South Africa’s Competition Commission on Wednesday criticised the Petroleum Pipelines Bill, stating that in its present form, it was unlikely to accomplish its stated objectives of increasing competition and private sector investment, or promote access to affordable petroleum products.
The Bill establishes a Petroleum Pipeline Regulatory Authority (PPRA); and outlines the process, requirements and conditions for licensing of the construction and operation of, and the provision of prescribed commercial services in relation to, a crude oil pipeline, petroleum product pipeline or an off-loading facility.
In a submission to the Portfolio Committee on Mineral and Energy Affairs on the Bill, competition commission chief economist Geoff Parr said that while the commission applauded the Bill’s broad objectives, closer examination of its content raised many questions for the Commission, particularly in the area of reducing barriers to entry for competitors.
“In order to stimulate competition, new firms must enter into the industry. In turn, for firms to want to enter the market, they must be confident that their activities will not be over-regulated, or at least that any regulations they face are clear and unambiguous,” said Parr.
Too many details are left for the regulations to clarify, whereas the methodology for vetting or approving tariffs was crucial in determining whether competition would result, he added.
Until now the South African government, through Petronet, has managed and operated the country’s pipelines. The Bill makes provision for private sector construction, ownership, and operation of pipeline, but it outlaws cross-subsidisation and states that vertically integrated firms may be required to keep separate accounts, and run their businesses separately.
“This is welcome to the extent that it will lead to a proper allocation of costs, so that access charges can be assessed,” Parr said.
However, the Bill provides that as a condition of the licence, a petroleum pipeline may be licensed for either crude oil or petroleum products, but not both, with the exception of emergency cases.
Parr said this removed the ability of firms to configure product lines to handle a wide variety of petroleum products and the economies of scope that could contribute to the minimisation of costs.
“By allowing for a dual license, it keeps the doors open for new entrants to enter either the crude oil, or the petroleum products or both industries, and so broadens access, which is a stated objective of the Bill,” he said.
Furthermore, the Bill failed to stipulate what share of the market would go to private sector participation.
“Will all new pipelines be built by the private sector, and all existing ones remain in the state’s hands?” Parr said.
Finally, he stated that it was not clear how the proposed pipelines regulator would fit into the range of other energy regulators. – I-Net Bridge