The wide regulatory powers that will be given to the Minerals and Energy Ministry by the proposed Petroleum Products Amendment Bill could be problematic, says Sapia executive director Colin McClelland.

The wide regulatory powers that will be given to the Minerals and Energy Ministry by the proposed Petroleum Products Amendment Bill could be problematic, says Sapia executive director Colin McClelland.


The South African Petroleum Industry Association (Sapia) executive director this week raised concern about what he called the "excessive" regulatory power vested in the proposed controller of petroleum products and Minerals and Energy Minister Phumzile Mlambo-Ngcuka. The licensing criteria were "vague", he said.


CARtoday.com reported recently that the bill, which is currently being discussed in Parliament, would pave the way for a fundamental restructuring of the industry. It hopes to replace the system of agreements between oil companies and regulate the allocation of retail sites to oil companies.


As licensing is governed by regulation, no details are contained in the bill. But through licensing, the executive would be able to influence competition in the industry, McClelland told on Thursday.


"It is submitted that in major industries such as ours, which require large-scale capital investment, stability and certainty in the legal framework is crucial to any investor," he added. "A regulatory regime must be credible if it wants to attract investment".


The provisions prohibiting cross-subsidisation between petroleum products appeared to go much further than intended. The law should also not oblige wholesalers to publish the price at which diesel was sold as this would reveal their discounts, the executive director said.


The issue of vertical integration


The process of vertical integration has been mooted in the motor industry in the recent past. The Retail Motor Industry organisation (RMI) has made submissions to the Competition Competition saying that manufacturers' franchise strategies were forcing automotive dealers into draconian agreements that could be rescinded at short notice and at considerable cost to franchisees.


In terms of the petroleum industry, the prohibition on vertical integration would also have to be amended to allow wholesalers to own retail outlets, but not to operate them. Provision should also be made for temporary or transitional retail licences, McClelland said.


McClelland also said the penalty provisions in the bill were "unduly onerous" and called for the deletion of clauses on compulsory arbitration, which would allow the regulator to interfere in the relationship between contracting parties.


Meanwhile, Competition Commission head of policy and projects Fungai Sibanda said that the bill could compromise productivity and efficiency in the industry.


"Of particular concern is the provision that restricts vertical integration of any form. It is our submission that government should consider removing other obstacles that serve as barriers to entry instead of tampering with the structure of the industry," quoted Sibanda as saying.