Gas Regulator Levies Bill: briefing & submissions by Sasol & Egoli Gas

Meeting report

MINERALS AND ENERGY PORTFOLIO COMMITTEE
23 November 2002
GAS REGULATOR LEVIES BILL: BRIEFING & SUBMISSIONS BY SASOL & EGOLI GAS

Chairperson: Mr M Goniwe

Documents handed out:
Gas Regulator Levies Bill: Presentation by Department
SASOL presentation
Gas Regulator Levies Bill [B47-2002]


SUMMARY
The Department highlighted the reasons why it wants to establish a single energy regulator and the ways in which this would function. Basically the Regulator will have five full-time personnel appointed to serve as board members. Those people will regulate electricity, gas and petroleum pipelines industries. The liquid industry will be incorporated at a later stage. The regulator will be able to impose levies based on the amount of gas that passes through an inlet flange.

MINUTES
Dr R Crompton (Deputy Director General: Department of Mineral & Energy Affairs) indicated that it is the Cabinet's decision to establish a single energy regulator. This requires co-ordination of various pieces of legislation dealing with energy. It is proposed that five full-time people should be appointed to serve as board members for electricity, gas and petroleum pipelines industries. The liquid fuel functions will be added at a later stage. The current National Electricity board members would be asked to resign.

Following the enactment of the Gas Act in 2001 a National Gas Regulator was established. Funds are required to operationalise the Regulator. The Bill seeks to impose levies based on the amount of gas that passes through an inlet flange. Dr Crompton showed that it is in accordance with international practice to impose levies on the basis of the amount of gas that passes through an inlet flange. It is also in line with the government's taxation policy (i.e. taxation at source). This taxation method, it was argued, also enhances administrative efficiency, as there are far fewer points for the Regulator to monitor than there are customers. A separate Gas Regulator account will also be established. The regulator is empowered to charge interest on outstanding levies. Such interest will be in line with the PFMA interest rate. Levies would lapse after five years. However, the Minister of Minerals and Energy together with the Minister of Finance have the right to extend the period to over five years. Provision is also made for the assessment of the Regulator if there is concern in the gas industry that the Regulator's performance is inadequate.

Discussion
Responding to Mr B Bell's (DP) question as to whether the levies collected by the Regulator would form part of the fiscus, Mr Crompton said that the taxing authority does not play a role in levies collection. As a result the levies would not form part of the fiscus. Mr Bell also wanted to know why the department seeks to establish a single energy regulator. Mr Crompton indicated that it was acceptable international practice to establish a single regulator. Furthermore, this is in line with the government policy to impose tax at the source. The Department noted that Cabinet is also concerned about the proliferation of many new entities. It was also argued that it makes good legal and economic sense to have a single regulator.

Mr D Greef (SASOL) indicated that international practices differ. He indicated that some countries like the UK and Netherlands have flat rates whilst others like Italy base their levies on annual turnover. Hence he did not agree with the Department's view at imposing levies based on the amount of gas that passes through an inlet flange.

Mr G Oliphant (ANC) asked the Department to outline how the Regulator's agenda would look like given the various functions it is tasked with. The Department replied that the board members would call a single meeting wherein they would deal with the issues relating to the industries one after another. For instance they would allocate an hour each for the different industries. Mr Crompton saw no problems arising given the fact that all members would sit in all meetings.

Mr Oliphant asked why the liquid fuel industry is excluded. Mr Crompton replied that the liquid industry is very complicated at the moment. There are some problems that have to be solved before the industry would fall under a single regulator.

Mr Nkosi enquired if the decision to have five people siting on the board will not sacrifice innovation, creativity and objectivity of the board. Mr Crompton answered that the board member would be assisted by an investigative secretariat. He was of the opinion that five skilled people would bring the necessary objectivity and creativity. He indicated that the members would also be stimulated by presentations from various stakeholders.

Mr M Ramodike (UDM) had a problem with the charging of interest on outstanding levies. Instead he suggested that penalties be imposed on defaulters. The department indicated that a levy is a debt owed for services rendered. Therefore it makes legal sense to charge interest on outstanding levies that imposing penalties.

SASOL submission
The SASOL representatives were Mr D Greef, Mr M Koapeng, Mr A Maphutha

The objectives of SASOL's presentation were:
(1) to highlight difficulties that would affect the practical implementation of the levies Bill;
(2) to appeal for the incorporation of stakeholders' views and
(3) to avoid uncertainties in the Bill.

SASOL indicated that it had not been consulted on the Regulator Levies bill. It felt that as a major player in the industry it should have been consulted.

Mr M Koapeng said the main area of entity's concern is Clause 2(2) which provides that -
The levies imposed and varied under subclause 1 must be-
based on the amount of gas, measures in gigajoules, delivered by importers and producers to inlet flanges of transmission of distribution pipelines; and
paid by the person holding title to the gas at the inlet flange.

SASOL argued that it is uncertain whether it is legally correct to require importers and producers of gas to pay levies. It was of the opinion that importers and producers are not required by the Gas Act to hold licences. Hence they fall outside the licensing jurisdiction of the regulator and should therefore not be required to pay levies.

SASOL argued that the imposition of levies at the inlet flange would result in some problems. It was contended that it would result in producers and importers having to pay for gas consumed in foreign countries depending on where the inlet flange is situated. Another problem raised was that loss of gas before delivery is not taken into account when levies are imposed. SASOL also argued that if a gas producer is also a purchaser of the gas, the same gas molecule may be levied twice and this is unfair. Hence SASOL submitted that the transmission and production of gas for own use should be excluded from the ambit of the Bill. It was also suggested that levies should be imposed on the basis of what is consumed by the end-users. It was also submitted that instead of using inlet flanges the department should used existing measuring infrastructure. This would avoid duplication of measuring infrastructure.

Department response to SASOL submission
Dr Crompton, responding to SASOL's presentation, indicated that SA law applies territorially. He indicated that producers and importers who are outside South Africa are not under SA law. However, as soon as they enter SA they will need a licence to take part in activities, which requires a licence. With regard to loss of gas before delivery Dr Crompton argued that good pipes are not supposed to rupture. In cases where they rupture there should be some mechanisms to stop the flow of gas to the affected point. Dr Crompton did not see how there would be a double levying of the same gas molecule. With regard to imposing levy on the basis of the amount of gas that passes through an inlet flange or gas consumed by the end-users, Dr Crompton indicated that SASOL holds a view different from that of the government and that it is unfortunate that SASOL's view cannot be accommodated.

Discussion
Mr A Nel (NNP) asked if it is correct to say that producers and importers are subject to levies. Dr Crompton answered the question in the affirmative. He went on to indicate that s2 (2) impose levies on gas delivered by both importers and producers. However, in terms of subsection (b) the person having title to the gas at the inlet flange pays the levy. Such a person might be the producer or the importer.

Mr Oliphant (ANC) asked if SASOL had a problem with paying levies. SASOL answered the question in the negative. It was indicated that the only problem was imposing levies at the inlet flange.

The Chairperson invited Egoli Gas to make an oral presentation to the Committee.

Egoli Gas
Mr J Van der Schyff said he understood the need for a single regulator. He had no major problems with the spirit of the Bill. The only element of uncertainty he had revolved around the inlet flanges (i.e. the points where ownership of the gas changes hands). He enquired if the levy would be imposed on the producer, importer and transmission company. He also wanted to know if it is acceptable for the importer to transfer the gas to a transmitting company and for the transmitting company to transfer the gas to the distributor and the distributor to the end user. Mr Van der Schyff urged the department to clarify the meaning of an inlet flange.

Department response to Egoli submission
Mr Crompton indicated that although a flange is an engineering term, the state law adviser and the department were satisfied that is clear enough. The state law adviser did not raise any objection with regards to defining it in the Bill. As to whether the gas was transferable, Dr Crompton said this depends on negotiations between the parties involved.

Informal deliberations on Bill
The Committee considered the clauses of the Bill and had no problems with any of them. However, it was agreed that a definition of a flange should be included in Clause 1.

The Chairperson adjourned the meeting