Henry Nhlanhla Gumede Chief Director – Hydrocarbons 012 317 9694 nhlanhla@mepta.pwv.za

1. Petroleum Products Amendment Bill & Petroleum Pipelines Bill Presentation to the National Council of Provinces7th October 2003 Henry Nhlanhla Gumede Chief Director – Hydrocarbons 012 317 9694 nhlanhla@mepta.pwv.gov.za

2. The Petroleum Pipelines Bill

3. Introduction • The Bill seeks to untangle what has come to be known as the “Gordian Knot” “Natref Neutrality” “Location advantage” Gas agreement with Sasol Gordian Knot On-railing agreements with Spoornet Sasol Upliftment agreement Zone and Service differentials Fungibility and delivery of specific molecule Liquid Fuels Price control mechanism

4. Scope and scale of the Bill • Purpose of the Bill • Establish a national regulatory framework • Establish a Regulator as custodian & enforcer of regulatory framework • Provide for issuing of licenses • Scope of Bill • Crude oil • Petroleum products • Pipelines, storage facilities, off-loading facilities • Excludes production facilities

5. The Regulator • Composition of the regulator • 5 members – full time • Appointed by Minister for 4 year term, renewable • Limitations • RSA citizens; solvent; no convictions • Conflict of interest – disclosure • To be phased into a Single Energy Regulator • Qualifications • Relevant experience • Impartial & objective • Balance between continuity & capacity building

6. Licensing • Authority may impose licence conditions within the following framework (1) • Promote historically disadvantaged South Africans • Loading, pipeline and storage activities of vertically integratedcompanies may be required to be managed separately, with no cross-subsidisation • Apipeline may be licensed for either crude oil or petroleumproducts, or both • Sufficient pipeline capacity availed for crudeoil to enable uninterrupted operation of Natref, at its current normal operating capacity • Shippersmust have access in proportion to their needs and within the commercially reasonableconstraints

7. Licensing • Authority may impose licence conditions within the following framework (2) • Tariffs for petroleum pipelines set by the Authority • Tariffs for loading facilities and storage facilities approved by Authority • Licensees to provide information necessary for the Authority to perform its functions • Standards of construction and operation approved by the Authority include HSE standards required by the Authority, • Licensees must submit to the Authority annually an emergency plan for implementation

8. Regulations • Made by Minister after consulting Regulator & inviting public comment • Procedures • Record keeping • Forms • Publishing of information • Methodology to be used by Regulator • Land rehabilitation

9. Petroleum Products Amendment Bill

10. Objects of the Bill • The primary aim for amending this Act was to modernise it • The Petroleum Products Act, 1977 is outdated • It is no longer in line with the socio-political and economic dynamics pertaining to the liquid fuels sector • The PPAB will ensure that governance of the liquid fuels sector is in line with Government’s policy objectives • It gives effect to policy issues identified the Energy White Paper • It provides for a licensing dispensation that includes refiners, wholesalers and retailers petroleum • “Give effect” to the Charter through licensing • Allow for provision information

11. Section 2A Prohibition Of Certain Activities • The Bill prohibits a number of activities • Holding or develop a site, manufacturing, wholesaling, retailing petroleum products without a licence • Vertical integration between wholesaling and retailing • Excludes LPG & paraffin & training sites • Wholesalers can still own sites • Self-service by consumers

12. Section 2B Licensing Objectives • In considering the issuing of any licences, theController shall give effect to the provisions ofsection 2C and the following objectives • Promoting an efficient manufacturing, wholesaling and retailingpetroleum industry • Facilitating an environment conducive to efficient and commerciallyjustifiable investment • The creation of employment opportunities and the development ofsmall businesses in the petroleum sector • Ensuring countrywide availability of petroleum products at competitive prices • Promoting access to affordable petroleum products by low-incomeconsumers for household use

13. Section 2C Licensing Objectives • Transformation of South African petroleum and liquid fuels industry • In considering licence applications in terms of this Act, theController of Petroleum Products shall • Promote the advancement of historically disadvantaged SouthAfricans • Give effect to the Charter • Licence holders to furnish information, in respect of theimplementation of the Charter

14. Section 2D Transitional licensing provisions • The Act makes provisions for existing businesses • The Bill deems any person to be a holder of a licence who, at the time of commencement of the PetroleumProducts Amendment Act, 2003 • Holds and is in the process of developing a site • manufactures or wholesales or retails petroleum products • The person shall, within a period ofsix months apply for an appropriate licence • The applicant shall, on application,be entitled to a licenceif the applicant is in compliance with all national, provincial andlocal government legal requirements, that are in force immediately prior tothe commencement of this Act • Such applicant subject to the general conditions of a licence but not financial security requirement prescribedby regulation

15. Section 2E - “System” for allocation & supply of site licenses • Framework for allocation of site licences • Intention: an optimum number of efficient sites & achieve equilibrium amongst all participants • Promote efficient and productive retail facilities by • Cap on number of sites • Link total sites to total consumption • Wholesalers can trade obligations to retailers • Supplies (on spec.) – give preference to products made from • Coal, natural gas, vegetable matter • Other raw materials • Link new licenses to terminators or transfers

16. Section 12C - Regulations • The Minister may make regulations regarding • Conditions or restrictions in respect of licences • Conditions relating to the advancement of HDSAs • The obligation of a licence holder to keep records and to furnish particular information • The specifications and standards of petroleum products • Theprohibition of the blending or mixing of different petroleum products • Therehabilitation of land used in connection with a licensed activity

17. Concerns raised by oil companies • Concerns have been raised with respect to intentions of section 2B(6) • (6) It shall be a condition of a wholesale licence that the licensee mustpurchase and sell petroleum products— • (a) manufactured from coal, natural gas or vegetable matter; • (b) that meet prescribed specifications and standards where applicable; • (c) when such petroleum products are available; and • (d) at mutually acceptable prices, subject to section 2 of this Act; • before purchasing and selling petroleum products manufactured from otherraw materials

18. Concerns raised by oil companies • Concerns have been raised with respect of section 2E(3)(f) • (3) A system contemplated in subsection (1)— • (f) may specify that petroleum products which— • (i) are manufactured from coal, natural gas or vegetable matter, • when available; • (ii) meet prescribed specifications and standards, where applicable; • (iii) are at mutually acceptable prices, subject to section 2 of thisAct • Does this provision apply to existing sites? ….No, for only application for new sites

19. Department's proposal • (6) It shall be a condition of a manufacturing licence or a wholesale licence, as the case may be, that the licensee must purchase or sell, or purchase and sell, petroleum products— • (a) manufactured from coal, natural gas or vegetable matter; • (b) that meet prescribed specifications and standards where applicable;and • (c) when such petroleum products are availablein South Africa ; • before purchasing or selling, or purchasing and selling petroleum products manufactured from otherraw materials;

20. Department’s proposal • Section 2E(3)(f) • (f) may specify petroleum products which- • (i) are manufactured from coal, natural gas or vegetable matter when available in South Africa; • (ii) meet prescribed specifications and standards, where applicable; • must be supplied to a licensed retailer before the supply of prescribed petroleum products manufactured from other raw materials may be supplied;

21. Thank you