Automobile Association welcomes Nersa announcement

Tuesday, May 5, 2009

Pretoria - The Automobile Association has welcomed the decision by the
National Energy Regulator of South Africa (Nersa) to reduce the cost of transporting petroleum through Transnet's pipelines.

"The decision by Nersa has been enthusiastically welcomed by the AA as it would appear that common sense has prevailed on this issue," said Gary Ronald, spokesperson for the AA.

On Monday, Nersa announced that it would reduce tariffs by 10.38 percent for petroleum transportation through Transnet's pipelines for the 2009/10 financial year.

According to Nersa, this translated to a 1.37 cents per litre reduction in the price of petrol in Gauteng.

However, after Nersa's announcement on Monday, Transnet was in talks with government over alternative funding, saying that the tariffs appear to be based on an inconsistent application.

"The Nersa determination, which results in an aggregate 10 percent decrease in tariffs, appears to be based on an inconsistent application of the tariff methodology compared to the previous year.

"This, together with a commercially unacceptably low return on capital employed, will not enable sustainable pipeline operations and needs urgent review," Transnet said on Tuesday.

Transnet is assessing these matters and will take action as is appropriate once the review has been completed.

Announcing its decision yesterday, Nersa said since the first month of Transnet's financial year (April) had already ended, the adjustment would be spread over 11 months, resulting in an actual tariff reduction of 11.17 percent over the remaining months of the tariff period.

In its initial tariff application in November 2008, Transnet applied for a tariff increase of 82.5 percent and it attributed much of that increase to its need to finance the construction of its new multi-product pipeline (NMPP) between Durban and Gauteng.

Revisions made by Transnet to its NMPP construction schedule resulted in Transnet submitting a revised application for a tariff increase of 74.42 percent.

This revised application was presented by Transnet at the Nersa public hearing on 26 February 2009. A second public hearing was held on 16 April 2009, to provide stakeholders with an opportunity to comment on Transnet's revised tariff application.

Nersa said the single largest factor contributing to the difference between its decision and Transnet's application (as revised) is that the law does not allow Nersa to set tariffs for existing pipelines to enable a licensee to recover the costs (including financing costs) of pipelines which are still in the process of being constructed

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