BPSA Presentation Transnet Pipelines Tariff Determination 10 March - - PowerPoint PPT Presentation

BPSA Presentation Transnet Pipelines Tariff Determination

10 March 2011

Russel Glass BP: Business Advisor

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Nersa Approach – Rolled-in tariff model

• BP welcomes the decision by Nersa to address the anti-competitive and

negative macro-economic effect of unique tariffs as reflected in the “rolled-in” approach

• Setting a uniform tariff rate for all pipelines will eliminate pipeline cost

disparities for product supplied to the inland market

• Product moved via the COP will no longer be at an advantage to product

moved via the DJP

• The NMPP once commissioned, will compete on a level playing field with the

COP and DJP

• The “rolled-in” tariff approach will also ensure that the DJP and NMPP

compete on a level playing field and thus promote the efficient utilization of these pipelines

• BP welcomes the decision by Nersa to remove the tariff differential between

the crude oil pipeline (COP) and the product pipelines (DJP/NMPP)

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Tariff Benchmarking

• The draft determination fails to adequately consider the consequences of the

proposed magnitude of the tariff increase for 2011/12 and likely further exceptional increases until 2013/14

• BP has consistently argued for local pipeline tariffs to be benchmarked

against their international counterparts

• BP has extract further information on pipeline tariffs from the US that provides

similar results to the 2009 study presented previously

• Data on pipeline tariffs in the US is freely available as these tariffs are set by

the US regulator (FERC) and published on the websites of the pipeline

• perators

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Tariff Benchmarking

• It is recognized that this approach faces numerous challenges as the sample size is limited to only a

few pipelines and the analysis does not take into account operational issues

• This analysis serves to support BP’s proposal that Nersa conduct a thorough investigation into global

pipeline tariffs in order that the proposed Transnet Pipeline tariffs many be reasonably benchmarked

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Locational Advantage

• The import parity pricing principle – used to underpin the locational

advantage - is based on an assumption of competitive markets

• The market for inland product transportation is a monopoly
• Consequently, the locational advantage is derived from monopoly

rents that are manifested in the pipeline tariff proposal

• The simple point is that on a globally competitive basis, these tariffs

are not justifiable and therefore cannot themselves be used to justify the locational advantage We would urge Nersa, as an organ of the State, to take a position on the matter rather than be silent on the competitive and macro- economic effects of the proposed tariff increase

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Macro-economic impact

• Nersa’s limited economic impact assessment fails to address the key macro-economic

issues appropriately

• It would appear that Nersa have failed to comprehend the marginal cost argument and

have therefore erroneously concluded that model competition is of little consequence

• Nersa’s argument that the increase in the petrol price is only a small fraction of the GDP

is misleading − Based on a first order affect the tariff increase will have the consequence of destroying a significant number of jobs in the inland market − The impact on employment creation is dependent on a number of factors including the propensity of the recipient of the tariff proceeds to invest in the local economy − Where these recipients have a high propensity to invest offshore the said tariff increase could result in local consumers diverting funds to offshore employment creation

We would urge Nersa to conduct a comprehensive macro-economic impact assessment of the proposed tariffs

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Thank You & Questions