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Trading and distribution
Regulation
How are oil and gas resources traded in your jurisdiction and what (if any) regulations and procedures apply to oil and gas sales, distribution and marketing activities, both nationally and internationally?
Both oil and gas markets are tightly regulated in South Africa.
The biggest source of natural gas in South Africa is through Sasol’s Mozambique pipeline, which transports gas extracted from Mozambique’s Pande and Temane gas fields. Several companies are involved in the distribution and reticulation of this gas.
The trading, distribution and reticulation of gas are subject to licensing in terms of the Gas Act. As is discussed in more detail below, the National Energy Regulator of South Africa (NERSA), having determined that conditions in South Africa’s gas markets are not sufficiently competitive, determines a maximum price for each individual gas trader.
The manufacturing, wholesale and retail of petroleum products are subject to licensing in terms of the Petroleum Products Act. The act prohibits a licensed wholesaler of petroleum products from simultaneously holding a retail license and the retail price of petroleum is set by the Department of Energy.
Petroleum products and blending components are a class of goods that require an import permit in terms of the International Trade Administration Act (71/2002). The International Trade Administration Commission issues import permits for petroleum products on the strength of a ‘recommendation’ to be obtained from the Department of Energy.
Is oil and gas pricing regulated in your jurisdiction?
The Gas Act empowers NERSA – as the mandated regulator of the electricity, piped-gas and petroleum pipeline industries – to determine the maximum prices to be charged by individual gas distributors, reticulators and traders. However, this power is predicated on a determination by NERSA that there is inadequate competition in the gas industry.
The Piped Gas Regulations were promulgated by the minister of energy to govern the determination of maximum prices. The criterion for maximum price determination is that it enable the licensee to recover all efficient and prudently incurred investment and operational costs, and generation of a profit commensurate with risk. The Piped Gas Regulations also require the set maximum price to differentiate between classes of customer based on volumes purchased.
The Gas Act prohibits discrimination between customers or classes of customer in relation to access, tariffs, prices, conditions or service, except for objectively justifiable and identifiable differences relating to matters such as quantity, transmission distance, length of contract, load profile, interruptible supply or other distinguishing features approved by NERSA.
The price of petroleum products is likewise regulated by the minister of energy. Section 2(1)(c) of the Petroleum Products Act, 1977 empowers the minister of energy to “prescribe the price, or a maximum or minimum price, or a maximum and minimum price, at which any petroleum product may be sold or bought”.
The retail price of various crude oil products is set by notice in the Government Gazette. The price of fuel in particular is set according to a system referred to as the Regulatory Accounting System. It is adjusted on the first Wednesday of every month in accordance with a calculation carried out by the Central Energy Fund on behalf of the minister of energy. The price reflects both international and domestic elements – specifically, the dollar price of the product on world markets, the retail and marketing margins, transport costs and taxes and levies denominated in local currency.
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