SA government pipeline 4 times more expensive than average

Petroleum producer BP estimates that the 59,9% Transnet pipeline tariff increase could result in a R1-billion yearly cost to the ecomony, as well as 40 000 job losses.

The National Energy Regulator of South Africa’s (Nersa) on Thursday set new tariffs for Transnet’s petroleum pipeline, allowing the State-owned freight logistics group to realise a revenue increase from R1,2-billion in 2010/11 to R1,9-billion in 2011/12.

BP South Africa CEO Sipho Maseko on Friday reported that the tariffs exceeded the global average by over 400%, placing South Africa’s tariffs among the highest globally.

“At these high input cost levels, business viability is at stake and will inevitably lead to major job losses in Gauteng,” he noted.

Maseko added that Nersa viewed the magnitude of the increase to be insignificant, as the regulator argued that the increase in the petrol price arising from higher tariffs was only a small fraction of the gross domestic product of the inland provinces. However, BP said that its figures showed 40 000 job losses.

“We have consistently argued for local pipeline tariffs to be benchmarked against those in other parts of the world. Nersa’s disregard for this request violates many national objectives, such as promoting the efficient, effective, sustainable and economic distribution of petroleum and the promotion of access to affordable petroleum products,” Maseko said.

He further pointed out that the decision favoured inland refiners, as the pipeline tariff increase would raise the cost of doing business in the inland market relative to the coastal markets, posing challenges for Gauteng as the main business hub.

BP stated that only about 50% of the proceeds from the tariff would accrue to Transnet, with the remainder giving inland refiners an advantage.

“Nersa argued that locational advantage is a consequence of the import parity pricing principle, which is based on an assumption of competitive markets.”

However, Maseko explained that this principle was only appropriate for unregulated markets where there is an equal playing field.

“Clearly, when one has to transport product from the coast to inland areas, using State-owned assets such as Transnet, we are on the opposite side of the competitive spectrum and not a normal commodity market,” he asserted.

Meanwhile, by-products other than petrol, such as gas and bitumen, would also incur the higher tariff when transported to the inland market, with the estimated cost of the proposed increase at around R500-million yearly.

Nersa also reported that, if the Energy Minister decided to use the pipeline tariff as a proxy for the cost of transporting fuel from Durban to Johannesburg, as has been the case in the past, the consequent petrol price rise was expected to be 6,4 c/l.

BP has again urged Nersa to review the implications of the tariffs, given its comparison with global benchmarks and the consequent implications for the competitiveness of the regional and South African economies.

Nersa stated that it would investigate the possibility of meaningful benchmarking of Transnet’s petroleum pipeline tariffs.

Meanwhile, the Energy Department announced on Friday that the price of 95 grade petrol would rise to R9,96/l in the inland region, from R9,42/l.

The price of diesel will increase by 8% to R9,48/l.
[date:] 2011-04-04

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