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PRESENTATION TO THE PORTFOLIO COMMITTEE ON MINERALS AND ENERGY PETROLEUM PIPELINES BILL [B22-2003] BY: CHARL M Ö LLER &a

PRESENTATION TO THE PORTFOLIO COMMITTEE ON MINERALS AND ENERGY PETROLEUM PIPELINES BILL [B22-2003] BY: CHARL M Ö LLER & JOHN MORGAN 4 JUNE 2003. 1. PETROLEUM PIPELINE BILL CONTENT OF PRESENTATION 1. PETRONET’S VIEW ON REGULATION 2. NATIONAL PORTS AUTHORITY COMMENT ON BILL

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PRESENTATION TO THE PORTFOLIO COMMITTEE ON MINERALS AND ENERGY PETROLEUM PIPELINES BILL [B22-2003] BY: CHARL M Ö LLER &a

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  1. PRESENTATION TO THE PORTFOLIO COMMITTEE ON MINERALS AND ENERGY PETROLEUM PIPELINES BILL [B22-2003] BY: CHARL MÖLLER & JOHN MORGAN 4 JUNE 2003 1

  2. PETROLEUM PIPELINE BILL CONTENT OF PRESENTATION 1. PETRONET’S VIEW ON REGULATION 2. NATIONAL PORTS AUTHORITY COMMENT ON BILL 3. PETRONET SPECIFIC COMMENTS/QUERIES/ SUGGESTIONS ON BILL 2

  3. PETROLEUM PIPELINE BILL • PETRONETS VIEW ON REGULATION • PRINCIPLE NOT OPPOSED - PARTICIPATED IN THE PROCESS(SEVERAL WORKSHOPS) SINCE 2000.COMMENTED ON DRAFT BILL IN 2001. • INTERNATIONAL NORM • PRESENT COMMERCIAL REGULATION AND AGREEMENTS HIGH RISK • SETS STANDARDS • OFFERS PROTECTION AGAINST POSSIBLE UNFAIR COMPETITION FROM FUTURE PIPELINES OF LOWER STANDARDS • CERTAINTY ON RULES FOR FUTURE PUBLIC AND PRIVATE INVESTMENTS 3

  4. PETROLEUM PIPELINE BILL • PETRONETS VIEW ON THE BILL • MAIN IMPACT: COMMERCIAL ASPECTS OF PIPELINING • TARIFFS, CONDITIONS OF CONVEYANCE, FINANCIAL REPORTING, ETC. • TECHNICAL, HEALTH, SAFETY, ENVIRONMENT COVERED IN VARIOUS PIECES OF EXISTING LEGISLATION • BUT: OPERATING COMPETENCIES NOT ADDRESSED IN THE BILL 4

  5. PETROLEUM PIPELINE BILL • PETRONETS VIEW ON THE BILL • STRATEGIC ROLE OF PETROLEUM PIPELINES IN SA AKNOWLEDGED • SUSTAINABLE BUSINESS ENVISAGED • LOW RISK OF REGULATION BEING DISRUPTIVE TO PRESENT PIPELINE NETWORK OR LEADING TO UNSUSTAINABLE SITUATION • WILL ENHANCE THE COMMERCIAL MANAGEMENT AND FUTURE DEVELOPMENT OF PIPELINE INFRASTRUCTURE • RULES SPELT OUT • INVESTMENT, RETURNS, TARIFF POLICY 5

  6. PETROLEUM PIPELINE BILL • NATIONAL PORTS AUTHORITY COMMENT • DEGREE OF OVERLAP BETWEEN THE POWERS OF THE NATIONAL PORTS AUTHORITY IN TERMS OF THE NATIONAL PORTS AUTHORITY BILL (B5-2003) AND THE PETROLEUM PIPELINES AUTHORITY • CONSTRUCTION AND OPERATION OF MARINE LOADING AND STORAGE FACILITIES • SBM / BERTHS / ETC ? • THIS POSITION TO BE CLARIFIED 6

  7. PETROLEUM PIPELINE BILL • SPECIFIC COMMENT/QUERIES/SUGGESTIONS • Section 20 - Conditions of licence • 20 (1) (d) This clause in Petronet’s opinion is restrictive on existing pipelines and has the potential to create inefficiencies and artificial capacity constraints within an existing integrated pipeline network. It will be far more efficient to convey refined products through a crude oil pipeline which has surplus capacity then to provide additional refined pipeline capacity. • Optimal utilisation of very expensive (Capital Intensive) existing pipeline capacity must be allowed for. Not only under emergency conditions. 7

  8. PETROLEUM PIPELINE BILL • PETRONET PIPELINE NETWORK DEVELOPMENT • 1965 - MULTI PRODUCTS PIPELINE (DJP): DURBAN – JOHANNESBURG • 1970 - CRUDE OIL PIPELINE (COP): DURBAN – COALBROOK (NATREF) – KENDAL • 1973 - MULTI PRODUCTS PIPELINE (EXTENSIONS) PRETORIA, BENONI, KLERKSDORP • - AVIATION TURBINE FUEL PIPELINE (AVTUR) COALBROOK – JOHANNESBURG INTERNATIONAL AIRPORT • 4. 1978 - NEW MULTI PRODUCTS PIPELINE (DWP): DURBAN – ALBERTON (VIA SECUNDA)CRUDE OIL RETURN PIPELINE (KDC): KENDAL – VREDE 8

  9. PETROLEUM PIPELINE BILL PETRONET PIPELINE NETWORK DEVELOPMENT 5. 1993 - MULTI PRODUCT PIPELINE EXTENSION: LANGLAAGTE - RUSTENBURG 6. 1995 - NETWORK RECONFIGURATION (COP/DWP) TO INTRODUCE GAS: SECUNDA – DURBAN 7. 2002 - UPGRADE CRUDE OIL PIPELINE CAPACITY: DURBAN – COALBROOK (5 ADDITIONAL PUMP STATIONS) 8. 2004 - DEBOTTLE NECK MULTI PRODUCTS PIPELINE: SASOLBURG - ALRODE 12

  10. 1965 - MULTI PRODUCTS PIPELINE (DJP): DURBAN – LANGLAAGTE PPT-0591

  11. 1970 - CRUDE OIL PIPELINE (COP): DURBAN – CBK – KENDAL PPT-0592

  12. 1973 - MULTI PRODUCTS PIPELINE (EXTENSIONS): PRETORIA, BENONI, KLERKSDORP AVIATION TURBINE FUEL PIPELINE (AVTUR): COALBROOK – JOHANNESBURG INTERNATIONAL AIRPORT PPT-0593

  13. 1978 - NEW MULTI PRODUCTS PIPELINE (DWP): DURBAN – ALRODE (VIA SECUNDA) CRUDE OIL PIPELINE (KDC): KENDAL – VREDE PPT-0594

  14. 1993 - MULTI PRODUCT PIPELINE EXTENSION: LANGLAAGTE - RUSTENBURG PPT-0595

  15. 1995 - NETWORK RECONFIGURATION (COP/DWP): SECUNDA – DURBAN PPT-0596

  16. N 2002 - UPGRADE CRUDE OIL PIPELINE CAPACITY: DURBAN – COALBROOK (5 ADDITIONAL PUMP STATIONS) GAUTENG WALTLOO GAUTENG PRETORIA WEST SECUNDA RUSTENBURG AIRPORT KENDAL WITBANK SOUTH AFRICA RICHARDS BAY MPUMALANGA TARLTON LESOTHO NORTH - WEST DURBAN LANGLAAGTE ALRODE ø406,4 CAPE TOWN MEYERTON ( 16" ) POTCHEFSTROOM SECUNDA ø457,2 ( 18" ) KLERKSDORP COALBROOK SASOLBURG STANDERTON WILGE AFRICA ø457,2 VOLKSRUST ( 18" ) FREE VREDE MAGDALA QUAGGA INGOGO STATE VRYHEID KROONSTAD NEWCASTLE SCHEEPERSNEK FORT MISTAKE BHT KWAZULU / BETHLEHEM MAHLABATINI VAN REENEN NATAL LADYSMITH EMPANGENI RICHARDS BAY LESOTHO REFINED PRODUCTS MOOIRIVER ø323,8 CRUDE OIL ø406,4 ( 12" ) GAS ( 16" ) INDIAN ø457,2 AVTUR ( 18" ) HOWICK DUZI OCEAN DOUBLE PUMP STATION PUMP STATIONS HILLCREST MNGENI DELIVERY STATIONS / METERS DURBAN INTAKE STATIONS PPT-0597

  17. - DEBOTTLE NECK MULTI PRODUCTS PIPELINE: • SASOLBURG - ALRODE GAUTENG WALTLOO PRETORIA WEST RUSTENBURG KENDAL WITBANK AIRPORT MPUMALANGA TARLTON LANGLAAGTE ALRODE JAMIESON PARK PIGGING STATION SASOLBURG ( 16" ) NIGEL SECUNDA ( 18" ) COALBROOK NATREF STANDERTON NEW PIPELINE EX COAST WILGE VREDE ø457,2 VREDE “T” PIGGING STATION ( 18" ) FREE VREDE “T” MAGDALA QUAGGA STATE KROONSTAD NEWCASTLE FORT MISTAKE BHT KWAZULU / N BETHLEHEM VAN REENEN NATAL LADYSMITH RICHARDS BAY LESOTHO REFINED PRODUCTS MOOIRIVER ø323,8 CRUDE OIL ø406,4 ( 12" ) PROPOSED CHANGES ( 16" ) INDIAN REQUIRED CHANGES LDC HOWICK DUZI OCEAN DOUBLE PUMP STATION PUMP STATIONS HILLCREST MNGENI DELIVERY STATIONS / METERS DURBAN PPT-0574

  18. PETROLEUM PIPELINE BILL • SPECIFIC COMMENT/QUERIES/SUGGESTIONS • Section 27 - Health, Safety, Security and Environment • The Bill is lacking with respect to the issue of pipeline security. Petronet currently experiences major difficulties in managing the activities of 3rd parties both in and adjacent to its pipeline servitudes. Encroachments by informal developments as well as the increasing number of encroachments inadvertently approved by various local authorities pose a major risk to health and safety the environment as well as the disruption of the essential services. Consideration should be given to including enabling legislation in this Act 19

  19. PETROLEUM PIPELINE BILL • SECURITY OF PIPELINES • PIPELINES DESIGNED, CONSTRUCTED, OPERATED AND MAINTAINED IN ACCORDANCE WITH PROVEN INTERNATIONALCODES ARE SAFE AND SECURE BURRIED INSTALLATIONS • OPERATIONS • ADEQUATE MONITORING AND CONTROL SYSTEMS • INFRASTRUCTURE INTEGRITY • PREVENTIVE MAINTENANCE • SERVITUDE MANAGEMENT 20

  20. PETROLEUM PIPELINE BILL • SECURITY OF PIPELINES:SERVITUDES • HIGH RISK FROM 3RD PARTY ACTIVITY • PHYSICAL DAMAGE • ILLEGAL ENCROACHMENT/ACTIVITIES IN SERVITUDES • - COMPLEX AND TIME CONSUMING PROCESS TO STOP OR REMOVE • ACTIVITIES ADJACENT TO SERVITUDE AFFECTING INTEGRITY OF PIPELINE • PIPELINE OWNER HAS NO JURISDICTION BEYOND THE SERVITUDE LIMIT 21

  21. PETROLEUM PIPELINE BILL • SPECIFIC COMMENT/QUERIES/SUGGESTIONS • Section 34 - Prohibition of agreements contrary to Act • 34 (1) It is not clear from this clause whether existing agreements will be dealt with in terms of 34 (2) or 20 (1) (f) (ii). • EXAMPLE: • Tariff link agreement - Petronet/Natref • 3 Year Termination Clause • Current Conveyance Agreement – Petronet/SA Oil Industry members 22

  22. PETROLEUM PIPELINE BILL • SPECIFIC COMMENT/QUERIES/SUGGESTIONS • Section 22 - Term of Licence • 22 (5) It is recommended that this clause be amended to make provision for the transfer of a licence in the case of State owned entities. A possible mechanism for this is the Transnet Legal Succession Act. • EXAMPLE: TRANSNET (THE LEGAL ENTITY)WILL NEED TO HOLD THE LICENCE. NOT PETRONET - THE PIPELINE BUSINESS …….. 16

  23. PETROLEUM PIPELINE BILL • SPECIFIC COMMENT/QUERIES/SUGGESTIONS • Definitions • Pipeline - This is a very broad definition based on product type. • Considerother possible parameters such as diameter, length, pressure, etc • Section 10 - Decisions of Authority • Recommendthe“right of appeal” be included as per 25 (3). • Section 15 - Licences • 15 (1) Recommend “person” be replaced with “owner”. • This will clear up any uncertainty as to who the licencee is. 

  24. PETROLEUM PIPELINE BILL • SPECIFIC COMMENT/QUERIES/SUGGESTIONS • Section 16 - Application for licence • 16 (2) (c) Given the importance it is considered essential that applicants also be required to demonstrate their “Operating” abilities. • 16 (3) It is requested that the following be considered. • The Authority will at all times adhere to the requirements of the “Access to Information Act” in terms of obtaining/using/controlling and making public any information obtained from any applicant. 8

  25. PETROLEUM PIPELINE BILL • SPECIFIC COMMENT/QUERIES/SUGGESTIONS • Section 18 - Particular Information to be supplied by the applicant • 18 (a) This clause is unacceptable unless:  • i) no additional costs are incurred by the licensee, or • ii)the authority makes provision for such additional costs when approving tariffs. 9

  26. PETROLEUM PIPELINE BILL • SPECIFIC COMMENT/QUERIES/SUGGESTIONS • Section 20 - Conditions of licence • 20 (1) (f) (i) In order to comply with this requirement customer “needs” will have to be defined within the Act. Capacity not the only consideration in a pipeline.Considerationto be given to Technical and product compatibility, minimum batch (slug) sizes, frequency of utilisation, etc.Suggested change is to include the following: • “…………………to their needs and within the operational constraints of the pipeline system/network”. 13

  27. PETROLEUM PIPELINE BILL • SPECIFIC COMMENT/QUERIES/SUGGESTIONS • Section 20 - Conditions of licence • 20 (1) (r) & (s) Why tariffs would be set by the Authority for petroleum pipelines and only approved for storage facilities is not understood. • 20 (2) (a) to ( C) : Should the right to appeal as allowed for in 25 (3) (2) not also be included in 20 (2)?. 14

  28. PETROLEUM PIPELINE BILL • SPECIFIC COMMENT/QUERIES/SUGGESTIONS • Section 21 - Non-discrimination • The terms “objectively justifiable” and “identifiable” are inadequately descriptive and need to be expanded to ensure compliance with this requirement 15

  29. PETROLEUM PIPELINE BILL • SPECIFIC COMMENT/QUERIES/SUGGESTIONS • Section 24 - Revocation of licence on application • 24 (2) It is unreasonable to expect an uneconomical business to continue for 12 months after notice. • Suggest that the period of notice on licensed activities be reduced from 12 months to 3 months in the case of uneconomical services and 6 months for any other reason 17

  30. PETROLEUM PIPELINE BILL • SPECIFIC COMMENT/QUERIES/SUGGESTIONS • Section 27 - Health, Safety, Security and Environment • This clause has indeterminable financial and legal liabilities for an undefined period. In order to facilitate and encourage investment, parameters will need to be fixed or limited. 18

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