IN THE NATIONAL ASSEMBLY OF THE REPUBLIC OF SOUTH AFRICAPETROLEUM PRODUCTS AMENDMENT BILL, 2003

SUBMISSION TO THE MINERALS & ENERGY PARLIAMENTARY PORTFOLIO COMMITTEE BY THE MEMBERS OF THE SOUTH AFRICAN PETROLEUM INDUSTRY ASSOCIATION ("SAPIA")

THE PETROLEUM PRODUCTS AMENDMENT BILL (B25 - 2003)

COMMENT BY THE MEMBERS OF THE SOUTH AFRICAN PETROLEUM INDUSTRY ASSOCIATION ("SAPIA")

GENERAL COMMENT

SAPIA members are grateful to Department officials for the consultative and interactive process that has been followed in relation to the amending Bill. The Department has accommodated stakeholder requests for meetings and has endeavored to proactively clarify and address concerns. In the course of this interactive process, we have benefited from important elucidation which has informed and curtailed this submission significantly. We record our appreciation in this regard.

 

A. THE COMPETITION ACT, 1998

As a point of departure, SAPIA members record their support for fair competition and strict compliance with the provisions of and the philosophy underpinning the Competition Act, 1998. A and note the areas of potential conflict with the principles of fair competition in the Amendment Bill are noted with concern, specifically powers afforded to thewhere the Controller of Petroleum Products andor the Minister is afforded powers to regulate competition within the liquid fuels industry and the increased potential for further price regulation as provided for in the proposed amendment to Section 2(1) (c).. In this regard, Section 2D in particular, enables the Minister to prescribe a system for the allocation of retail and site licenses by which the Controller shall be bound. The section provides that the system may link the issuing of licenses to various criteria, including an allocation of licenses to applicants based on the total mass of products manufactured by that applicant in South Africa.

The department has advised that it is probable that the liquid fuels industry will be subject to the concurrent jurisdiction of the Petroleum Products Regulator and the competition authorities on competition issues in the industry. SAPIA members do not support a concurrent jurisdiction approach and believe that competition within the industry should remain the preserve of the competition authorities. It is against the background of this statement that SAPIA's comments on the PPA Bill are made.

B. LEGISLATION VS REGULATION - Ministerial Power to regulate

SAPIA members appreciate the balance to be maintained between regulatory efficiency and parliamentary process, but we are of the view that the Bill still places excessivetoo much unfettered regulatory power in the hands of the executiveMinister where the matters to be regulated in this manner are deserving of the scrutiny of the full parliamentary process. See comment in relation to Section 12C of the Act.

  1. INDEPENDENCE OF THE CONTROLLER OF PETROLEUM PRODUCTS

    2. It is submitted that for reasons relating to arbitration provisions, appeals and regulations that will govern the allocation of licenses, the Controller is not an independent person and will not be in a position to defend a position of independence.

  2. REGULATION OF REFINERIES

The Bill provides for the licensing of fuel manufacturers. The White Paper, however, contains the following statement on pp 72 - 73 regarding crude oil refining: "Government will not extend regulatory control over the crude oil refining industry."  Licensing of refineries as contemplated in the Bill clearly constitutes an extension of regulatory control and does not appear to agree with published Government policy. control and does not appear to agree with published Government policy. SAPIA requests that DME clarify this matter.

 

D.E OVER-REGULATION OF INDUSTRY

Paragraph 7.4 of the White Paper makes it clear that the phasing out of the Ratplan would be done simultaneously with the introduction of interim, limited legislation which would serve to prohibit, for example, self-service and vertical integration.

We are of the view that tThe Bill goes further than the White Paper objectivesgoes further than this. SAPIA members believe that the recent wealthrecent profusion of legislation (in the form of the Gas Act, the National Ports Authority Bill, the Pipelines Bill and the PPA Bill) could result inconstitutes inappropriate over-regulation which cani bes costly, creates bureaucratic processes, is burdensome for Governmentt and industry alike, is potentially ineffective and may create reputational risk for government where resources are insufficient to ensure enforcement.  

In this regard, wWe are concerned about overlapping jurisdiction between the different sectoral regulators, confusion of roles, and conflict with the intentionsprovisions of our the Competition legislations Act, and that ththee Minister's extensive regulatory powers afforded to the Minister may well upset the balance of power by investing too much power in the executive. We are also concerned that the Bill was published without the regulations, which makes the task of commenting on the enabling provisions and assessing the impact on our business more difficult.

E.F VAGUE LICENSE CRITERIA

 

It is submitted that in major industries such as ours which require large-scale capital investment by participants, stability and certainty in the legal framework and its application are crucial to any investor. A regulatory regime must be credible and predictable if it desires to attract and retain investment by private enterprise in this industry, which investmentwhich is often very substantial and recovered only over long periods. It is submitted that in this regard, the license criteria in the Bill are vague and uncertain and that the athellocationallocation of investor-critical site and retail licenses is furthermore based on criteria which have the potential, created by section 2D of the Bill, of controlling competition within the industry.

 

 

SPECIFIC CONCERNS: AMBIGUITIES / UNINTENDED CONSEQUENCES REQUIRING CLARIFICATION

 

  1. 2 (b): Prescription of the price at which Petroleum Products ("pp's") may be sold or bought

    SAPIA members are disturbedconcerned byabout the potentially wide ambit and wording of this provision. Consultation with the department has revealed that the intention here is to curtail cross-subsidization between pp's which we understand, but we remain concerned that this section still empowers a regulator to go much further. such as, for example, to intervene into commercial markets for the sale and purchase of pp's. , and specifically whether this provision amounts to intervention into commercial markets for the sale and purchase of pp's. For example, could this provision serve to provide a basis in terms of which Govt lays down the maximum price at which SAA could buy? It is submitted that this section should be amended and confined to reflect the department's intention. and/or be confined to the sale of pp's at the pump only. (I.e. the retail market).

    2.  

  2. 2 (c): Publication of Prices at which Petroleum Products ('PPs') are sold

    We believeIt is our understanding that the intention of this provision should be limitedis t to requiringe the publication of prices by means of signs at retail sites at a stage when price competition at such sites is permitted and DME have indicated that their intention is to bring price transparency to the market in future.confirmed that this is the correct interpretation. However, thisis provision too, is widely worded and may be interpreted, for example, as requiring wholesalers to publish the prices at which diesel is sold to commercial customers, thereby disclosing discounts to their commercial customers.
    We understand such disclosurethatSAPIA assumes that this is not the intention of this provision and that competitive discounts negotiated with commercial customers fall outside the ambit of this publication obligation, but recommend that . If the wording be confined to DME's intention and/or requirement bewere limited to the publication at retail service stations of the prices at which petrol and diesel are sold to the general public that would be acceptable.

  3.  

  4. 2 (g): Prescription of quantities of crude and PPs to be maintained by any person

    This provision may also be related to 12C (d). SAPIA assumes that the intention of these provisions is to enable the Regulator to prescribe minimum stock levels for national strategic reasons. If that is so, it is of concern that no reference is made to the cost of maintaining these stocks to the extent that they exceed normal, commercially justifiable levels. We submit that there should be adequate provision for recovery of any such additional costs as might be incurred by licensees.

    5.  

  5. Section 2A (4) Vertical Integration Prohibitions

    SAPIA members have received confirmationrequire clarification from the department that thisin relation to this provision of the Bill will be amended. Our concern relates to the current wording which which has significant implications for the integrated oil companies which own manufacturing and wholesaling operations, as well as sites from which retailing operations are conducted by dealers. Historically the concern has been that wholesalers should not operate service stations, and, subject to Para. 14 below, Sapia has no objection to a continuation of that requirement. However, the broad wording of this clause and its reference to "ownership" are problematic. A distinction should be made between ownership of sites and the operation thereof. We look forward to seeing the amendment of this provision in due course.

    6.  

     

     



  6. A strict prohibition of oil company ownership of retail sites will severely hamper the ability of small business to enter the retail sector owing to the capital required for the development of retail sites.
  7. Section 2A (4) (b): Self-service ProhibitioProhibitionn
    n

    8. Members believe that tThis provision should be more specifically worded to refer to "retail self-service" in order to distinguish the 'retail self service' prohibition from instances where commercial customers collect and store products at their own premises. This was raised in meetings with DME and has been acknowledged and noted by the department.

  8. Section 2B (1) (a): Promoting an efficient retail industry

    It is submitted that the word "retail" in this subsection should be deleted in order to avoid an interpretation that promotion of an efficient 'manufacturing and wholesaling industry' is specifically excluded from the objectives that the Controller should give effect to in considering the issuing of any license in terms of the Act. The department has acknowledged that this section requires clarification.

    9. has acknowledged that this section requires clarification.

  9. Section 2B (3): One retail license per site

    SAPIA members are concerned that the issue of one retail license per site may prejudice the supplying wholesaler in the event that the retailer is unable to operate the site for any reason. It is submitted that provision for a 'temporary or transitional retail license' should be made to avoid the possibility of a site running dry because the legal retail license holder is unable to operate the site. This kind of protection may be provided for in the Regulations to the Bill, still to be published.
  10. Section 2C (4) (a): Entitlement to license

    SAPIA members were concerned that the wide description of "national, provincial and local government legal requirements" in this section of the Bill would include, retroactively, the regulations to be promulgated in terms of this Bill. Inasmuch as SAPIA members have not yet had sight of these regulations, they are unable to determine whether or not they are, or will be, in compliance with the regulations and consequently, whether or not they will be issued with the necessary license to continue with their operations. DME have since confirmed that this provision will not apply retroactively to existing operations and we have requested that this be made explicit in the Bill.

    11.  


    12. Section 2C (4) (a): Entitlement to license

    It is submitted that the wide description of "national, provincial and local government legal requirements" would include, retroactively, the regulations to be promulgated in terms of this Bill. Inasmuch as SAPIA members have not yet had sight of these regulations, they are unable to determine whether or not they are, or will be, in compliance with the regulations and consequently, whether or not they will be issued with the necessary license to continue with their operations.

    Furthermore, if the SAPIA interpretation is correct, the period of six months contemplated in section 2C(3)(a) to comply with new requirements would be too short. We recommend that if it is DME’s intention to have regulations only apply to new developments not yet started at the commencement of the Act, that this be stated explicitly.

    Section 2C (4) (b): Security

    It is our interpretation that the exemption of existing operators from the lodging of security as stated in this section would include the lodging of security for rehabilitation contemplated in section 12C(g). SAPIA would appreciate DME’s confirmation that this is in fact correct.

  12. Section 2D: System for allocation of site and retail licenses

    Sapia members are of the view that this provision seeks to grant the executiveMinister an inappropriately high level of regulatory power to influence competition within the industry, through a prescribed system, no details of which are contained in the Bill. Despite discussion with the department on this issue, we do not believe thatSAPIA members also do not understand the reasons for the inclusion of the criteria in 2D (2) (c) (i), (ii) and (iii) adds any clarity , and submit that these specific criteria add no clarity in the absence of a more detailed description of the proposed allocation system. and should therefore be deleted.
  13. Section 12: Offences and Penalties

    We are of the view that the penalty provisions are unduly onerous and draconian and that the significant fines and threat of imprisonment should be tempered by a notice provision allowing the offender to rectify the transgression within a limited timeframe.
  15. Section 12B: Arbitration

    SAPIA members are concerned that this compulsory arbitration provision provides no remedy to either party in that the Arbitrator is empowered only to determine whether a contractual practice is fair or unfair, but the section fails to describe the remedy or relief available to a complainant where the contractual practice is found to be unfair.

    In addition we are of the view that section 12B subverts the usual judicial remedies that are in any event available to contracting parties, and has the potential to encourage undue and capricious arbitration. In principle, Sapia considers it highly problematic and unacceptable that a third party, the Regulator, should be able to interfere in the relationship between contracting parties.

    SAPIA members feel strongly that this provision of the Bill be deleted.
  16. Section 12C (a) (v): Ministerial Power to make regulations

    We are concerned about the very broad wording of the first four lines of this sub-section, namely: "the conditions or restrictions which may be imposed by the Controller in respect of a particular license or a category of licenses, including the rights, duties and obligations of licensees in the manufacture, handling and sale of pp's".

    Inasmuch as Section12C is an empowering section which affords the Minister the power to make the regulations described in (a) to (g), we regard the wording in s 12C (a) (v) as unduly broad, potentially onerous and a duplication of existing legislation.

    Members would have no objection to wording which included the latter part of the sub-section as follows: "conditions or restrictions which may be imposed……in respect of …….category of licences, including conditions relating to the advancement of HDSA’s."
  17. Section 12C(12C (a)() (vii): Transfer of ownership of licenses

    The transferability of licenses is a critical aspect of the new licensing dispensation which affects investor decisions particularly. DME has agreed to give this due consideration and weWe hope thattherefore submit that the issue of "transfer of ownership of licenses" will beshould be the properly dealt subject of legislation and not of with in the regulations still to be promulgated under the Billmade.
  19. Section 12C (b): Prohibited Business Practices

    We regard this sub-section as too widely phrased and potentially very onerous to licensees. We submit that this section should be more narrowlyclosely defined or more preferably, deleted from the Bill.

  21. Section 12C (g): Security for land rehabilitation

    This section requires an explicit link to the security required "for rehabilitation" purposes and should refer back to section 2C (4) (b) to avoid confusion.
  22. TTraining Sites

    SAPIA members are concerned about the treatment of the training sites which are presently legitimately both owned and operated by wholesalers. DME has indicated that it is sympathetic to this concern and will give the matter due consideration. We await clarification.

and clarification is requested in this regard.

14. The Retail Site Licensee

It is submitted that the site license should be site specific, evergreen, should be held by the supplying wholesaler and should be transferable to successor supplying wholesalers.

The Retail Site Licensee

It is submitted that the site license should be site specific, evergreen, should be held by the supplying wholesaler and should be transferable to successor supplying wholesalers.