South Africa’s Nersa rejects Mozambique gas tariff proposal

inside a pipeline

The Republic of Mozambique Pipeline Company (Rompco) has criticised the National Energy Regulator of South Africa (Nersa) for rejecting its application for a tariff for gas that will be transported to South Africa, saying the regulator’s decision undermines investor certainty.

Rompco wants Nersa to approve its application for a baseline tariff of R49.87 per gigajoule (GJ) for the 2017 financial year for gas to be transported to South Africa.

The R49.87/GJ tariff is substantially less than the R70.24/GJ that the regulator turned down last year partly because Rompco did not provide a gas volume growth profile for the utilisation of spare capacity generated by the Loop line 2 project. According to Rompco, Nersa was also concerned about the allocation of risk between investors and customers.

“Rompco does not accept that Nersa’s previous decision was correct or legally justified. Rompco submits that there was no risk to be allocated, because (Loop line 2) was the most economically efficient choice to service the demand for 7.8 million GJ per annum (MGJ/a), irrespective of whether or not additional volumes were to become available,” said Rompco.

The Loop line project will increase capacity by 24MGJ/a.

Spare capacity

Rompco said the resultant spare capacity would benefit consumers in future with no additional capacity outlay. “It will also provide an opportunity to further develop the gas industry in South Africa and potentially ease the entry for new entrants by having pipeline capacity readily available, which will provide them with a clearer investment road map,” Rompco said.

The company said it was concerned that Nersa’s decision undermined investor certainty “and does not promote the development of the gas industry. We note that there is sufficient precedent in other industries, such as liquid fuels and electricity, for regulators to allow the recovery of significant upfront investment in capacity through tariffs even though that capacity will not immediately be employed.”

It said the decision was unreasonable and unfair to it as an investor in pipeline infrastructure as the Loop line 2 project would be commissioned before the end of this year and could be utilised in January next year, which is six months earlier than previously anticipated. “Rompco thus requires a tariff approval as a matter of some urgency,” it said.

The company alluded to possible legal action. “Rompco is desirous of finding solutions to the challenges presented by (Loop line 2) rather than resorting to litigation.”

The tariff is for gas volumes of between 153MGJ/a and 160.8MGJ/a in the 2017 financial year. Rompco’s financial year runs from July 1 to June 30.

Rompco is a joint venture company whose shareholders are the South African Gas Development Company (25 percent), Companhia Limitada de Gasoduto (25 percent) and Sasol Gas (50 percent). It is the commercial operator of the 865km cross-border gas pipeline connecting the Pande and Temane gas fields in Mozambique to Sasol’s operations in South Africa. The pipeline from Mozambique to Secunda has been expanded since it was commissioned in 2004.

The third expansion, commonly known as the Loop line 2 pipeline, came as a result of a need to transport an additional 7.8 MGJ/a to South Africa. According to Rompco, the 127km project is in the final stages of construction and on the brink of commissioning.

“Rompco decided to construct (Loop line 2) for purposes of servicing the 7.8 MGJ/a volumes contemplated in the (gas transportation agreement between Sasol Gas and Rompco) because all the existing capacity in the (Mozambique to Secunda pipeline) system was already committed and no spare capacity was available to service the (Sasol Gas and Rompco agreement),” Rompco said in its application, dated October 7.

source: IOL