100326 Competion Commission Public Sector Consultatve Forum

8/8/2019 100326 Competion Commission Public Sector Consultatve Forum

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PRESENTATION TO THE

PUBLIC SECTOR CONSULTATIVE FORUM

SUPPLIER COLLABORATIONS AND COMPETITION LAW

COMPLIANCE

CSIR Convention Centre

Friday, 26 March 2010

Muzi W. Mkhize

Chief Director: Hydrocarbons

Tel: 012 444 4015/6


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Outline of Presentation

Context Department of Energys role

Strategic importance of the sector

Legislative framework

Collaboration

Challenges


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The Role of the Department of Energy

MANDATE: ensure secure and sustainable provision of energy forsocio-economic development

MISSION: To regulate and transform the sector for the provision of

secure, sustainable and affordable energy

STRATEGIC OBJECTIVES

Ensure energy security Achieve universal access and transform the energy sector

Regulate / govern the energy sector

Effective and efficient service delivery

Optimal utilisation of energy resources

Ensure sustainable development

Enhance DoE culture, systems and people

Promote corporate governance


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The Role of the Department of Energy (contd)

National Energy Regulator of South Africa (NERSA)- National Energy Regulator Act, 2004 (Act No. 40 of 2004)

- Regulates petroleum pipelines: Petroleum Pipelines Act, 2003 (Act No. 60 of

2003)

- Piped Gas: Gas Act, 2000 (Act No. 48 of 2000)

Department of Energy as a regulator- Petroleum Products Act No 120 of 1977, as amended

Petroleum Products Amendment Act No. 58 of 2003

Petroleum Products Amendment Act No. 2 of 2005 (only technical

changes)

- Petroleum product prices: petrol but not diesel at retail; SMNRP for IP

- Trading licences

- Fuel quality specs & stds

- Import and export control


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Strategic importance of the sector

Transport fuels play an important economic part in the movementof goods, services and people

Regulation of sector stems from the recognition of the strategic

importance of petroleum products to the economy

DoE Study: ~R1 billion (in 2005 figures) loss if country were to run

out of liquid fuels for a day NB: Security of Supply interactions of the petroleum sector with

various other economic sectors and the convergence of energy

carriers

Fuel shortages reduce a countrys competitiveness and its ability

to attract investments & tend to give an impression that the state is

failing to govern the country properly

RSA market includes Botswana, Lesotho, Namibia and Swaziland

(BLNS) countries and southern Zimbabwe


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Refining Capacity

Refinery Area and Province Type Capacity*

Chevron Refinery Cape Town, Western Cape Crude 100,000

Engen Refinery Durban South, KwaZulu Natal Crude 125,000

Natref Sasolburg, Free State Crude 108,000

PetroSA Mossel Bay, Western Cape Synthetic

(GTL)

45,000

Sasol Synfuels Secunda, Mpumalanga Synthetic

(CTL)

150,000

Sapref Durban South, KwaZulu Natal Crude 180,000

TOTAL 708,000

* Barrels of oil equivalent per day


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Liquid Fuels Demand in South Africa

Inland North

12.7

Durban

Area5.3

Inland South

2.1

Cape Town

Area4.6

Eastern Cape Area2.4

Lesotho

0.19

Swaziland

0.26

Botswana

0.89

Namibia0.95

All figures in Billion Litres per annumAll Products Petrol, Diesel, Kero,

LPG, Fuel Oils

~ 30% of

Market

Supplied by

Indigenous

Production

Durban GautengCorridor ~ 68% of

RSA Market

[Source: SAPIA & ETP analysis]


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Geographical Location of South Africa

ap of ajor il ra e o e ent

(

illion

of

on

)


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Jigsaw Puzzle

Industry Supply

Agreement

(Product swaps)

Fuel specs & stds

and other

regulatory

activities

Investments,Mergers and

Acquisitions

NatrefNeutrality

Import/Export

Control

Empowermentof HDSA

Zonal

Pricing

Promotion of

Competition Licensing


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Relevant Legislation

Mineral and Petroleum Resources Development Act No. 28 of 2002

Petroleum Products Act No 120 of 1977, as amended- Petroleum Products Amendment Act No. 58 of 2003

- Petroleum Products Amendment Act No. 2 of 2005 (only technical changes)

Central Energy Fund Act No. 38 of 1977, as amended- CEF Amendment Act No. 48 of 1994

National Energy Regulator Act No. 40 of 2004

Petroleum Pipelines Act No. 60 of 2003

Petroleum Pipelines Levies Act No. 28 of 2004- Pipeline tariffs set by the National Energy Regulator of South Africa (NERSA)

Gas Act No. 48 of 2000

Promotion of Administrative Justice Act No. 3 of 2000, as amended- Promotion of Administrative Justice Amendment Act No. 53 of 2002

International Trade Administration Act No. 71 of 2002- Section 21w.r.t. importation and exportation of crude oil and petroleum products

- Administered by the International Trade Administration Commission


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Some of published Government policy

White Paper on Energy Policy of November 1998

Moerane Commission Report of 2006

The Energy Security Master Plan Liquid Fuels of August 2007

The National Biofuels Industrial Strategy of December 2007

Notice 692 of 05 June 2009: Designation of the petroleum industry forpurpose of section 10(3)(b)(iv) of the Competition Act, 1998 (Act No. 89 of

1998)


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Historical Perspective

Agreements that may not necessarily be legally enforceable

Ratplan (Retail rationalisation plan)- Agreement between Government (DME), wholesale oil companies and the fuel retail

industry to limit the number of service stations

- Not a legal instrument

- Limitations of the Plan

Non-compliance

Concerns of the erstwhile Competitions Board

Termination of the Sasol-oil industry upliftment agreement (Blue Pump Agreement)

Blue Pump Agreement

- Framework of a collective upliftment agreement in which the oil industry uplifted almost all of

its inland requirements from Sasol. Sasol was allowed to market 6,72 % of its fuel

throughout the crude oil industry retail network.

- 1998: Sasol issued termination notice (five year notice period)

- 2003: Agreement termination and ushering of a willing buyer/ willing seller basis.

- Same willing buyer / willing seller basis applies for upliftment of product from PetroSAs

refinery in Mossel Bay


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The balancing act

Collaboration for

energy security Competition

National Interest

In some cases achieving harmony among all three is very difficult

It depends on circumstances; perception vs. reality

Competition for vs. competition in the market

It is in the countrys interest that domestic fuel supply be jointly planned by Government and the industry playersbecause of : the complexity of the oil industry; the interdependence of producers as well as the owners of essentialinfrastructure; and the need for coordinated refinery shutdown and logistical planning.


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Constrained Supply Chain

Generally inefficient and unreliable rail system for petroleum products

- Significant benefit can be derived from optimising block train operations

Single Buoy Mooring (SBM)

- Import crude for Durban refineries and Natref via Durban harbour SBM

- New Durban Offshore SBM installed on 11-Jun-09; discharged 4 crude ships on 02-Jul-09

- From SBM piped into the crude oil storage tanks the Durban refineries

TPLs crude oil pipeline (COP)- Crude oil pipeline (COP) Line-fill capacity: 490 000 barrels

- From SBM to NATCOS tanks piped through COP into Natref crude oil storage tanks of the

- Operational optimisation: introduction of diesel in COP

For Chevron refinery in Cape Town, crude is discharged into the

Saldanha storage facilities and then piped by a dedicated pipeline into thecrude oil storage tanks of Chevref


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Constrained Supply Chain (contd)

Overloaded logistics infrastructure for the transfer of petroleum products

from coastal to the inland regions Durban Port

- Currently congested due to over-reliance by petroleum industry and the economy in general

- Congestions cause major delays in berthing that result in increased demurrage costs

Durban-to-Johannesburg Pipeline (DJP)

- 16-inch Durban to Johannesburg Pipeline (DJP) Line-fill capacity : 78 million litres of finished product

- Introduction of drag reducing agents (DRAs) to increase throughput

- DJP is still inadequate rail and road usage costing more

- R15.4 billion, 24-inch New Multi-Product Pipeline (NMPP): 350 000 m3 of product per week by 2015

Jet Fuel to ORTIA

- 70% transported via dedicated 24 Ml/week capacity pipeline from NATREF (50% crude-derived and 50%

synthetic ex Secunda)

- Remainder of30% transported by rail (TFR) from coastal refineries

- Use of DJP not preferred quality concerns and backing out diesel and petrol

RSAmarket size is small by global standards and would tend to render duplication of infrastructure unviable, thereby requiring some form

of joint planning


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Collaboration Platforms

Joint Initiatives, Studies or Projects

- Government (mainly the DoE, DPE, the dti and DoT), State Owned Enterprisesand the petroleum industry players

- E.g. FSSTT, Implementation of ESMP; development of a Regulatory

Accounting System

- Development of alternative energy and promoting security of supply through

diversity (e.g. incorporation of biofuels)

- New refining capacity development (Mthombo and Mafutha projects)

- Storage and distribution (e.g. NMPP and associated storage facilities at the

depots; and consolidating rail tank cars (RTCs) into block trains)

Supply Managers Forum

- Managing the risks that could cause petroleum product supply shortfalls

- Established to manage product supply and logistical issues impacting on

product availability in the market. One forum for liquid fuels and another forum

for liquefied petroleum gas (LPG)

Since infrastructure development lags the demand increase throughout the value chain means that the industry

needs more rigorous operational management than normal, requiring joint fora among all stakeholders


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Collaboration Platforms - contd

Logistics Planning Team (LPT)

- Convening during emergencies (as for Dec-05 shortages) to deal with urgentsupply matters

- Meeting could even be held on a daily basis until the situation reverts to normal

Consultations on Regulatory Framework changes

- Regulatory framework hinges on 3 pillars: Retail price maintenance (for petrol);

Import and export control; and (Industry transformation through) Licensing.- policy formulation & operational elements - especially in respect of price

regulation by the Department; legal instruments for, e.g., mandatory

stockholding; third party access, etc.

Refinery shutdown / maintenance scheduling

- Statutory (min 2 weeks p.a.) over and above the non-statutory and/orunplanned shutdowns of operating units in a year

- Operational challenges throughout the supply chain

- Challenges of overlapping shutdowns (e.g. delays in starting / ramping up;

planned and unplanned shutdown coincidence) Dec-05 scenario


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Challenges

Concurrent jurisdiction between DoE and the CC for enhanced

governance of the petroleum industry

Its about behaviour not just structure

Companies using CC as an excuse to withhold information

In recognition of need for collaboration that is not anti-competitive, the CC has grantedSAPIA an unconditional

exemption in terms of section 10(2)(a) of the Competition Act, 1998 (Act No. 89 of 1998), as amended, solely for

the purposes of the FIFA 2010Soccer World Cup


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WE THANK YOU

100326 Competion Commission Public Sector Consultatve Forum

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