Fuel price prompts historic energy sector reforms

Faced with dwindling refining capacity and excessive fuel import costs of nearly R80bn over the past five years, the government has moved to formulate a petroleum sector development plan to improve increasingly precarious national fuel security.

The mooted plan, championed by the department of mineral and petroleum resources (DMPR), looks to build an integrated framework for petroleum security, downstream industrialisation, infrastructure planning, market reform and energy-transition management.

The proposed petroleum infrastructure blueprint will function as the sector’s equivalent of the integrated resource plan by providing a structured roadmap for national fuel supply security, refining and import strategy, infrastructure expansion and market regulation.

To take a credible plan to market, the Central Energy Fund (CEF) will hire experts to develop the plan, which will incorporate a national petroleum infrastructure master plan which, if implemented as suggested, would introduce the deepest reforms in a generation in the petroleum sector — including fiscal and regulatory incentives for oil and gas projects.

The plan, whose formulation will be led by a steering committee chaired by the DMPR, is also expected to outline a blueprint to reduce import dependency, modernise logistics and storage infrastructure, and increase exploration and production.

One of the priority areas will be creating incentives to accelerate investment in the exploration and production of oil and gas, while tapping into the rail network for increased petroleum transport and reducing reliance on road freight in a bid to lower logistics costs.

One of the key issues the plan must address, according to the CEF, will be a blueprint to modernise fuel pricing to improve transparency, affordability, efficiency and market stability while reducing volatility and pricing distortions across the value chain.

“One of the strategic objectives is to streamline petroleum licensing, compliance and approval processes to reduce delays, eliminate regulatory fragmentation and improve investor confidence [and to] introduce digitised licensing systems, automated compliance monitoring and integrated regulatory co-ordination mechanisms,” the CEF said in its tender document.

“[Another objective is to] develop policy interventions supporting refinery rehabilitation, modular refinery development, petrochemical expansion and domestic fuel processing capability.”

The multi-disciplinary team will first be required to conduct a refinery capacity assessment, an import dependency assessment, an infrastructure audit and a fuel-demand analysis.

South Africa’s poor refining capacity was laid bare by the outbreak of war in the Middle East, which sent the price of oil soaring — with South Africans now paying a record R30 for a litre of petrol.

With South Africa’s economy consuming about 27-billion litres of fuel annually, the surge in oil prices has exposed the country to external shocks after it allowed its refining capacity to wither.

That has been underlined by two sets of recent data.