Gas sector opposes more Nersa powers

• If bill is passed, regulator would be able to set prices, whereas now it can only approve them

Players in SA’s nascent gas industry are opposed to the energy regulator being given the power to set tariffs and prices for the entire value chain as proposed in the Gas Amendment Bill now before parliament.

Players in SA’s nascent gas industry are opposed to the energy regulator being given the power to set tariffs and prices for the entire value chain as proposed in the Gas Amendment Bill now before parliament.

It is proposed in the bill that the powers of the National Energy Regulator of SA (Nersa) be increased so that it does not merely have the power to approve maximum prices if it is evident that there is inadequate competition in the market as in the existing act but that it will have the power to set maximum prices and tariffs that licensees throughout the sector can charge, including for distribution. Nersa has welcomed the enhanced powers.

The bill is intended to amend the Gas Act of 2001 to provide for the promotion of the orderly development of the gas industry and broad-based BEE, provide for new developments and changing technologies, as well as facilitate gas infrastructure development and investment.

Parliament’s mineral resources & energy committee held public hearings on the bill last week and will hold public hearings in the Eastern Cape, Western Cape, Free State and Northern Cape early next year.

The Onshore Petroleum Association of SA (Onpasa) is concerned that given the complex and varying nature of gas projects, Nersa will not have the capacity in setting tariffs and prices to differentiate how different projects and entities would operate. Giving it this power would also restrict the ability of entities to trade freely at competitive prices, discouraging investment.

Sasol vice-president for legal: energy JP Meintjes pointed out that “commodity prices such as gas are difficult to successfully regulate as regulation cannot ‘foresee’ market dynamics, provide flexibility, cater for multiple sources of supply and accurately value gas for specific applications”.

There is also the danger of a one-size-fits-all approach being adopted by Nersa that might not be suitable for all sectors of the gas market. He urged that the status quo be maintained of Nersa only having the power to approve maximum prices.

The bill provides that the minister in consultation with Nersa must make a determination that new gas facilities, services or gas are required. Noone can construct or operate a new transmission or regasification facility or expand an existing facility without a ministerial determination or exemption if this is larger than the capacity threshold prescribed by the minister or if the expansion of an existing transmission facility is more than the 10% of the approved capacity or length in a year.

Meintjes disapproved of the minister being given this power to determine the need for expanded transmission or regasification infrastructure and capacity in excess of 10%, saying this would add further complexity and extend project timelines. This power would be in addition to Nersa’s powers to approve and license projects.

“The two-step approval process creates uncertainty around jurisdiction and decisionmaking powers between the minister and the regulator, reducing Nersa’s independence,” Meintjes said, warning that this could be a potential impediment for future investment.

Sasol believes that Nersa alone should have the power to license new projects and that the minister’s powers should be limited to regulations.

Onpasa legal counsel Will Fritz objected to Nersa’s having the power to grant exclusive rights to distribute and sell gas within a specific geographic area as this would prevent gas distributors and traders from trading freely countrywide and would create geographic monopolies and anticompetitive behaviour. He proposed that this section be removed.

The proposed removal from the law of the minimum validity period of 25 years for a licence, with this determination being left to Nersa, could lead to uncertainty, he added. A minimum licence period should be stipulated as investors would need to know this.

SA Oil & Gas Alliance representatives said the bill granted unsurpassed powers to Nersa and new powers to the minister in a situation where the gas market is at a nascent stage of growth and requires less regulation to recover all its investment and operation costs.