A review of the strategic stock policy amid a changing industry landscape is needed, says Muzi Mkhize, the National Energy Regulator of SA’s full-time member primarily responsible for the petroleum pipeline, who spoke to Business Report on Friday.
The Department of Mineral Resources and Energy insisted last week that there was no imminent shortage of liquid fuel in South Africa.
This followed the Liquid Fuels Wholesalers Association warning this month that if South Africa did not implement the Moerane Report recommendation of 2006, which said that 90 days’ strategic stock should be maintained in the country, South Africa might face “fuel shedding in the future”.
Mkhize clarified on Friday that the department had implemented the Moerane Report’s 2006 recommendations, albeit in a limited manner and capacity.
Mkhize said the Moerane Report largely served to add impetus and give direction to the work being considered or already initiated by the department at that time.
Some of the outputs worth noting were the energy security master plan for liquid fuels, the amended import and export guidelines, Transnet’s new multi-products pipeline, and the revised fuel pricing mechanism, he said.
“As for the Cleaner Fuels 2 programme, it was deemed prudent to halt the further processing and implementation of the revised strategic stocks policy due to funding constraints. The revision sought to include petroleum products, and not only stock crude oil (through the strategic fuel fund association, a subsidiary of the Central Energy Fund), as part of strategic stocks.
“It should be noted that this does not absolve industry players from holding safety stocks as compensated for in terms of the basic fuel pricing mechanism. In hindsight, the halting of the revised strategic stocks policy did save some funds for the Republic,” Mkhize said.
He said: “Attempts by the government to increase its footprint in the refining segment of the petroleum value chain, and thereby reduce over-reliance on product imports, are well documented and reported.”
Whereas South Africa – with its market inclusive of Botswana, Lesotho, Namibia and Eswatini – had been a net importer of petroleum and petroleum products, the end of operations at the Astron Energy refinery in Cape Town and Durban’s Engen and Sapref refineries had made the country overly reliant on imported products.
This as petroleum and crude oil imports had also drastically declined, with only one petroleum refinery, Natref in Sasolburg, currently in operation.
“It is common cause that such over-reliance on imported products translates into higher inherent risks for a product with elaborate logistics and is prone to the vagaries of international markets and geopolitics,” Mkhize said.
Product shortages would adversely impact the economic activities that were heavily reliant on transportation of goods and delivery of services, and, in turn, economic growth and job creation/employment, he warned.
Rod Crompton, a visiting adjunct professor at Wits Business School’s African Energy Leadership Centre, said the reference to “to be overly reliant on product imports” was a value judgement he would not agree with.
“I am not convinced that it is “common cause”. Nor am I convinced that reliance on imported refined products is inherently more risky than reliance on imported crude oil. The risks are slightly different, but overall, from a security of supply point of view, the risks to the country are about the same,” Crompton said.
“However, more focus should be on ensuring the adequacy of safety stocks, which act as a buffer when vessels arrive late or there are any other supply chain disruptions in the normal cause of business (and not necessarily catastrophes),” he said.
BUSINESS REPORT