The deregulation of South Africa’s liquid-fuels industry seemed no closer on Tuesday as the Department of Minerals and Energy kicked off the first Energy Summit in Sandton, Johannesburg, which is expected to set the tone for the review of the country’s energy policies.
South Africa’s White Paper on Energy Policy was introduced in 1998, and the department plans to hold mini-summits on a regular basis to allow the sanctioning of the new policies by all stakeholders.
However, the department would not commit to whether deregulation would feature in the new policy.
Responding to journalists’ questions during a media conference at the summit, Director General of Minerals and Energy Sandile Nogxina said that all areas of energy policy would be scrutinised.
“Given that this is a very dynamic environment globally, we need to ask whether the assumptions that underpinned the policy of 1998 are still relevant. If they are, there is no need to change the policy,” Nogxina said. “But if they don’t match the realities, we are going to have to relook at it.”
Deregulation
The White Paper singled out deregulation — or the removal, reduction or simplification of restrictions on the industry for the sake of encouraging the efficient operation of markets — as one of the cornerstones of future policy.
Many of the industry’s stakeholders believe that deregulation will lead to a raised level of competitiveness and therefore higher productivity, more efficiency and lower prices overall.
But as Nogxina pointed out, while the White Paper asserts that the energy sector relying on market-based pricing gives greater emphasis to commercialisation and competition, it also acknowledges that competitive energy markets need sophisticated regulatory regimes.
“The White Paper assumes that the government will promote investment in the energy sector itself rather than use energy to drive investments in other sectors of the economy. The White Paper also assumes that there will be a healthy balance between the interests of capital and national objectives,” said Nogxina.
He said it also assumes that the state’s role in the energy sector will be limited to regulatory functions and the provision of basic and essential infrastructure.
However, all these assumptions were made against the backdrop of a crude oil price that was as low as $10 a barrel. At more than $80 a barrel today, “the question confronting us today is whether this policy is still relevant in the face of high and volatile oil prices”, said Nogxina.
Power generation
Also, while the White Paper is non-committal on nuclear energy for power generation, the spot price of uranium has gone from $10 a pound in 2003 to $120 a pound in 2007.
At the time of drafting, South Africa was generating cheap electricity from abundant low-grade cheap coal. Eskom also had a reserve margin of about 30%, whereas now it barely meets demand, with a reserve margin of about 10%.
“The message is loud and clear: the days of cheap electricity are over,” said Nogxina.
What the White Paper does is form the basis for an energy policy that aims to benefit all South Africans as the country moves from the energy policies of the past, which are essentially aimed at overcoming sanctions, to those of the future, which were and are still aimed at nurturing growth and development.
While the government states in the White Paper that its policy direction is the deregulation of the liquid-fuels industry, it sets certain milestones that have to be met before this move to deregulation takes place.
Some of these milestones have proved difficult to achieve, and in the face of growing energy supply concerns, there may be some delay before deregulation is carried out. — I-Net Bridge