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Review call made as Nersa again rebuffs Transnet on pipeline tariffs

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Review call made as Nersa again rebuffs Transnet on pipeline tariffs

9th April 2010

By: Terence Creamer
Creamer Media Editor

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The National Energy Regulator of South Africa (Nersa) has indicated that it will continue investigations and consultations on the appropriate tariff structuring after again granting Transnet a materially lower allow-able revenue increase for the period April 1, 2010, to March 31, 2011, than had been requested by the group’s fuel pipelines unit earlier in the year.

The State-owned freight logistics group applied for an increase in revenue of 51,3% for the period. However, Nersa announced in late March that it had approved tariffs that would translate into an allowable revenue increase of 11,86% for Transnet Pipelines.

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The adjustment, it added, would have been closer to 20% had it not been for the fact that Nersa found it necessary to “claw back” revenue from the previous financial period, owing to delays in the introduction of certain new pipelines.

“Almost 60% of those clawbacks arise from new pipelines that were supposed to come into operation in the previous tariff period but did not come into operation,” Nersa’s Dr Rod Crompton told Engineering News after the decision had been made.

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The pipelines being referred to were three 16-inch pipelines that constituted a part of Transnet’s new multiproducts pipeline (NMPP) project, including pipelines from Jameson Park to Alrode, from Alrode to Langlaagte and from Kendal to Waltloo. Transnet expects them to start operation around June this year and Crompton indicated that provision had been made for this in the tariff decision.

Transnet expressed immediate concern with the decision, but said it was still studying the decision to assess its implications on Transnet Pipelines and the funding of the investment in new pipeline infrastructure.

“The requested [51%] increase was largely due to new assets being commissioned in this coming financial year (2010/2011) as well as the application of sound technical and widely accepted regulatory principles,” spokes- person John Dludlu noted.

However, allowing for Transnet’s fore- cast volume increase of 6,87% on the pipeline, which carries oil, petrol, diesel and jet fuel, Nersa indicated that the revised allow-able revenue would result in a tariff increase of 6,09%. Revenue at Transnet Pipelines would increase from R1,1-billion in 2009/10 to R1,2-billion in the coming financial period.

The lower-than-requested increase forms part of a consistent pattern in relations between Nersa and Transnet Pipelines, with the latter having consistently argued that the regulator’s actions were creating serious cashflow uncertainties for the enterprise.

In 2009, Nersa announced a 10%-plus reduction to Transnet Pipelines’ tariff for the 2009/10 financial period, after Transnet had applied for a 70%-plus upward adjustment, in part to support its funding of the NMPP from Durban to Johannesburg.

Cost Escalations and Delays
Nersa said that it was concerned about the unpredictable nature of Transnet’s tariffs as a result of delays in the commissioning of the NMPP network, as well as the escalation in the cost of the project.

In early March, Transnet confirmed that the cost of the NMPP had escalated by R2,75-billion, to R15,42-billion, and that the project would be completed a full year later than initially scheduled. The new NMPP network, which was initially expected to cost R12,67-billion, would now only be completed by December 20, 2012.

The full network comprises a 16-inch inland pipeline network involving links from Kendall to Waltloo and from Jameson Park to Langlaagte; a 555-km 24-inch trunkline from Durban to Jameson Park (crossing rivers, mountains and wetlands as it climbs 1 500 m from KwaZulu-Natal to Gauteng); inland and coastal terminals; and three pumpstations.

Transnet also warned that the introduction of new assets into the network between 2010 and 2012 would entitle the group to raise tariffs in line with the revenue requirement formula, which guarantees a “fair return”.

Nersa said that, in the light of new inform-ation that had emerged in the recent public hearing, it would continue investigations and consultations on the tariff structuring during 2010, with the intention of reaching a well- informed position on tariff structures in time for the next tariff period.

“Consequently, for this tariff period, the previous tariff structure will remain, albeit increased by 6,09%,” Nersa said, noting its concern that there appeared to be a high level of correlation between the views presented by stakeholders and their individual commercial interests.

Transnet, on the other hand, argued that it was not possible to make “proper investment decisions when such uncertainty prevails on cash flows and constantly changing para-meters are used”.

“It is in South Africa’s interest that we establish some regulatory certainty as soon as possible,” Dludlu said.

Meanwhile, Transnet has secured a 7,5c/ℓ levy, capped at R4,5-billion, on diesel and petrol sold locally to help fund the “security of supply” component of the NMPP. The levy effectively covers the difference in the costs between the 16-inch pipeline initially proposed by Transnet and the 24-inch line demanded by government.

The levy came into force on April 1, 2010.

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