Determination for Transnet Limited Petroleum Pipelines 2011/12 - - PowerPoint PPT Presentation

10 March 2011

Assessment of NERSA’s Draft Tariff Determination for Transnet Limited Petroleum Pipelines 2011/12

Anthony Felet Genesis Analytics Prepared on instructions from Sasol Oil

NERSA abandoning sound regulatory principles

• FERC (USA) and EU prohibit a rolled-in approach:

– Removes potential for future pipeline competition through new entry (due to cross-subsidisation) – Distorts investment decisions i.e. over-building – Creates uncertainty and risk for current captive customers (Natref) and coastal refineries – unrelated extensions/upgrades affect all tariffs

• Therefore significant economic cost to opting for rolled-

in approach

TPL pipelines should not be regulated as a single system

• COP, Avtur, DJP/NMPP/Northern Network are separate:

– No operational connections – No need for joint planning – No functional interdependence – COP and DJP/NMPP do not represent “alternative routes” – No fungibility and no opportunity costs to using COP for crude (as claimed by TPL)

• Even if TPL’s pipelines were some sort of “system”, this is

still no reason to abandon sound regulatory principles:

– Disaggregated tariff would be compatible with a “system” – Disaggregated tariff encourages competition through entry which would only happen at individual pipeline level

Inland price impact does not justify approach (1)

• Significant impact on inland prices is largely temporary
• 0.10

0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00 1 6 11 16 21 26 31 36 41 46 51 56 61 66 71

Cents per litre Year

Unsmoothed prices

FSL RAB reduction No subsidy

Inland price impact does not justify approach (2)

• More favourable alternatives exist where sound regulatory

principles are retained

• 0.10

0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00 1 6 11 16 21 26 31 36 41 46 51 56 61 66 71

Cents per litre Year

Smoothed prices

Smoothed Unsmoothed

Scrutiny of TPL application implies lower tariffs

• We recommend allowable revenue be reduced by

R280m (14% adjustment), through:

– Reducing inventory – Reducing Market Risk Premium to 5.5% – Removing 0.15 small company premium from equity beta in recognition of recent and future growth – Applying more efficient 50% gearing assumption – Reducing allocation of corporate overheads to reflect share of direct costs attributable to pipelines business

• Reductions in allowable revenue mean lower tariffs and

mitigated impact on end consumers