Daily News Articles for the Transport Sector, 2008

TRANSNET pipelines, formerly Petronet, has been granted the coveted licence to construct the R11bn multi-product pipeline that will transport petroleum products from Durban to the industrial heartland of Gauteng.

Transnet pipelines beat the black economic empowerment firm Ipayipi Consortium for the lucrative licence.

Transnet CEO Maria Ramos said yesterday the company was “heartened” by the decision of the National Energy Regulator of SA (Nersa). She said the decision recognised Transnet pipeline’s role as a key strategic player in the effort to achieve security of fuel supply in SA.

“Our track record as an operator is clear evidence that we are a good option and we are heartened by the faith bestowed on us to deliver this vital economic infrastructure on time and within budget,” said Ramos.

Ipayipi was dejected, CEO Deyar Natha saying: “We are disappointed that we didn’t get the licence. We received a very bland letter from Nersa and we don’t know why our application was turned down.”

Nersa said it would provide reasons for its decision “in due course”. The regulator would make an announcement on Transnet pipeline’s tariffs in due course.

Nersa said the new 24-inch pipeline was expected to be operational by the third quarter of 2010, by which time the existing pipeline was expected to be short of capacity.

The new pipeline is intended to mitigate the shortfall of petroleum products in the interior of the country.

Industry players said current demand exceeded product pipeline capacity by two billion litres a year. Consumption in the inland market was expected to reach 17-billion litres by 2010, up from the current average of about 14-billion litres.

The demand was expected to increase to 40-billion litres a year by 2030.

The awarding of the licence to Transnet pipelines comes after the minerals and energy department had issued draft regulations which sought to prevent pipeline operators from applying for high tariffs to fund future infrastructure capital investment programmes.

The draft regulations came after Nersa turned down Transnet pipeline’s application for a 5,6% tariff increase earlier this year.

Transnet pipelines had not yet applied for a licence to build a new pipeline at the time.

Transnet pipelines sought to increase tariffs on its existing pipelines to help it finance its new R11bn pipeline project.

But the concern in the industry is that new investors, who do not own existing pipelines on which they could gradually increase tariffs to finance investment in future pipelines, would find it difficult to enter the market.

This would entrench the state-owned Transnet’s dominance, and have the unintended consequence of defeating the government’s objective of promoting competition in the industry.

The draft regulations state that in the event of new investment in pipeline capacity, Nersa must ensure that “an increase in pipeline tariffs be introduced a few years before the new capacity expansion, in a manner that would prevent an abnormal increase in tariffs in the year that such investments are made”.

The other concern is that the draft regulations introduce a category of “essential petroleum infrastructure” that cannot reasonably be duplicated. This means that Nersa may not allow more than one pipeline to serve a particular route that is deemed essential.