TRANSNET’S RESPONSEON PIPELINE TARIFFS – THE FACTS

March 5 2009

Embargo: none

Transnet finds the BP Africa’s statement on pipeline tariffs yesterday highly irresponsible, unhelpful and misleading which, in the end, has very little to do with the Transnet application for a revenue adjustment necessary for the strategically essential New Multi-Product Pipeline (NMPP). BP’s unfortunate attack on Transnet is a proxy for its long-standing complaint regarding its relative position arising out of a locational disadvantage in relation to the inland refiners.

At the outset, we must make clear that petroleum pipeline tariffs are set by NERSA, and Transnet’s revenue requirement application is consistent with the Petroleum Pipelines Act, the Regulations made thereunder and NERSA’s tariff methodology which allows for the recovery of costs.

Transnet has proposed to NERSA that the recovery of the required revenue should be spread equitably across all the users of the petroleum pipeline network. However, this decision lies with NERSA and should any stakeholder be aggrieved by the structure of tariffs, such a matter should be taken up with NERSA.

Transnet is building a pipeline to replace and expand, on an incremental basis, parts of the existing pipeline system so as to ensure security of supply to the inland market for petroleum products as required by the Act.

Regulated petroleum pipeline tariffs are affected by a range of factors including age of the asset, topography, volumes, distance and size. Therefore, BP’s statement that the NMMP pipeline will be the most expensive in the world is misleading. As expected, during the construction period when the bulk of the R12.7bn is to be spent, tariffs will increase but decline thereafter in real terms. Accordingly, Transnet, in its tariff application as reflected at the public hearing last week, has requested an increase to its revenue for 2009/10 of 65%. Based on the current cost of delivering a litre of 93 unleaded petrol to Gauteng (Alberton) of 12c/l, Transnet’s proposal for 2009/10 translates into an increase of 8 cents per litre. This in turn results in an increase of 1.2% in the total price of petroleum, based on the current price of a litre of 93 unleaded petrol in Gauteng.

The 300% increase claimed by BP is based on the tariffs proposed by NERSA – not Transnet.

Clearly, but contrary to BP’s claims, the increase in the price of fuel of 1.2% for 2009/10 will not be inflationary and will not negatively impact GDP growth and jobs. Whilst this small increase in the price of fuel cannot be avoided, Transnet believes that the overriding objective of security of supply must be achieved. In particular, we are determined to play our part in preventing the recurrence of supply interruptions that took place in December 2005, the cost of which has been estimated to be R925m per day.

Transnet has a long and proven track-record of owning and operating a safe and environmentally sustainable fuel pipeline network. We wish to assure the South African public – especially the communities around which the NMPP is being built – of our unwavering commitment to ensuring security of supply and safe and environmentally sustainable business practices. It should be noted that the pipeline is far more environmentally friendly, cost effective and safe, compared to other forms of transport.

We wish to thank the rest of our customers for having had the presence of mind to adopt a mature and constructive approach to the issues facing the industry, including our tariff application.

Finally, Transnet has consistently proposed an industry-wide consultation on the structuring of tariffs, to be applied to the 2010/11 period and beyond.

Issued by John Dludlu

Spokesman

083 277 4774

083 676 1881