The Department on Energy (DoE) unveiled its much-anticipated draft position paper on fuel specifications and standards on Tuesday, which, if implemented, would see the phased introduction of Euro V-type fuel in South Africa as from 2013, as well as the upgrade of South Africa’s refinery fleet by 2017.

The announcement was welcomed by the automotive industry, which sees the country’s dirty fuel as a constraint to the introduction of newer engine types, as well as by the petroleum industry, which said the paper improved visibility of government’s intentions.

However, the oil firms also warned that, in the absence of a cost-recovery mechanism, the proposed refinery upgrades, which could cost R28-billion, might not be economically viable – some estimate the cost at closer to R40-billion.

South Africa’s liquid fuel policy is officially weighted towards local refining over importation, and Energy Minister Dipuo Peters indicated that government was, thus, open to discussions on cost recovery, which would occur once “a thorough determination of the costs and benefits for each refinery has been done”.

“There are approaches that can be considered including differentiated taxes which create an advantage for high quality fuel,” she said.

During the previous, albeit more modest cleaner fuels upgrade, which occurred ahead of the 2006 deadline, the industry, which is still regulated, bore the capital costs associated with the upgrades. But significant volumes were forfeited, which are now being supplemented heavily by imports, with the DoE indicating that South Africa is currently importing about 5-billion litres yearly. The document is silent on plans to close that growing gap between supply and demand.

It has been opened up for public comment over the next 60 days, after which the specifications would be finalised. Peters indicated that the full process should be concluded during the course of 2011.

The plan, she said, was geared towards calibrating South Africa’s transport fuels with government’s health and environmental objectives, as well as to technological advances in the production of new, more energy-efficient vehicles.

In fact, South Africa’ automotive industry, through the National Association of Automobile Manufacturers of South Africa (Naamsa), has been a key proponent of improvements to South Africa’s fuel standards, having warned that currently available product was out of line with the requirements of the next generations of fuel-efficient vehicles.

But Naamsa executive director Nico Vermeulen said he was disappointed that the introduction had not been brought forward to 2012, as had been requested by the industry.

Nevertheless, he stressed that Naamsa fully supported the decision to move directly to a Euro V-type specification, rather than the initial proposal of advancing to that level in stages. He added that the 2013 introduction date was also an improvement on the initial proposal of 2015.

“This will enable the industry to start offering South African consumers the latest, high fuel-efficient, high-technology vehicles. So from that point of view, we welcome this development,” Vermeulen told Engineering News.

South African Petroleum Industry Association (Sapia) executive director Avhapfani Tshifularo said that the industry would play an active role in the finalisation of the specifications and that the industry would, in the coming months, highlight where it was in full agreement, as well as where it might differ with the proposal.

He told Engineering News that the phased approach should also ensure that the stock outs of December 2005, which were associated with delays with the previous cleaner-fuels programme, were avoided.

But he warned that the cost implications were not limited to the overhauls of the refineries, as there could be material logistical-related costs associated with the introduction of a new imported grade from 2013.

He noted, for instance, that the new multiproduct pipeline from Durban to Johannesburg would not be fully operational until the end of 2013, which meant that new trucks and rail capacity might be needed temporarily to deal with the separate fuel grade, which could see fuel stations having to offer four grades of petrol.

“The cost implications to the industry, motorists and the country need to be thoroughly reviewed,” Tshifularo said, while welcoming Peters’ comments on cost recovery.

The DoE’s chief director for hydrocarbons Muzi Mkhize stressed that, while the Cleaner Fuels Two, or CF2, specification was more or less in line with Euro V standards, future upgrades might deviate from that trajectory, with the European Union already planning to implement the Euro VI from September 2014.

The changes, which would be mandatory and applied nationally, were described as a continuation of a process that began in the 1990s, the initial focus of which was the prohibition of lead in all grades of petrol. Subsequently, there was a move to reduce sulphur levels in diesel from 3 000 parts per million (ppm) to 500 ppm.

Should the CF2 standards been prescribed, the level of sulphur in South African fuel would have to be reduced from 500 ppm to 10 ppm, while the allowable levels of cancer-causing benzene would have to be reduced from 5% to 1%.

There would also be a tightening of allowable levels of aromatics and olefins in petrol, while new limitations would be placed on particulate emissions from the burning of diesel. The octane number will remain unchanged for petrol, however.

Mkhize said that a task team, which included the National Treasury, Department of Trade and Industry, the Department of Transport, the Department of Environmental Affairs, the South African Bureau of Standards and the DoE, had drafted the discussion document in consultation with Sapia and Naamsa and that further engagements would be held.

He said it would be premature to comment on the possible price implications for motorists, but confirmed that the National Treasury would play a central role in determining any possible cost-recovery mechanism and how the costs might be shared between the refinery owners, government and end-users.