on Clause 21(p).

Dr Crompton suggested that the highlighted portion of Clause 21(p) be deleted so as not to create an additional class of customers, in other words those "customers consuming over 400 000 Gigajoules per annum". He believed that the deletion of the highlighted portion would improve the overall consistency of the Bill as an additional class of customers would not be created.

Mr Davidson objected to the deletion and expressed concern that if it were made, suppliers would have no freedom to negotiate prices with large customers (those consuming more than 400 000 Gigajoules per annum), as these prices would also be subject to approval by the Gas Regulator. In reality he stated, all prices would therefore be set by the Bill leaving no room for negotiation between supplier and large customer. Mr Davidson further stated that the class "eligible customer" became meaningless if one removed the 400 000 Gigajoule limit contained in Clause 21(p). He accordingly questioned why there would therefore be a need for this definition in the Bill at all. Mr Davidson further pointed out that if a monopoly supplier could not negotiate with a customer over price, customers could potentially turn to using alternative and more affordable forms of energy.

Dr Crompton responded to Mr Davidson's comments by referring to the wording of Clause 21(p). He pointed out that the approval of the Gas Regulator regarding price was only necessary where there would be "inadequate competition". No Gas Regulator intervention regarding price would occur where there was adequate competition.

Mr Oliphant stated that one needed to consider the wording "eligible customer" within the entire context of the Bill and that if one did this, the benefits of this class of customer became clear.

Dr Crompton proposed inserting the word "maximum" at the beginning of Clause 21(p) as a means of resolving the issue.

Mr Davidson said this appeared to solve the problem.

Mr Lucas (IFP) expressed concern over big companies under-cutting smaller companies.

The Chairperson concluded the debate on this issue by stating that benefits for "eligible customers" were clear and confirmed that no agreement had been reached on the wording of Clause 21(p).

Chapter 2: National Gas Regulator
Clause 5: Constitution of Gas Regulator
The Committee then discussed Clause 5 relating to the appointment of members of the Gas Regulator. In terms of Clause 5, the Minister is empowered to appoint the members.

Mr Davidson said the public needs consistency and so the Committee should follow precedent set in Nuclear Regulator Act (1999) regarding the appointment of members to the Gas Regulator. He stated that in terms of the above Act, the Committee drew up a list from which the Minister could select the members to the Nuclear Regulator. He said that a similar procedure should be adopted in relation to the selection of members for the Gas Regulator.

Professor I Mohamed (ANC) stated that he did not believe it was necessary to insert a provision similar to that contained in the Nuclear Regulator Act. He said times have changed and that experience has shown that the appointment of the members should be left to the Minister. He further said that the role of the Committee was not to be involved in the appointment process, but to criticise the Ministers decision where this was necessary.

Mr J H Nash (ANC) agreed that there is no need to follow 1999 precedent.

Ms. D S Motubatse (ANC) did not support Mr Davidson and agreed with Professor Mohamed and Mr Nash. She said that the decision should be left to the Minister.

Mr Oliphant stated that there was a historical reason for Committee involvement in the appointment process under the Nuclear Regulator Act. He however stated that circumstances had changed and he saw no reason to include a similar provision in the Bill merely because we had been used in the past.

The Chairperson concluded by stating that no agreement had been reached on the issue of whether Committee involvement in the appointment process was desirable. He stated that the crucial issue related to the question of a separation of powers.

Clause 6: Disqualification and Requirements regarding appointment to Gas Regulator
The Committee then addressed the issue of whether only South African citizens should be appointed as members of the Gas Regulator. In terms of Clause 6(1)(a) of the Bill only South African citizens and residents can be appointed as members.

Mr Lucas and Mr Davidson said the Committee had to allow for the possible appointment of foreigners as members of the Gas Regulator as South Africa lacked sufficiently qualified persons. Mr Lukas further proposed that the number of foreigners appointed to the Gas Regulator be limited to 1.

Mr A H Nel (NNP) proposed that foreigners should be considered, but that a time limit of no more than five years should be set for their involvement on the Gas Regulator.

Ms N Mtsweni (ANC) said foreigners should be excluded but stated that she would not object to short-term consultants being appointed to assist the Gas Regulator in fulfilling its functions.

Mr Mongwaketse stated that South Africa had persons with sufficient capacity and expertise to be appointed to the Gas Regulator. Mr Oliphant agreed.

Mr B Bell (DP) stated that consultants were too expensive and suggested that the word "citizen" be left out as solution.

Mr Davidson reviewed his original concern from a prior meeting regarding the disqualification of people involved in the gas industry from being members of the Gas Regulator (Board). He stated that if these persons were disqualified, there would be no one left to serve on the Board. Mr Davidson added that if people from the industry were allowed to serve on the Board, full disclosure must be ensured and he suggested that finding expertise, whether local or foreign, be left to the Minister's discretion.

The Chairperson agreed that the exclusion of people in the industry effectively cuts off people who could be valuable resources to the Board and stated that South Africa needs good quality members to serve on it. He stated that the Committee should therefore not close South Africa off to the use of such experts from outside South Africa.

Mr Davidson stated that Clause 6(d) of the Bill excluded foreigners and suggested that it be deleted and that Clause 6(3), relating to disclosure by members of vested interests in the industry, be strengthened.

Mr Oliphant said there was a need to look at Clause 6 in its entirety and wanted Department input on the issue.

Dr Crompton stated that the Department's recommendation was for Clause 6(1)(d) to be deleted and Clause 6(3) to be strengthened.

Professor Mohamed said Clause 6(1)(a) would exclude numerous South Africans who are no longer residents and suggested that the word "resident" be removed to include South African citizens residing abroad.

Dr Crompton responded by saying that the word "resident" was needed because the position was part-time and would not attract people to relocate. Therefore, non-residents would be more costly because they would have to be compensated for their travel expenses. Dr Crompton added that despite what was contained in Clause 6, positions on the Board would be open to individuals as long as they were residents at the time they took up their posts.

The Chairperson concluded that the issue of whether or not an applicant need to be South African citizen or not remained unresolved. The Chairperson stated however that there appeared to be consensus that non-residents could apply to be members of the Board as long as they were resident at the time of taking up their positions. The Chairperson also concluded that there appeared to be consensus regarding the deletion of Clause 6(1)(d) provided that the duties of disclosure contained in Clause 6(3) were strengthened.

Mr Davidson suggested that the clause relating to the above issue, contained in the Nuclear Regulator Act, would prove useful in this regard.

Dr Crompton stated that the Department would look again at the issue and modify the wording of the Clause for future consideration by the Committee.

Clause 11: Personnel of Gas Regulator
Dr Crompton referred to Clause 11(5) of the Bill and stated that the Rationalization of Regulators was under investigation. He further stated that although members of the various licensing Boards would be separate, the Bill provided for the sharing of employees between licensing and regulatory authorities.

Mr Davidson expressed concern about the sharing of employees and suggested that shared employees be limited to administration staff. He suggested wording to this effect be included in the clause.

Dr Crompton responded by saying that including wording to this effect in the Clause would create additional complexity. He added that the Board should be sufficiently independent to assess the independence of its staff. Dr Crompton stated that the Committee should accept that in reality there might be attempts of regulatory capture and that the Board would have to monitor itself diligently.

The Chairperson noted that there was an investigation underway and concluded that the Committee could take up the issue for discussion once the investigation was concluded.

Chapter 3: Gas licences and registration
Clause 20: Licence to entity controlled by the state
The committee remained divided on the provision that the Minister may direct the Regulator to grant licences to state-owned entities preferentially if it is in the national interest. The concern was that private companies would be unfairly prejudiced in the tendering process if the Minister were allowed to exercise her discretionary powers in this regard.

Mr I Davidson (DP) once again expressed his dissatisfaction with the clause. As in previous discussions, he suggested that the Minister publish the requirements or objectives that need to be fulfilled for the tendering process. In doing so all interested parties, both state-owned and private, could vie equally for tender licences.

Mr G Oliphant (ANC) felt that the clause was not giving preference to state-owned entities nor was it restricting private companies from playing a meaningful part in the industry.

Prof I Mohamed (ANC) asked for clarity on the current percentages of equity held by the state in state-owned entities. The Chair seconded this suggestion and he asked the Department to explain the motivation behind the clause.

Dr Crompton stated that control in the normal sense of the word means 50%+1 ownership. Therefore the percentage ownership by the state could be anything from 50%+1 upwards. The gas industry as a whole provides a multitude of infrastructural challenges. One of the major challenges is that much of the gas resources are located beyond South Africa's borders.
He pointed out that there is already a state-owned entity operating gas pipelines in the manner envisaged by the clause, that is, Petronet. The need for the Minister to ask a regulator to grant a licence to a state-owned entity has not as yet happened. The clause was formulated as a means to make provision for any eventuality that may arise in the future.

Mr B Bell (DP) was alarmed to hear that state-owned entities are in most cases not wholly owned by the state. He strongly felt that the clause should be deleted or at the least be amended.

Mr Oliphant suggested that the committee deal with the clause later. The Chair agreed and so did the rest of the committee.

Clause 21: Conditions of licence
Clause 21(1)
This provides for the imposition of licence conditions within a framework of requirements and limitations. The committee unanimously felt that the clause should be reworded and agreed to come back to it.

Clause 21(2)
This makes provision for a person who was aggrieved by the imposition of a condition in Clause 21(1) to appeal to the Gas Regulator to have the condition reviewed. The committee were uncertain about deciding what the appropriate appeal mechanism should be: to the Regulator itself or the High Court of South Africa.

Dr Crompton stated that in most instances grievances would be settled by way of arbitration and it would be unlikely that matters would develop to the extent of an appeal.

The Chair noted Dr Crompton's point but nevertheless suggested that the committee discuss and deal with the issue at a later time. The committee agreed.

Chapter 4: General provisions
Clause 34: Regulations
Mr Oliphant asked when would the criteria that the Gas Regulator would have to fulfill in order to make decisions, be finalised.

Dr Crompton conceded that the Department still has to draft it.


The Chair congratulated the Department and the committee on the work that had been done on the Bill thus far. He felt confident about the committee and the Department's ability to resolve the unresolved issues such as Clause 20 (Licence to entity controlled by state) and Clause 36 (Mozambique Gas Pipeline Agreement).

The meeting was adjourned. A follow-up meeting could take place on 29 August 2001.