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SAPIA Petroleum Policy and Economics - INDIVIDUAL ASSIGNMENT

Title: The Structure and Regulatory Framework of the downstream industry in South Africa

1. INTRODUCTION

This paper will explore the regulatory environment that the downstream industry currently operates in. This will touch on the operation of each structure as well as relevant roles and responsibilities. The different policies and acts within each authoritative structure which supports their varied objectives will be dissected and further elaborated on. Finally the effects that current regulation has on the industry will be discussed as well as how possible alternatives could more effectively assist the industry in relation to the country’s demand for liquid fuels. Overall it will look at the environment that the industry operates in as well as the legal effects, laws, policies and restrictions that govern it.

2. CURRENT STRUCTURE & REGULATORY FRAMEWORK

The industry is regulated by the Department of Minerals and Energy and monitored by the Parliamentary Portfolio Committee. The industry has been regulated since the 1930’s to provide a balance between the needs of the various interest groups. Certain agreements, mostly unsigned, also exist and are in force. Policy often creates a framework and its intent is to be proactive (anticipating problems ahead of time) and are pliable (can change from time to time). The white paper is the final document that we call a policy.

2.1 DME

The government currently regulates the Refining, Wholesaling, Storage and retailing of the industry. Price control: The Minister of Minerals and Energy has power to prescribe the price, or a maximum/minimum price at which petroleum product may be sold or bought by any person, and conditions under which these sales occur. The price control is based on the Basic Fuel Price (BFP) formula which replaced the In-Bond Landed Cost (IBLC).

Some of the policies/acts that exist to regulate the industry are:

2.1.1 Petroleum Products Act

This act “provides for the saving of petroleum products and an economy in the cost of distribution thereof, and for the maintenance and control of a price thereof; for control of the furnishing of certain information regarding petroleum products; and for the rendering of services of a particular kind, or services of a particular standard, in connection with motor vehicles; and to provide for matters incidental thereto.”

2.1.2 Service Station Rationalisation Plan (Ratplan) вЂ" unsigned

This places limitations on the opening of new sites. It provides a major barrier to new companies that want to operate in South Africa. The original intent was to ensure that the retail market grew in an orderly way and give smaller companies an advantage.

2.1.3 The Sasol Supply Agreement вЂ" unsigned

The fuel marketing companies agreed to uplift most of Sasol’s synfuels and Natref production in proportion to market share. In exchange, Sasol has agreed not to enter the fuels marketing arena.

2.1.4 The Sasol “Blue Pump” agreement of 1982

2.1.5 Protection of Information Act

2.1.6 Energy White Paper

Energy White Paper Policy Statement

“Government believes that the desired attributes for the liquid fuels industry can ultimately best be met in an environment of minimum governmental intervention and regulation. Government will therefore provide an environment within which the liquid fuels industry can conduct its business effectively and on a competitive basis….The government has since 1993 been engaged in a consultation process with a wide range of participants and stakeholders regarding the restructuring of the industry. From these processes Government has concluded that there is some consensus that current circumstances necessitate changes to the existing regulatory model within an appropriate timeframe to better reflect current realities,…The cornerstones of the future policy framework will thus be:-Deregulation”

2.2 NERSA

Regulates the Pipelines sector of the industry. A pipelines levy is charged by NERSA to the oil companies and is used to cover the cost of the National Energy Regulator of South Africa (NERSA) for regulating the petroleum pipelines industry.

2.3 SAPIA

Represents the common interests of the Petroleum refining and marketing industry in South Africa. Their role is to assist the industry to deliver product at globally competitive prices, encourage co-operation on matters of mutual and public concern, to represent the industry in various forums and be the source of information on the industry as a whole. SAPIA assists the government to reach its objectives namely:

2.3.1 to ensure security of supply

2.3.2 introduce more players into the